The past 15 years have seen a massive shift in the tech industry where million dollar, multi-year, on-premise deals have given way to try-before-you-buy SaaS contracts, delivered through the cloud. As part of this shift tech companies have had to rethink their existing Professional Services offering, and startups entering the space for the first time have to decide if they want to offer Professional Services at all.
Professional Services can certainly add value to the pre and post sales customer experience through implementation and onboarding, instituting change management, and product customization. 71% of SaaS companies in a a recent survey say they offer Professional Services. This survey also indicates that Professional Services can lead to more Enterprise deals and lower churn. However, Professional Services resources need to be used wisely and differentiated from Customer Success.
How to use Professional Services
Increase sales, especially with larger customers
Cloud-based SaaS products have allowed companies of all sizes more flexibility around buying new technology. However, larger companies still face challenges around implementing new products and workflows because they have complex existing systems they need to integrate with. Introducing Professional Services offerings during the sales process builds confidence with the customer that you will be able to follow through and deliver the institutional change necessary to solve their problem. Professional Services consultants are able to detail the purchase to value roadmap to customers and help close larger deals.
Companies targeting Enterprise customers see 16% of their first year’s ARR from Professional Services — 2018 Private SAAS Company Survey
Similar to the old adage, “the best defense is a strong offense”, the most effective churn prevention tactic is to set the customer up for success from the beginning. Incorporating Professional Services team into the expectation-setting that happens during the sales process ensures the customer knows what they need to do in order to capture value. Once the deal is signed, Professional Services works with the customer to implement the technology and instituting change management that had been agreed upon as part of the onboarding process. Implementation might include customizing the product to better suit the customer’s needs, importing data from legacy systems, or setting up integrations between products. Onboarding might include mapping out new workflows and scheduling user trainings. Ensuring a smooth and successful launch reduces churn and can result in bottoms-up growth and expansion.
If a customer spends a greater percentage of their first year ARR in Professional Services, the company can expect to see lower gross dollar churn — 2018 Private SAAS Company Survey
How to not use Professional Services
Accepting any SOW
Not all Professional Services projects are created equal. Look for opportunities to standardize your offerings by creating packages for your most common requests that outline a fixed scope and price. Having an off the shelf package that addresses customers’ common requests can shorten sales cycles, decrease implementation timelines, and reduce tension throughout the project. Limiting the scope and complexity of the project allows your team to focus on the key tasks and components they know from experience increase the likelihood customers are able to derive value from your product.
“Packaged services reduce complexity, contains scope creep, helps the customer better understand the nature of the project, and makes the customer feel more confident about the real costs of acquiring the app and their probability of success.” — Bryan Stolle
When Professional Services can be easily replaced by product functionality
Every team in a startup needs to be focused on delivering value- either internally or externally. Professional Services teams will have a short lifespan if they offer low-value services that can be replaced by other teams or technology. Startups should evaluate if the types of projects their PS team is taking on can be solved by product functionality offered to the customer for a fee, or as a differentiator in market. For example, when I worked at Intercom a common request we heard from customers switching to our knowledge base product was that it took too much time to import content from their existing product. Instead of offering a Professional Services “migration” package, our Product team created a wizard that allowed customers to import their help desk articles from other Support products such as Zendesk or Desk.com. We didn’t need to support a Professional Services offering for this functionality- we productized it.
Life continues to get easier for IT buyers in this day and age and we are in a beautiful time where product led SaaS organizations continue to focus on how to build best in class experiences that require little time to get up and running.” — Michael Brown
Professional Services and Customer Success
Revenue from Professional Services is linear
Revenue from Professional Services teams is dependent on the number of employees and the number of projects they’re working on. The amount of revenue a PS employee can generate is constrained because their work is (either directly or indirectly) tied to an hourly fee. This decreases the efficiency of the company and any future growth in this department will be linear as they hire more people to contribute more billable hours. Not surprisingly, companies who derive a larger percentage of their revenues from Professional Services trade at lower valuations than companies who bring in more revenue from software and technology.
“Accenture, one of the world’s largest consulting companies, trades at 1.6x revenues. Contrast this multiple to a basket of the fastest growing SaaS companies which trade at 12x. The difference in valuation afforded to companies which grow revenues by leveraging technology rather than growing headcount can be 10x!” — Tomasz Tunguz
Revenue from Customer Success is exponential
Customer Success can have exponential impact on revenue and growth. Customer Success teams not only impact the revenue of the customers they work with directly, they influence decisions across the company- from Sales, Marketing, Product Management, and Support- that can lead to increased revenue across the customer base. Professional Services fees are likely to be front-loaded during the initial setup and integration phase of the relationship. Companies can expect Professional Services fees per customer to decrease over time, at which time their Customer Success team and technology need to be even more capable of delivering value and results on their own.
Companies with a dedicated Customer Success team see a decrease in aggregate gross churn between 15% and 27% and at least a 10% boost in net dollar retention. — Patrick Cambell
How Professional Services and Customer Success should work together
There are huge benefits from Professional Services and Customer Success working together on shared customer and company goals. The majority of Professional Services projects are executed during the implementation and onboarding stage. If the Professional Services team has already discussed the details and scope of the project with the customer they can serve as a valuable bridge from the pre to post sales process. The CSM and consultant work together to ensure the customer is set up for success moving forward. When projects arise later in the customer lifecycle, the CSM is able to bring in a consultant to remove barriers to their customer’s success. Ensuring successful implementation and onboarding, being able to appropriately support Enterprise customers, and offering packaged solutions to common customer requests are key contributions of Professional Services teams- and Customer Success is handed the baton from there, working to deliver long term value to the customer.