Pricing Professional Services is a Challenge for SaaS Companies
By Steven Forth
Many B2B SaaS companies struggle with pricing implementation and professional services. They often wonder if they should offer professional services at all. If so, how should they be positioned and what role should professional services play in overall strategy?
There are two contradictory forces at work in the B2B SaaS model. The Pureplay SaaS model vs the Hybrid model.
Working against offering professional services is a perception that investors discount professional services revenue and the feeling that having to offer professional services at all represents some form of design and engineering failure. As many SaaS companies are product driven, or 'product first,' this strikes deep. The perceived 'best-in-class' examples of SaaS companies are typically pureplay.
Working in favor of a strong professional services offering is the fact that all B2B SaaS offerings of any significance require some level of professional services support. Professional services are also a way to layer in revenues, gain a better understanding of the customers and build differentiation.
There are two reasons B2B SaaS applications generally require some level of professional services.
Some applications are naturally complex and require smart technical people to configure and integrate. It is often the integration effort that requires the most service support as it is not within the control of any one company. Data integrations are increasingly important and even with well defined APIs (Application Program Interfaces, the way in which one software application accesses the functions or data of another application) there is generally a lot of data modeling and hard thought required.
Other applications address critical business problems, and are only effective when combined with business insight. In this case, one needs to engage with business consultants rather than technical or implementation consultants. One differentiation strategy available to companies that solve thorny business problems is to develop real expertise in solving the business problems most closely associated with your software.
SaaS companies have two distinct strategies around professional services and how they price these services will depend on their strategy.
Given that virtually all serious B2B SaaS applications require some level of service support one can try to
develop an ecosystem of consulting partners and push services out to these partners (this is the classic Silicon Valley model exemplified by Salesforce) or
develop the capability to deliver these services in-house and make this a revenue driver and part of your differentiation (this is what companies like SAS have done).
How you price depends on your strategy. Most early-stage companies will have to provide some services as it takes time to grow an ecosystem around an application. If the services needed are primarily implementation related these should be rolled into the basic subscription. Why?
Keep your pricing simple
Make sure you provide everything necessary for customer success
Build this into your long-term recurring revenue (and then use this cash flow to invest in ongoing customer success)
Continue to do this until you can offload some of the work onto specialist consultants. Make sure that these consultants can create enough value for customers that they have an incentive to get into the business! Over time, if everyone is successful, these specialist firms will grow until the big consulting firms (Accenture, Cap Gemini, Deloitte, PwC, etc.) will want to pick up this business. This is not likely to happen until the implementation work is a nine figure business opportunity. The big firms will likely do this by acquiring some of the consulting firms that you have helped grow (the way that Wipro acquired Appirio, which got its start implementing Salesforce).
The situation is quite different when there is business complexity, rather than implementation complexity.
A different kind of service is called for here. Solving business problems requires business consultants, people who understand the business issues and can speak to the customer in their own language. Business consultants are difficult to find and to train, especially for young companies. Here your best bet may be to build partnerships with experienced independent consultants who are willing to commit to your solution. Over time, you will want to either bring these people in-house, if you are adopting a hybrid strategy, or partner with larger and larger companies, if you want to be a pure play.
The long term trend is to have more and more of the business solution coded into the software. Deep learning and other Artificial Intelligence applications will likely accelerate this trend over the next few years. This means that the skills needed to really deliver differentiated value will include both business knowledge and the ability to weave that knowledge into the application and to create new knowledge using AI.
Implementation and business consulting services are priced differently
Implementation should be included in the subscription and priced based on the long-term impact of a well implemented solution on the customer's business. It is part and parcel of the software service.
Business consulting should be priced separately from the subscription. The pricing here is the same as pricing any other professional service and will be based on the client-in differentiation (see this interview with Brian Conlin over on the TeamFit blog for a discussion of client-in differentiation). The price here is independent of the price of the subscription and is based directly on the value of the business consulting. The ability to use a powerful piece of software to help solve the business problem becomes part of the business consultant's strategic differentiation.
This is another example of how pricing decisions are dependent on the overall strategy for the company and cannot be made in isolation. Strategy, positioning and customer understanding all inform an effective pricing strategy. Ibbaka exists to help you tie these pieces together.
