A couple months ago, one of my best mates and I got into a discussion about how our respective organizations have different tactics in costing professional services engagements. His firm, a SaaS enterprise software firm, negotiates each engagement with their clients to recover the costs of travel, consultant hours, license costs, and the like. The company I worked for provides PS engagements for free, and all technical and customization work was done without cost to the client.
I have worked in organizations where PS work is billed, and where PS work is free. Having experienced both scenarios, I truly believe that free is not the right way to price professional services work. Free projects tend to drag out: clients repurpose resources to other projects mid-implementation, or worse, just completely go dark on us. I've had instances where we worked hard to deploy a solution for a client, but they end up never using it. Internally, our teams often question if what we are doing truly contributes value to an organization, which inevitably negatively impact team morale.
Making sure our effort is pegged to a dollar value is important, and here's why:
- The Ante confirms Commitment - In poker, those who put in an initial bid are the ones who proceed on with the rest of the game. Similarly, we should ask our stakeholders to "ante-up" before starting a project, whether it is a commitment of dollars or other types of resources. When our clients don't have to commit anything, they're just receiving a gift, and gifts can just as easily be discarded as they are accepted. A client that puts in a financial or resource stake to a project is essentially telling us "We're in it too, we're committed, and we value your work. Let's get this done."
- An ROI that Makes Sense - Doing something for free that will return dividends will make a client happy, but it may also raise suspicions amongst our clients and their management teams. Having no cost to what we do may trigger questions on our motivation ("Every company's objective is to make a profit, why are they giving it away?"), commitment ("Are they going to be around this time next year if they're just giving this away?"), or sincerity ("It's free now, but are they just making us dependent on them so they gouge us later?").
- Clear Value to Internal Teams - PS run the risk of being considered "just a tool" to help other teams do their jobs if we can't measure our contributions in the same way as other revenue-generating teams. If all we do is provide a free service after the sales team has signed the contract, then we are merely an extension of that sales contract. It's important to make sure that PS effort is captured in value the same way as any other type of revenue, whether it is support, infrastructure, or some other revenue branch in the organization.
I had previously argued that staying relevant to our clients means we should align our projects to their business roadmaps, so you may ask isn't alignment to a business roadmap sufficient to determine value in what we do? My response is not necessarily, because if what we do for a client is truly important to their success and growth, then coming together to an agreement to a cost on our effort should not be a barrier to actually doing said work. In short: if what we do is relevant, then what we do should also have a clear definable value.
We can still achieve a zero-cost model for our clients without diminishing the perceived monetary value of PS work. For example, I worked for an organization that offered clients steep credits to offset future operational fees in exchange for completing the paid implementation on time. The incentive would be set to a sliding scale, so the client is incentivized to finish as originally planned as the maximum incentive would virtually refund the full cost of implementation. The end goal here is to help the client recognize that there is monetary value to what we are delivering even though they're not necessarily paying for it (and if they end up staying on-track, that's a bonus!).
Assigning value to what we do isn't just about realizing revenue. It's about helping our clients understand the value of what they are receiving, and it's about helping our own teams see the value we contribute to the organization.