The Hidden Key to Profitability: Mastering Your Cost of Services
For many service-based businesses, the path to increased profitability often seems to involve two main routes: raising prices or acquiring more clients. While both are valid strategies, there's a powerful lever often overlooked that can dramatically boost your bottom line without either: understanding and optimizing your Cost of Services.
When we hear "Cost of Goods Sold" (COGS), our minds typically jump to manufacturing or retail. We picture raw materials, production lines, and inventory. But service businesses have their own direct costs, and just like product-based companies, dissecting these expenses can unlock significant profit potential.
What Exactly Are Your Costs of Services?
Think about the direct expenses incurred every time you deliver a service to a client. These aren't your general overhead like office rent or administrative salaries. These are the costs directly tied to fulfilling a specific client project or engagement. Here are some common examples:
- Direct Labor: This is perhaps the most significant cost for many service providers. It includes the actual time you or your team members spend directly working on a client's project. This isn't just billable hours; it's the time invested in research, planning, execution, and client communication for that specific project.
- Software Licenses: If you use specialized software directly for client delivery (e.g., specific design software for a creative project, project management tools billed per client, or analytics platforms used only for client reporting), a portion of these costs should be allocated to your Cost of Services.
- Subcontractor Fees: If you outsource parts of a client project to freelancers or other businesses, their fees are a direct cost of delivering that service.
- Travel Expenses: For on-site client work, direct travel costs like flights, accommodation, and mileage directly related to a specific project.
- Materials/Supplies: While less common than in product businesses, some service businesses might have direct material costs (e.g., specific print materials for a marketing campaign, unique supplies for a training workshop).
Why Does This Matter So Much?
The beauty of optimizing your Cost of Services lies in its direct impact on your profit margins. Even small reductions in these direct costs can lead to substantial increases in your net profit, all without the pressure of finding new clients or the potential backlash of raising your rates.
Imagine you have a service with a 50% gross margin. If you can reduce your Cost of Services by just 5%, that doesn't just add 5% to your profit; it could be a much larger percentage increase of your net profit, depending on your overall cost structure. It's about working smarter and more efficiently, ensuring that every dollar spent on delivering a service is truly optimized.
How to Start Optimizing
The first step is to accurately track and categorize these direct costs. Many service providers don't have a clear picture of their true Cost of Services, often lumping them into general operating expenses.
Once you have a clear understanding, you can begin to ask critical questions:
- Are there inefficiencies in our project delivery process that are increasing our direct labor costs?
- Are we utilizing our software subscriptions effectively for client work, or are there redundancies?
- Can we negotiate better rates with our subcontractors without compromising quality?
- Are there technologies or process improvements that could reduce the time spent on repetitive tasks for clients?
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What's one area of your direct service costs you plan to review this week to boost your profitability? Let me know in the comments!
#ServiceBusiness #Profitability #CostOptimization #FinancialManagement #Entrepreneurship #ASmithStrategies
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Dear Black Business Woman,
Here’s another one of my Message Cards that I knew needed to make its way onto the blog:
I chose this message because I know how often Black women lean on education and credentials as a form of protection. A way to armor ourselves against the way we’re treated in the workplace.
We collect degrees and stack certifications—not just for the knowledge, but to justify our presence. To validate our value. To try to close the credibility gap we didn’t create.
But here's the truth: credentials won’t shield us from systems that were never built to center us.
And if you need proof, look at what happened in April of 2025. Over 106,000 Black women lost their jobs in a single month—a direct result of DEI being denounced, defunded, and dismantled across industries.
That number didn’t drop because we lacked credentials.
It dropped because no amount of credentialing could protect us from being seen as expendable.
That’s why this message matters. Because the solution isn’t more degrees. It’s a clear strategy to build something of your own.
The Story: When I Thought I Needed a PhD
Over 20 years ago, I was sitting in a “good job” with benefits, a stable salary, and the kind of resume that made other people nod in approval. But I had a bigger vision. I wanted to run my own consulting and accounting business. I wanted the freedom to choose my clients, define my schedule, and build something that reflected my values—not my employer’s.
But instead of making a plan to exit and start that business, I convinced myself I needed a PhD first.
Yes, really. A whole PhD. 🤦🏾♀️
Because I thought I needed more letters behind my name to be seen as credible enough to work for myself. Never mind the fact that I was already consulting—for two established firms.
One of them was a major name in accounting, part of the Big Four or Big Six I honestly don’t even remember which one anymore). These firms were billing my time at triple-digit hourly rates, and clients never once asked if I had a PhD.
So what made me second-guess myself?
Conditioning.
Why the Doubt?
