It’s widely recognized that scaling a service-based business is more challenging than growing a product-based business. Companies in the e-commerce sector, like Secretlab, Love Bonito, and Razer, have managed to reach nine-figure revenues within a decade. Their rapid expansion stands in stark contrast to the slower growth often seen in service-based businesses. Here, I’m referring to professional services like digital marketing agencies, interior design firms, law practices, beauty salons, and tuition centers.
Understanding the Real Challenge for Service Businesses
In this discussion, I’ll explore the true barriers that prevent service-based businesses from scaling quickly, and I’ll reveal strategies used by the few service businesses that have managed to achieve significant growth. These insights come from my experiences with some of the most successful clients in the industry.
Many people believe that the primary reason service-based businesses struggle to scale is due to their reliance on human resources. The argument is that these businesses require extensive hiring, and finding or training talent to meet the necessary skill level is a daunting task. However, in my experience, this isn’t the core issue—it’s more of an excuse.
The real obstacle that service-based businesses face is a lack of understanding of their financial metrics. Unlike ecommerce companies, which often push to scale their social media marketing campaigns aggressively—spending $10,000, $30,000, or even $50,000 a month—service-based businesses tend to be much more conservative with their budgets. They typically stick to a modest $3,000 per month budget, often maintaining this level for years without making significant changes.
To scale a service-based business successfully, it’s crucial to move beyond the fear of spending and start focusing on understanding the numbers that drive growth. Only by gaining a deeper insight into your financials and being willing to invest in growth can you begin to scale at a pace similar to that of ecommerce businesses.
E-commerce businesses are eager to increase their advertising budgets rapidly each month, not necessarily because they are more ambitious or wealthier than service-based companies. The real reason behind this drive is the immediate return on investment they see. A $10,000 ad spend can quickly generate $30,000 to $50,000 in revenue.
We’ve all experienced it—seeing a Facebook ad, clicking on it, visiting the online store, and making a quick purchase. That instant transaction translates directly into revenue for the e-commerce business. Their sales cycle is incredibly short. If you had a machine where you could put in $10,000 and get $30,000 back almost instantly, how much would you invest in it? The answer is obvious: as much as possible. This is why companies like Secretlab can expand so rapidly. They reinvest their earnings into bigger ad budgets, fueling a self-perpetuating cycle of growth. Savvy business owners understand the importance of using profits to generate even more income rather than squandering them.
On the flip side, service-based businesses face a different scenario. If they spend $3,000 on ads, it might take three months or more for the revenue to trickle in. The delayed return makes it challenging to scale quickly.
For e-commerce businesses, advertising is seen as a profit generator, whereas, for service-based businesses, it’s often viewed as a cost. When an e-commerce company invests $10,000 in ads, they’re buying immediate sales. In contrast, when a service-based company spends the same amount, they’re buying leads. Converting those leads into sales involves multiple steps: first, turning them into appointments, then ensuring those appointments lead to actual meetings, and finally closing the deals. By the time the third stage is reached, tracking is often inadequate, and it’s unclear how many leads actually converted into sales.
From the perspective of a service business owner, ad spend is an investment in lead generation, not direct sales, which makes it harder to justify large budgets. As a result, many service-based businesses hesitate to scale their ad budgets, missing out on potential growth. On the other hand, e-commerce entrepreneurs who spend $50,000 a month on ads aren’t necessarily wealthy. To them, $50,000 is a significant amount, but they know they will see a return greater than their investment. For service-based businesses, however, such an ad budget feels like a major expense.
The goal here isn’t to suggest that everyone should switch to e-commerce—each business model has its own challenges. Instead, service-based businesses can take a page from the e-commerce playbook by scaling their digital marketing efforts to drive growth.
Do I have service-based business clients who are spending $50k a month on digital marketing? Yes, a few of them. What sets these successful service-based businesses apart is their deep understanding of their metrics. Ask them about their appointment show-up rate over the past three months, and they can tell you instantly. Want to know their sales closing rate for the last six months? They have that information readily available. In short, scaling a service-based business to eight or even nine figures is possible, but it requires a solid grasp of the numbers.
Let’s break down an example:
Imagine you invest $10,000 in advertising and generate 100 leads. Out of those 100 leads, you secure 90 appointments. Of those, 70 people actually show up, and from those 70 meetings, you close 10 deals. If your package is priced at $2,000, those 10 deals amount to $20,000. In essence, you spent $10k to make $20k.
Now, let’s reverse-engineer this. With a closing rate of 15%, each sales meeting is worth $300 to you ($2,000 x 15%). Breaking it down further, each appointment is worth $250, and each lead is worth $200. If you spend $10,000 and get 100 leads, you’re receiving $20,000 in value.
In other words, by using lead cost as a key indicator, you can scale your campaign as long as your cost per lead remains at $200 or less. The beauty of this approach is that you don’t need to wait for the revenue to roll in before scaling. The length of your sales cycle becomes irrelevant. By relying on leading indicators, you can confidently expand your campaign.
In summary, you need to calculate your cost per lead based on historical data and trust those numbers. By doing so, we’ve managed to scale our service-based business as well.
One of the challenges for service-based businesses is coming up with accurate numbers. In e-commerce, the entire sales process is online, making data readily available. Most e-commerce platforms seamlessly integrate with Facebook ads, providing real-time metrics like conversion rates and cost per conversion. Scaling becomes straightforward. However, for service-based businesses, the sales process typically occurs offline, leaving no digital trail for easy tracking.
This means you often depend on your sales team to input data into a CRM. But let’s be honest—salespeople generally dislike administrative tasks like filling in CRMs. This is where service-based businesses struggle: without reliable tracking, it’s hard to know how many leads turn into appointments and how many appointments lead to sales. The result is a recurring problem where businesses view lead generation as a cost rather than a profit center, treating it as an expense.
However, proper tracking is achievable with the right expectations in place. In our case, we’re transparent with our sales managers about the cost per lead. In return for receiving leads from the company, salespeople are expected to be accountable for those leads. After all, we’re all working towards the same goal. If the company continually loses money on leads, we’d eventually have to stop providing them, which benefits no one.
By clearly communicating the bigger picture to the sales team, we’ve found that they generally understand and are willing to track leads and update the CRM for accountability. Additionally, our CRM is integrated with our Facebook ad campaigns, allowing us to track metrics like cost per acquisition and closing rates. In other words, by operating our service business with the same data-driven approach as an e-commerce system, scaling becomes possible.
Ted is the co-founder of Ice Cube Marketing, a digital marketing agency in Singapore that has been operating since 2015 and has helped more than 500 SMEs grow their business through Facebook and Google ads.
