When it comes to financing the growth of your business, you may find yourself facing a difficult choice between the lesser of two evils. Selling shares in your business can provide an immediate cash injection, but it means giving up some of your valuable equity stake. Borrowing money from a bank, on the other hand, can be costly to repay, can limit your growth, and often requires that you provide a personal guarantee.
Customer Financing
However, there is a third option: customer financing. This approach involves convincing your customers to prepay for some or all of your product or service, providing you with the necessary working capital to drive growth. This method can be a great alternative to selling equity or taking on bank debt and gives you access to cash without having to sacrifice ownership or pay interest.
Productize Your Service
If you offer a service, another strategy for getting customer prepayments is to consider productizing it. A productized service is a type of service offering that has been standardized and packaged as a product with a defined scope, price, and deliverables. It is essentially a predefined service that is delivered repeatedly to multiple clients in a similar fashion, with a fixed set of deliverables, processes, and pricing. Examples of productized services include website design packages, social media management plans, and content creation bundles.
The goal of productizing a service is to simplify the sales process, increase efficiency, and provide a predictable customer experience. By creating a standardized offering, service providers can reduce the amount of time and effort required to close a sale as well as minimize the need for customization, which can be time-consuming and expensive.
Best of all, when it comes to products, we are accustomed to paying in advance. For example, you expect to pay for that box of cereal at the grocery store before going home to dig in. Therefore, if you package your service offering into a product, your customers will be more inclined to pay up front for some or all of your offering.
Productizing your services or asking customers to prepay can be effective ways to obtain the cash your business needs to grow while keeping a tight grip on your equity and avoiding the obligations of a hefty bank loan.