As Black women, we are often taught—explicitly and implicitly—that we have to be overqualified just to be seen as qualified. That our credibility is always in question. That we don’t get the benefit of the doubt—we get the burden of proof.
So we collect degrees. Certifications. Courses. Licenses.
Not always because we need them...
But because sometimes we tell ourselves that we are not enough without them.
Doing the Inner Work: Reframing Doubt and Reclaiming Power
Let me be clear: working through self-doubt isn’t just a mindset issue—it’s a survival skill.
Because even when we do have the skills, the experience, and the proof that we’re more than capable, the conditioning still creeps in.
We can’t control every system we’re navigating. But we can learn to challenge the voice in our heads that says, “You’re not ready. You’re not enough. You need one more thing before you can begin.”
One technique that’s helped me—and that I often recommend—is reframing. It’s the practice of consciously flipping a limiting belief into a more grounded, empowering one. Not with fake positivity, but with truth.
❌ “I’m not qualified enough."
✅ “I’ve been doing this work for years—sometimes unpaid—and now it’s time I get compensated for it.”
❌ “No one will hire me unless I have a certification.”
✅ “I’ve already created results under my own name. That’s the kind of credential that counts.”
If this resonates with you, here are a few books I recommend that dig deeper into these themes of mindset, worthiness, and self-trust:
- The Big Leap by Gay Hendricks A powerful look at how we sabotage ourselves when we reach new levels of success—and how to break through those internal limits.
- More Than Enough by Elaine WelterothPart memoir, part manifesto, this book affirms that you are already enough—and challenges the need to over-prove yourself to be taken seriously.
- The Unapologetic Guide to Black Mental Health by Dr. Rheeda WalkerA must-read for navigating mental wellness as a Black woman in spaces that often don’t see or hear you.
- The Mountain Is You by Brianna Wiest A poetic but practical deep dive into self-sabotage—and what it means to transform emotional blocks into growth.
- Set Boundaries, Find Peace by Nedra Glover TawwabPractical, direct, and deeply validating. This book is a masterclass in protecting your energy and reclaiming your time.
- Daring Greatly by Brené Brown Explores vulnerability as a strength, not a weakness—especially when showing up and taking risks feels terrifying.
- Professional Troublemaker by Luvvie Ajayi JonesA hilarious, unapologetic push to speak up, claim space, and stop playing small—even when fear tries to shut you up.
These books won’t do the work for you—but they will help you see yourself more clearly.
Because here’s the truth: a business strategy is only useful if you believe you’re worthy of executing it.
Let’s work on both.
The Turning Point
I spent two years in that PhD program, juggling coursework with my full-time job. And along the way, something unexpected happened—I started picking up my own consulting clients.
Not through a Phd.
Not through a credential.
Through word of mouth. Relationships. Results.
And that’s when it hit me: The PhD wasn’t the goal. It was the detour I thought I needed to feel “worthy” of the goal.
So I walked away from the program. And I walked into entrepreneurship full time.
That was over two decades ago.
And no, it wasn’t easy. But it has been and continues to be worth it.
Reframing that doubt is the first step. But from there, you still need a plan.
To Black Women Ready for More
If you’re reading this and thinking you just need one more thing before you can start—
one more course, one more license, one more certificate—
I want you to pause.
You might not need more credentials. You might just need a clear strategy.
A plan that maps out how to package your skills, position your services, and attract paying clients online. That’s it.
You’ve got the knowledge. The lived experience. The receipts.
Now it's time to build something that honors what you already know.
Real Talk
This isn’t about demonizing degrees. If the certification aligns with your goals, go for it. But don’t hide behind learning when it’s time to start earning.
Because here’s the truth: You’re already qualified to do something on your own.
You’re a project manager? Help small business owners build systems.
You’re in HR? Offer career coaching or DEI audits.
You’re a nonprofit pro? Teach grant writing or fundraising strategy.
You’re a healthcare worker? Build wellness programs or compliance training.
You’re in education? Create curriculum or tutor online.
You’ve led teams, managed budgets, organized chaos? There’s a market for that.
Closing Encouragement
Freedom through entrepreneurship isn’t easy. But working forever to build someone else’s dream isn’t easy either.
If being an employee is part of your dream, do it. But don’t stay there just because you think it’s the only thing you can do.
It’s not.
Bet on yourself. Build the strategy. Define your freedom.
Because you’ve already done the hard part. You’ve become her. Now let her lead.
Have you ever found yourself chasing another credential when what you really needed was clarity and confidence? Let me know in the comments—and tell me how you handle self-doubt when it creeps in. I’m pretty sure I’m not the only one who's been there.
Let’s keep this going. Subscribe for strategy, insights, and tools to help you build a profitable business that supports your freedom—as you define it.
