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Entrepreneurs

The difference between intermediation and service (and why the latter is always a part of the game)

Ronen Menipaz

Ronen Menipaz

08.10.2020

The majority of businesses run some form of intermediation business model, even if they’re not aware of it. Knowing how it differs from a service business – and then pivoting from one to another – is one of the key factors to running a better, more successful organization.

Any intermediation can become a service and any service can become intermediation, which is why the difference between them is very, very small. Perhaps that’s why a lot of people don’t understand or realize there is a tangible distinction between the two. In any case, let’s dismiss any confusion that might be.

What is what

An intermediation business focuses on staying between a company and its customers, providing access to customers that the company normally couldn’t reach and therefore, couldn’t serve. In other words, these businesses add value to the existing sales process by developing distribution networks to a previously inaccessible portion of the target audience.

The use of the word ‘serve’ above is arguably what confuses most entrepreneurs and business people as intermediation is a form or a service business model (and vice versa), where a company provides specific professional support to its clients. That’s not all as the company also provides the management of customers who are integral to its business.

Let’s say that you’ve started a Facebook advertising agency.

If you are a regular service provider, you will be selling services of media buying from Facebook and charging a fee for the service. With a media budget of $10,000, the client will pay the budget directly to Facebook and you will charge a standard management fee of 15%, meaning the client will pay you $1,500 for your service. This is basically a type of intermediating but it’s not perceived as such because it’s sheer service.

Money GIF

If your business is intermediating by definition, you will be charging the client $10,000 but agreeing on a fixed price for a lead, buying the ads from Facebook yourself, optimizing them, finally keeping what’s left of the budget to yourself. In this case, the client pays less ($10,000 instead of $10,000 + 15% fee) and you potentially make more than the 15% you’d make as a service provider. Everyone’s a winner.

However,  it’s not as black and white all the time.

When one is better than the other

If you turn intermediation into service, I guarantee you that retention will be high(er). Teach your employees how to provide service to account management as a relationship to make sales feel like a service and a relationship. Regardless of what is being sold, the vast majority of buyers choose businesses that provide the best service in the long run.

All of this sounds simple and benign, I know, but service is both attitude and action at the same time. As such, it’s a tricky business because it’s something you can’t automate. Supporting that notion is the fact that there are thousands of negative, horror stories about customer service (far fewer than positive ones), impacting both existing and potential customers. That’s just how it is: bad news travels faster than good news. You have to make sure every customer has a great experience with your company each and every time, and routinely exceed their expectations in the process.

If you do, you profit not only in revenue but in customer loyalty – arguably one of the biggest attributes in business. It’s tough but doable.

On the other hand, running an intermediary business has its advantages. In our example, it opens the opportunity to exploit the gap by making the most of optimizing the media budget through your know-how. That’s your competitive advantage and this model only works if you’re able to provide it by bridging the gap between the provider (Facebook) and the user (the client). Do note that you are managing most of the risk and therefore uncertainty is unavoidable this way.

Your USP is that you are worth it to work with instead of a regular service provider because the end result is your clients paying less for leads (higher ROI).

But – if they can get better ROI by doing it directly or by working with a service provider who charges media management fees alone, then you likely won’t last. Margins are very tight and you’re betting on your ability to deliver. If you don’t, you’ll be left with less than the guaranteed $1,150 you could have made as a service provider.

My advice is this: whenever you intermediate, do not think of it as intermediating – think of it as giving the best service you can.

It’s not just about providing access to customers – it’s about providing maximum value.

It’s about making that shift in mindset: understanding that you can (possibly even have to) be of service to keep the other side’s interest (that of a client, partner, etc.) as high as possible. In my experience, people were routinely happy to pay for such intermediation. And I dare say – only those who bring true value to the table can stay on the field.

My general rule of thumb: 

  • If you’re in it for the short term, go for service. 
  • If you’re thinking long term, intermediate. 
whm GIF by We Hate Movies

Two basic rules on how to give a great service

Providing great service is at the core of both business models so if ever in doubt on how to achieve it, follow these two easy best practices to take things a step further:

  1. Get to know your customers.

Great service begins with knowing your customers’ wants and needs. If there is one thing every customer wants and always positively reacts to, it’s personalization. That’s why investing in it is crucial to forming long-lasting relationships and creating enhanced experiences that ultimately pay off through reduced churn. It not only shows you care but can set you apart from the rest. 

  1. Use empathy to understand their interests. 

I’m a huge proponent of empathy, so much so that I like to label it as the best sales pitch you can ever give. The idea is to think of the client and not yourself and try to envision what you’d want if you were in their shoes. Don’t tell them what they want to hear – nobody gains anything from it. Instead, try to contextualize the conversion and try to empathize with the actual wants and needs.

Final thoughts

Every business should be built around the concept of delivering continuously excellent service, regardless of the model, it’s based on. It’s easy to underestimate how difficult this is to achieve or, occasionally, forget its importance, especially when you’re focused on other things like building your brand’s presence, marketing, and such.

Changing customer expectations are forcing many companies to reassess their business models. Carefully weigh the pros and cons of each of the two discussed here and pick the one that best suits you. Just make sure you’re flexible enough to pivot if need be. The way things are changing, it might be necessary.

Image credits:

https://giphy.com/gifs/filmeditor-horror-blaxploitation-blacula-3otPoKZNALKjtJYUkU
https://giphy.com/gifs/wehatemovies-whm-we-hate-movies-l1J9He1aykdggycQ8

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