According to TSIA’s 2023 Professional Services Benchmark, services account for 25% of overall B2B tech revenue, on average. Professional services (I.e., implementation, integration, customization, business, and process consulting) account for 58% of services revenue, with an average annual growth rate of 32%, compared to 26% average annual growth rate for technology products.
For finance leaders focused on boosting revenue and profit in 2023, paying more attention to services revenue will help them achieve their financial objectives for the year.
Professional Services Automation (PSA) is a comprehensive platform to help automate all phases of professional services (PS) projects. For finance leaders in B2B tech firms, 2023 is the year to dig into your company’s PSA system to better understand revenue, costs, and margins, and be able to proactively improve all three.
The following content will identify five ways finance leaders can benefit from PSA which include the following:
- Enabling predictable revenue
- Improving profitability
- Enhancing pipeline visibility
- Improving DSO
- Identifying new revenue streams
1. Predictable Revenue
The first advantage of PSA for finance leaders is enabling a more predictable revenue stream for PS. Technology companies have been maturing their approach to discounting. Xaas companies, particularly in enterprise software, have become transparent on pricing and discounting. However, discounting services still are the wild west for many firms.
Figure 1: Approach to PS (Professional Services) Discounting
According to the TSIA Professional Services Benchmark, 27% of companies can discount services as much as 20%. Almost one in five companies have an upper limit of more than 20% and on average nearly 23% of companies say they have no guidelines or limits for discounting services.
The right PSA solution can provide and enforce structure and rules around pricing and discounting and manage the approval process to reduce the days to create and finalize a proposal.
Accurate forecasting and increased project profitability are also PSA benefits contributing to predictable revenue. Both topics will be explored in the following sections.
2. Improve Profitability
Improving profitability for services requires proactive management of project margins to ensure the anticipated margin for each project is achieved or surpassed. To improve and deliver consistent margins the following elements should be considered:
- Utilization rate. What percentage of the time are consultants working on for-revenue projects? The average billable utilization rate is 58%, with Pacesetters averaging 72%. PSA can make a significant impact by automating resource management and scheduling in effort to balance utilization rates across the consultant pool.
- Rate realization. Another metric which PSA resource management and scheduling can help with is rate realization, ensuring consultants are being billed at their set rate. Not only does this maximize the revenue from expensive talent, but it can also boost employee satisfaction and retention.
- Manage risk. We have identified that 65% of TSIA members utilize a documented risk management methodology to anticipate, identify, avoid, and mitigate risks on PS delivery projects.
- Avoid scope creep. When conducting traditional custom projects billed by time and expenses, scope creep will be captured in consultant billables. However, for the 53% of PS projects that are fixed-price, repeatable projects, scope creep must be identified and addressed.
3. Visibility into Pipeline
Integrating PSA to the salesforce automation (SFA) module of your customer relationship management (CRM) platform is required to gain better visibility into the pipeline for PS revenue. Not only does an accurate understanding of the revenue pipeline enable better forecasting, but it also provides two additional opportunities that impact revenue.
- The first opportunity is Influencing deals. By having a better view of future pipeline deals, PS has time to influence the sales team on what services should be attached to the deal, focusing on projects with better revenue and margins, and a better history of successful delivery.
- The second advantage of leveraging PSA to analyze your sales pipeline is the ability to do resource forecasting. With adequate resource forecasting and planning, one can avoid backlogs of projects that have been sold but are lacking the resources to deliver them when expected.
Better insight into the pipeline gives you an opportunity to introduce additional training for the sales team on available offers, which offers they should be positioning, and why.
4. Improve Days Sales Outstanding (DSO)
Finance leaders care about DSO as it relates to cash flow, but slow DSO can also indicate issues with billing and invoicing processes and accuracy. TSIA has included case studies in webinars showing that companies implementing PSA with billing integration can improve DSO by 15-20%. PSA can help companies overcome some common challenges leading to longer average DSO by addressing the following:
- Speed of billing/invoicing. If invoices are not sent out in a timely manner, it will lead to delays in payment collection and negatively impact DSO. Integrating your PSA with your enterprise resource planning (ERP) or billing system will automate the creation of invoices upon project completion, eliminating manual processes and related delays.
- Accuracy of billing. Similarly, with manual billing processes, mistakes happen, and when customers find a billing error, not only does this cause additional complexity and delay invoice payments, but it also raises trust issues. When this happens, all future bills may be closely reviewed or audited before payment, further stretching out DSO.
- Transparency of billing. This is an area in which PSA excels. Not only are customers provided with a project portal to be kept informed of all project activities and milestones, they also can see accrued project costs at every step.
5. New Revenue Streams
As outlined in a previous blog, there are a number of new revenue streams available to PS in 2023, including value-based offers, monetized customer success offers, and subscription renewal services. While introducing these new revenue streams will require new processes and likely some new skills, there is also a technology component to each that PSA can provide to ensure successful and profitable delivery of the new services.
Though 83% of TSIA members have a PSA system in place today, more than half of their companies, 54%, had budget for new or additional PSA technology in 2021-2022.
Currently it takes an average of 18 business days to source a newly signed project. Obviously, the manual processes being used for resource assignment today are not scalable for bite-sized projects. However, as industry expertise and various aspects of business acumen become critical for value-added services, scheduling accurately by granular skillsets, and availability, requires automation.
PSA software offers a wide range of benefits for technology finance leaders, from increasing visibility and control over financial performance to ensuring profitability and consistency for projects, and more!
- If access to revenue pipeline and project margin dashboards are currently unavailable, reach out to your head of PS, or your PS project management office (PMO), and have them set up dashboard access.
- Looking toward the flexibility required by new revenue streams, if your existing PSA platform has been in place for five or more years, it is worth investigating what “best of breed” capabilities may be out there and are missing from your platform.
To realize the benefits outlined within this blog, one must leverage the entire platform.
Dive into our webinar, “Make 2023 The Year of Profitability” to discover more ways to drive growth and profits with professional services