Professional services have a huge influence on the growth trajectory of a SaaS company because they are responsible for delivering on the promises made in sales and helping customers to realize value from their investment. For many SaaS products which are not simply plug and play, it’s crucial to have a layer of professional services as customers often have different requirements but also services help the customer navigate change management and adoption issues.
In the current economic climate, the importance of professional services is growing with every SaaS company getting religious about margin. In Salesforce’s recent earnings call, we heard "We're raising our fiscal year 2023 non-GAAP operating margin guidance from 20.4% to 20.7%, an expansion of 200 basis points year over year, and I expect a lot more, especially with this increased focus we have on expanding our operating margin."
Efficient and profitable professional services have a significant influence on operating margins.
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WHAT ARE PROFESSIONAL SERVICES IN SAAS?
Professional services play an important role in SaaS companies. The last few years have been strewn with unpredictability, and have shown that predictable revenue and additional services revenue streams are crucial for funding operations. There are also many benefits surrounding expansion and growth of your customer base and finally in improving the offering of your software product.
This is where professional services come into play, enhancing a SaaS company’s ability to retain customers by either plugging product gaps or providing additional value-added services that help to retain customers and drive expansion opportunities.
Services offerings should align to the customer journey and can include:
Implementation
The first step in the customer journey is where services work with the customer to implement your software and train and onboard users successfully. Modern services teams will often package implementations to have a scalable and repeatable way to get customers to go-live with your product quickly and help to accelerate time-to-value.
See below an example of the board we use to assist our customers with mapping implementation.
Managed Services
This service offering can be built around outcomes or based on time spent to provide an on-going service to your customers. Often managed services are hygiene orientated with the goal of taking something that is inconvenient for your customer and solving that problem at a lower cost and better than potentially the customer could.
Consulting and Advisory
SaaS companies increasing provide advice and guidance to in-life customers to better help the optimize the use of a SaaS product, given the continuing evolution of a product over the duration of the relationship as well as the user churn which is where employees leave your customers, there is an increasing need for on-demand consultancy services that continuously generate value for customers.
HOW PROFESSIONAL SERVICES BENEFIT SAAS COMPANIES
Maximize Revenue
The goal of any SaaS organization is to maximize enterprise value and in turn, annual recurring revenue (ARR). As Dave Kellogg, Executive in Residence at Ballerton Capital puts it: “If ARR could be maximized without a professional services team or function, then no company would have one.” PS can in fact be a huge contributor to growth with services contributing in several ways.
Sales Enablement
Professional services teams can help drive new ARR by working with the sales teams. For instance, they create a statement of work and also help to build confidence that your company can solve their problems. A SaaS subscription, on its own, does not solve all business problems. The work the consultants do in mapping the solution and the value they bring is vital. Concerns around implementation are one of the top reasons why deals stall and therefore services provide a key role in helping customers to understand the implementation process and speaking with the team that will run the delivery.
Partnering with Customer Success
Professional services teams can help to maintain and expand existing revenue by supporting the customer success team. This can be either by repairing failed implementations or by working on new or expanded implementations with existing customers. Either way, professional services is there to help improve retention and expansion.
Services Revenue
If professional services are charging for their work and are efficient in delivery then a typical services team would hope to make between 20% and 40% gross margin (or more in some cases). Some professional services organizations operate at a loss and this is accepted given the ARR growth of a company - however increasingly the mandate for PS teams is to maximize ARR but not lose money. Professional Services can provide potentially significant revenue streams and help companies manage cashflow.
Product Enhancements
Your professional services team will work very closely with your customers and generate valuable market insights and product feedback. While your software may have some usage data built in, professional services provide that extra level of insight that the product alone cannot.
Services teams see firsthand customers’ business challenges, as well as insight into how they use your product, the value it brings and any gaps. Using these insights, product management can refine the product so it’s better positioned to meet customer needs.
Procurify is a procurement and purchasing software platform and their professional services teams have a packaged delivery methodology that enables their customers to realize value quickly. During implementations, their project team would use Precursive to organize services delivery and track the reasons for delay on specific tasks during a deployment. By tracking and correlating this information, professional services were able to provide product management with tangible insight on improvements that would benefit customers. Rather than building additional services packages to bridge product gaps, they were able to refine the core product with enhanced features and improved integrations that led to faster deployments.
This is a great example of professional services and product management partnering to drive more value, more quickly for customers. Learn more about this customer story here.
Increase customer satisfaction and retention
Good professional services ensures that customers get what they paid for. Solid implementations and configuration coupled with training and enablement leads to strong adoption of your products features that drive the benefits laid out in your business case!
Conversely - if things go wrong, then it is the fast track to churn with data from Gartner highlighting $5B of churn is due to failed implementations. Professional services, such as onboarding and implementation, can work wonders in getting your customers caught up on your product, learn the best practices to utilize it, and realize value quicker.
Customer churn can be caused by your product just not being valuable, and often from customers not fully understanding or engaging with your software. A more hands-on approach to the relationship through professional services can help solve this, allowing your business to guide your customers through the process of integrating your product into their workflow and overcome any change management issues.
DO I NEED PROFESSIONAL SERVICES FOR MY SAAS COMPANY?
Given all of this information, it’s still worth asking if you need professional services or perhaps what type of professional services organization you need. This depends on your product and ultimately boils down to complexity. For example, with SaaS platforms that have a consumption model, the product may be self-explanatory and users are often guided by their own intuition, e-learning materials, and tech touch communications.
For other SaaS companies with more expansive functionality and complexity where the product plays a key role in users day-to-day work, much more user enablement and product onboarding is needed. The level of subject matter expertise to answer these sorts of questions is found in the company’s professional service teams.
Some of the best SaaS companies out there have seen a direct correlation between services consumption and ARR growth rates - Brad Jacobs, SVP at MongoDB commented “We have found that customers who pay more for professional services are investing in their own customer success and this is reflected in the customer’s ARR growth rate.”
WHAT NEXT?
Professional Services is suddenly much more important than it was given the need for new revenue streams and the importance of making newly acquired or existing customers successful. Every SaaS company is now under more pressure from their board and investors to have more fiscal discipline and so services organizations can no longer lose a lot of money and in most cases need higher levels of profitability.
The biggest shift in PS is the move towards High-Velocity Services Delivery for both implementations and for in-life customers - this is where there is an emphasis on accelerating time-to-value but also to reach 2nd and 3rd value milestones more quickly that unlocks expansion revenue. As a result, the best in SaaS are looking to design, build and sell packaged services offerings that support customers throughout the customer lifecycle. PSA software can be instrumental in this process, and help with productizing your service delivery.
Want to understand more about how you can productize your service offerings? Our new playbook, How To Productize Services Delivery, is the free, detailed guide to what you need to do. This playbook covers:
Frameworks to design, build and sell services packages
The metrics that are used to monitor success
Sales enablement toolkits and pricing strategies
