If done right, running a service business can result in a profitable enterprise with loyal customers who refer you to all of their friends and family. But service businesses face some special challenges that retail stores, for example, do not. Here are five mistakes that could result in some serious harm to your service business in the form of dissatisfied customers, bad reviews, and/or lost business.
1. Not Outlining the Specifics of a Job Before You Begin
When you provide a service rather than a physical product, it’s important to be clear about the scope and parameters of what you will provide to customers, otherwise they could easily misinterpret the situation. For example, if you have been hired to repaint a brand new house, you know you won’t have to do a lot of prep work because the building is new. But unless you’re clear about this from the beginning, the customer may start to wonder about the quality of work if they don’t see you prep the entire house. Make sure the customer understands the scope of the work you’re offering by including plenty of details in the estimate or bid. You can email clients an estimate by using this free customizable estimate template.
2. Being Vague About Project Costs and Timeline
It’s important to be specific about how much time it will take to complete a project, and how much you will charge for the work. Not doing so can hurt your business in two ways. First, you need to have a thorough understanding of what it will cost you in time before you can give an accurate bid. In addition, if you don’t tell customers in advance how much your services cost, it can create bad feelings if the bill is more than they expect. Imagine the house painter above told customers he would charge them by the hour, but didn’t estimate the number of hours the job would take. If the customer agreed, thinking it was likely a two-day job, but it took four days, the customer would likely be unhappy — and possibly publish negative online reviews of the business.
3. Not Having Customers Sign a Contract Before You Begin Work
It benefits both you and your customers to ensure that all legalities of the project are stated upfront, and that customers sign a contract indicating that they understand the terms. The contract should include the obvious, such as price, timelines, and how payment is to be made, as well as other details. For example, what happens if the customer changes the parameters of the project halfway through the job? How will you settle a dispute should one arise? What happens if the customer cancels the job after you’ve purchased the materials for it? If you don’t already have a service contract that’s legal in your state, Rocket Lawyer offers your first one for free.
4. Beginning Work Without a Deposit
It’s wise to ask customers for a deposit or partial payment when operating a service business. This helps pay for the materials you’ll need to complete the job, and will go a long way in keeping you from getting stiffed by clients. The amount you ask for is typically based on how long the project will last. For instance, if it’s a short-term project of a week or less, asking for 50 percent upfront, and the remaining balance after you’ve completed the job is standard. For a project expected to last a few weeks, ask for 25 percent upfront, 25 percent halfway through, and the remaining balance when the job is complete. If the project is scheduled to take longer than a month, you can ask for 25 percent upfront, two milestones of 25 percent each, and the final balance when the project is completed. If the customer fails to meet a payment milestone, the work should be put on hold until the payment is made.
5. Allowing Customers to Micromanage Projects
One of the quickest ways projects can go awry is if you let customers dictate the specifics of how you should do the job. Customers hire you because you have expertise they lack, and they are willing to pay you for it. But some customers still want to micromanage their service providers — and those jobs typically don’t end well. For example, our painter is trained and knows the best type of paint to use for the house. But if he allows the client to dictate the paint type, the job may not turn out as well as it would have had he been in charge.
Running a service business can be deeply satisfying because you’re doing work for customers with that they can’t do themselves. But to have a successful and profitable business, you’ll have to set up some smart business practices and avoid the mistakes described here.