For Starters #38: Service as a Service?
At a certain price point, SaaS and professional services are indistinguishable.
Based on the conversations I’ve had over the past couple months, there are two shifts happening at professional services as they re-emerge from the dearth of engagements over the past couple of years.
The first shift is in simplified billing. Places that once billed by the hour are now billing by the month. Even, and perhaps especially, in custom software development firms. Even though this monthly pricing is built atop internal hourly rates it is still a substantial improvement over traditional hourly billing.
It’s also an excellent counter to the abundance of down-market, self-serve, no-code options and an easy way to set a minimum engagement floor, e.g. “our firm’s minimum engagement is $25K” (see For Starters #17).
Billable months are then strung together for larger, more complex projects - reminiscent of Agile’s original promise, “software you don’t want in 30 days or less.” It’s easy to imagine a wildly successful firm running on very straightforward engagement terms like, “$25K/mn, minimum 3 months, paid 1st of each month.”
Combined with a >$5K monthly maintenance retainer and the professional services firm that was once feast-or-famine on project revenue now has stable Monthly Recurring Revenue.
No more chasing down the client to pay an invoice, no more debating billable hours after the fact, no more change requests. Vendors are now more incentivized to innovate on delivering business results more quickly rather than just more cheaply.
The two big wins I see in this shift are:
Over a long enough timeline, subscription models minimize the money left on the table.
Shifting to a value-based pricing model is substantially easier here than from billable hours.
While these are common in SaaS, they are less common in professional services firms.
In a forthcoming conversation, I declared ‘dedicated Account Exec’ and ‘dedicated Customer Success Manager’ synonyms. Both exist to ensure the client is maximally benefitting from the service they’ve paid for, is pro-actively offering to new services from the vendor, while providing the vendor with a re-discovery feedback loop. It doesn’t matter if the value is delivered via a SaaS or some more traditional deliverable. The same functional similarity exists in the sales. The key is to place more value on developing a mutually beneficial, long-term, client relationship than on any specific delivery instance within that relationship.
The second shift is in productization. As you can imagine there’s a massive gap in the value ladder between the high monthly subscription and high labor intensity of custom work and the lower priced, more sporadic, albeit more urgent, maintenance subscription. This gap is being filled by discreet productized services; a bundling of specific services for a recurring client use case highlighting the vendors niche expertise.
Unlike high ticket custom work - there are no unknowns to discover in these productized services. Everyone involved in the transaction knows exactly what as bought, how it will be delivered, when it will be delivered, and where the boundaries are. Most importantly, while these products may be delivered by a person today, they’ll likely be software or some other self-serve method tomorrow.
Both of these shifts are reliant on a third; declaring and holding a tight niche. An uncomfortably tight niche. Too often firms consider other firms with a similar offering as their competition (e.g. mobile app development). While this specific service is a commodity (there are many providers), the actual service isn’t fungible, and clients don’t usually bounce back and forth between a common set of vendors (see For Starters #12).
In the same way no one else in the world has the same combination of interests you have - one mobile app dev firm has a vastly different combination of clients than another mobile app dev firm. The thread through each specific combination of clients is the firm’s niche. The niche is some combination of industry vertical, client size, functional offering (marketing, finance, etc), internal expertise, some attitudinal characteristics, etc (see For Starters #33). I know a firm has nailed their niche when I can imagine the customers but not their competitors.
Which of these shifts are underway at your firm?