Building a Reliable PS Revenue Stream with Renewable Service Offers

This is a guest post from John Ragsdale, distinguished researcher and vice president of technology ecosystems for Technology & Services Industry Association (TSIA). 

According to TSIA’s 2022 Professional Services Benchmark, services account for 26% of overall B2B tech revenue, on average. Professional services (implementation, integration, customization, business and process consulting) account for 53% of services revenue, with an average annual growth rate of 31.1%, compared to 23.3% average annual growth rate for technology products. With the current economic downturn, and companies concerned about a possible recession, tech firms must focus on identifying additional revenue opportunities. This blog will look at some of the current trends for professional services revenue and make recommendations on how to streamline the offer creation process to become more agile and responsive to customer and market dynamics. I will also include a special focus on building and delivering subscription or renewable service offers.

Trends in Service Offers

Over the last decade, the world of professional services (PS) has forever changed. In an on-premise world, PS consultants often had a “launch and leave” mentality. They did what was required to get the systems live, but the onus was really on customers to receive the anticipated business value from technology investments. “Shelfware” was a common term for technology purchases that were implemented but never used. 

The move to cloud and subscription technology has transformed professional services. While a few years ago their primary charter was usually revenue or margins, the #1 charter of PS teams today is adoption and value. The approach to implementation and training now depends on the desired outcomes of the customer, ensuring rapid adoption of core technology, and setting the stage to renew the subscription and hopefully sell them additional products and services. As the scope of projects has changed, the focus has also changed, and even the way services are sold and consumed is transforming. 

Fixed Price, Repeatable Projects

As technology shifts from on-premise to the cloud, and remote delivery is the established norm, this is accelerating the move to more fixed price, repeatable projects, with fewer custom projects. Currently 55% of all PS projects, on average, are fixed price, repeatable projects. 

There are a number of advantages to repeatable projects, including reducing over-customization and ownership costs for customers. With detailed project plans, it becomes easier to continually improve project quality and margins, particularly if consultants capture best practices and lessons learned every time the project is executed. Matt Schlessman, Vice President of Global Customer Success for Kantata recently participated in a TSIA Technology Summit on this topic and discussed how to better leverage professional services automation (PSA) to create prescriptive project plans and capture lessons learned and best practices to continually improve margin on repeatable projects. 

Adoption/Value Offers

As mentioned in a previous blog for Kantata, only 3% of projects, and 6% of total PS revenue, comes from value or outcome-based projects. These are typically projects outside of core implementation and integration work, that provide services to better enable customers to rapidly adopt and receive value from technology. One example of this is custom or personalized onboarding, which can supplement standard onboarding to tailor content to specific roles or industries. Another example is process consulting, to help companies streamline and digitize legacy processes, which is very often a barrier to adopting new tools.  

Not only is creating a library of offers specifically around boosting adoption and value creation a priority, so is partnering with customer success (CS) to help customer success managers (CSM) better identify when to suggest specific offers based on challenges they see within accounts. CSMs are tasked with monitoring adoption (and hopefully leveraging adoption models to proactively identify accounts with problems), and with some training from PS, success managers will understand which offer to extend to customers specific to the adoption curve they are experiencing, or the adoption challenge they are encountering.  

Renewable/Subscription Offers 

Professional Services subscriptions are services that are designed to be renewed, unlike traditional, transactional project-based services. A common approach is to sell customers a bundle of hours, points, vouchers, or credits, which can be applied against available services. In this way, they prepay for services which are consumed over the life of the contract, typically one year, and work with their CSM to identify appropriate services to consume. As stated in the previous section, having a catalog of services and providing training for CSMs to identify when to position specific offers is critical.  

According to a recent TSIA R3 Poll, “Flexible Consumption in Service Offerings,” 60% of companies who offer prepaid service credits have a “use it or lose it” policy, meaning any unused credits at the end of the contract are not carried over. 25% of companies have a limited carryover policy for a fixed period. CSMs and project managers need to collaborate to track consumption and take resource availability into account, and not overload consultants by trying to consume too many credits at the end of a contract period. 

In a webinar last year, Moving to a Subscription Model in Professional Services, presented by Bo Di Muccio, Distinguished VP, and Dave Young, Sr. Director, from TSIA’s Professional Services research team, 61% of the audience were either subscription “curious,” or had already taken some initial steps toward introducing subscription offers for PS. 39% of the audience were either piloting some concepts, or already had subscription offers available. Though currently we aren’t seeing most companies realizing significant revenue from renewable offers, with the current focus on shifting to this model, when asked to project subscription PS revenue in three years, most companies foresee this becoming a critical source for PS revenue in the future. 

Figure: Current and Projected Revenue from Subscription PS Offers

Streamlining Offer Creation 

According to TSIA’s Professional Services Benchmark, it is currently taking an average of 84 business days—more than three months—to bring a new PS offer from concept to putting it on a price list. This is not a sustainable model moving forward. PS needs to become much more agile in identifying offers that can accelerate adoption and time to value and streamline processes to get offers approved and priced. There also needs to be thought put into how new offers are rolled out to whomever is charged with identifying opportunities and selling services, which may be both the sales team and the customer success team. Here are some tips on offer creation, with an eye toward smaller services that can be sold and consumed as renewable services: 

• Don’t Build Offers in a Vacuum: In TSIA’s Customer Success Benchmark, 57% of companies now say that they have executed an end-to-end customer journey exercise. Of the companies doing journey mapping, 69% say that professional services were involved in the project. Understanding typical land and expand motions will help identify which additional services make sense to introduce and analyzing patterns of top adopters can also identify value-added services that can be recommended for companies with slower than average adoption curves.  
• Create a Services Catalog: In TSIA’s 2021 Professional Services Tech Stack Survey, only 23% of PS teams currently had technology for a services catalog, and only 20% were planning an investment in 2021-2022. Having an online catalog of services is table stakes when introducing renewable services, so customers can browse the options for spending their pre-paid credits. But it is also a sales tool, showing prospects you have invested in creating a catalog of services to ensure their success. 
• Develop Customer Marketing Skills. Historically, B2B marketing organizations have been primarily tasked with generating leads for the sales organization. With subscription technology, you need to master customer marketing—not just prospect marketing. What are typical expansion patterns? What objections do customers have to renewals or expansion? What case studies or white papers do you need to create to help customers overcome barriers to expanding their footprint with you? Developing solid marketing messaging and collateral for your value-added services is critical, and unfortunately, I find few companies are investing enough in services marketing. 

Most B2B tech firms already see professional services as a major driver of revenue, though previously this revenue came almost solely from implementation, integration, and customization before go-live. With a tough economic climate, companies are looking for additional sources of revenue, and clearly professional services can be seen as a center of revenue growth. But this will require adopting new offers that focus on adoption and customer value, and introducing new service consumption paradigms, such as service subscriptions. It also makes the collaboration between professional services and customer success a priority, to not only begin monetizing customer success, but to do it profitably, as well as provide additional training for CSMs to help them better identify opportunities and learn which offers to position based on challenges, adoption curves, or desired outcomes. 

Find Success in the Changing Professional Services World 

Want to hear more? John Ragsdale and Kantata Brand Evangelist Charles Gustine will be presenting “A Masterclass in Building and Supporting Truly Optimized Project Teams” on September 22nd. Sign up below.