Compensation Plans for SaaS Professional Services

The typical base/variable split in PS is most commonly 85/15 and occasionally 80/20.

Common variable compensation metrics:

• NPS – High NPS scores help ensure strong renewal and expansion (both SW and Services) and delivery teams have direct influence on NPS
• Project CSAT
• Billable utilization – Very common metric but needs to balanced as delivery teams may not be as inclined to help w non-billable work which could help w customer engagement, pre-sales, etc
• TTV (time to value) / TTFV (time to first value)
• Revenue generation (where applicable) – Delivery teams tend to be risk averse. If comped on revenue, they will be more engaged on deal pursuit and will also look for adjacencies on current projects to create expansion.  
• Quantity of services completed (ex: 10 onboardings completed)
• Retention (GDR and/or NDR) – Services led engagements should have materially higher renewal rates
• Services Margin – Usually held at management as margins can be negatively influenced by deal shape. Management may decide to sacrifice margin to win deals and associates should not be penalized for this. 

KPIs for Managing Professional Services

• Financial:
  • Services revenue
  • Services margin
  • Average billable rate
  • Capacity utilization
  • Attach rate – either the % of deals with services or services as a % of total contract value
• Operational & Delivery Efficiency:
  • Backlog
  • Project duration
  • # of scope changes
• Customer Impact & Business Contribution
  • CSAT/NPS for PS
  • Renewal rate on reoccurring PS
  • Sales impact – ARR, win rate, & sales cycle of deals with & without PS
  • Post-sales impact – GRR & NRR for accounts with & without PS; support ticket volume & complexity with & without PS

Professional Services FAQ

How much revenue should come from professional services?

Most SaaS companies derive 10% of revenue from professional services; services. Due to impact on blended gross margins, higher percentages translate into lower valuation multiples. Percentages are typically higher for complex, enterprise solutions.

What is a typical gross margin for professional services?

Since the primary ROI of services is from NRR, strive to operate services at a 20% to 40% gross margin or at least break even.

Professional services driving business transformation and not merely technical work will command higher margins.

What are some ways to control services costs?

• Standardize services offerings into repeatable packages; this applies to complete offerings as well as modular blocks
• Maintain high utilization (70-80%) by leveraging a bench of contractors and/or partners
• Develop and adhere to project management best practices
  • Initial Scoping
  • Handle scope adjustments via paid change orders (set this expectation with customers up front)
  • Use of professional services automation (PSA) software
  • Communicate timely internal & external status updates
  • Leverage project plan templates for common deliverables
  • Manage staffing (ex: put your best people on your most complex projects)
• Tighten discounting policies
• Ensure consultants document solutions as much as possible in a Knowledge Management System
• Expect to iterate continuously
• Talent management
  • Create an ideal hiring profile
  • Run structured interviews
  • Onboard new consultants
  • Provide consultants with ongoing training
  • Exit under-performing consultants (based on work quality and/or ‘client hands’)

How should I price services?

Where possible, strive to create packaged, fixed-price offerings; this is especially applicable to implementation. Nonetheless, there are a variety of models available:

• Time & Materials (T&M): Billing by the hour or day at a set rate. This is common for custom or open-ended projects. For example, a consulting rate might be $150/hour. T&M provides flexibility if scope is uncertain, but customers may worry about cost overruns
• Fixed-Fee (Fixed Scope): A set price for a defined engagement or outcome. This is common for implementation projects. Example: A standard implementation package for $10,000 that covers a predefined set of tasks. Fixed-fee pricing gives customers cost certainty and is easier to sell for repeatable services. SaaS companies are increasingly packaging onboarding as fixed-fee offerings to streamline sales. One tip: if using fixed-price, build in a buffer for unexpected work so you protect your margins​.
  
  With fixed-fee services, consider offering packages in T-shirt sizes (small, medium, and large).
  
• Milestone or Phase-Based: A variation of fixed-fee where payment is tied to milestones achieved (e.g., $5k upon completion of setup, another $5k upon go-live). This can align incentives and reassure the client that they pay as value is delivered.
• Subscription or Retainer: Ongoing services for a recurring fee. For instance, offering a dedicated customer success manager or technical account manager for an extra $X per month (sometimes called white-glove support or premium success plans). This effectively productizes services as a subscription and can smooth revenue, though it’s less common to have large PS retainers in pure SaaS models.
• Value-Based Pricing: Pricing based on the value or outcome delivered (e.g., a fee contingent on achieving a certain KPI improvement). While ideal in theory (customers pay for results), it’s tricky in practice for PS because outcomes depend on many factors. Still, for high-impact consulting (say, optimization services that save the client $500K), a value-priced engagement capturing a fraction of that savings could work.

What is best practice for professional services capacity utilization?

Though benchmark industry average is 58%, strive for 70%-80% utilization. 100% is not ideal since you want to have capacity for high priority projects.

If utilization exceeds 80% and you have a robust backlog, then either start hiring or pull in partners.

To keep utilization from varying too much, set firm and accurate expectations with customers on project start and expected completion dates.

Which services should we offer in-house versus through partners?

Early on, you should have an in-house team since:

• It is critical that your earliest customers are successful and your product team will have the deepest expertise and sense of urgency
• Learnings from services projects can be quickly fed back into product.
• Larger partners will not be interested your solution so you’ll be wasting money, time, and effort trying to cultivate them.

When you become larger, your in-house team should continue to handle complex use-cases and mission critical customers. Leverage partners for standard use-cases such as implementations.

Invest in comprehensive enablement programs to ensure partners deliver consistent quality. Create tiered partner programs with clear requirements and benefits.

Should we charge for implementation?

Many SaaS firms (a) charge a small, fixed onboarding fee or (b) bundle a limited number of free setup hours in a set timeframe (ex: 30 days) in the subscription, then charge for anything beyond that. Bundling for free is more common with SMB and lower mid-market customers. For upper MM and ENT, customers may expect to pay up to 20% of first year ACV in services fees, fixed or T&M. There is no hard upper bound for extremely complex solutions where fees can far exceed the cost of the software; however, such projects are usually run by global systems integrators (GSIs).

Be mindful of competitor practices. For instance, if your competitors charge for implementation, you may gain an advantage by bundling implementation for ‘free.’

How much should I bill per hour for professional services?

Typical bill rates range from $100 to $250 per hour depending on the level of expertise.

Should your professional services team drive ARR expansion?

In a word, yes. Formalize this with the following but be mindful of the your PS team irritating the client:

• One-time bonus (SPIF) for each expansion deal closed
• Commission % on expansion ARR sourced by the PS team
  (For the two options above, be mindful of AEs giving deals to PS people as a favor that is costless to the AE)
• Target for professional services qualified leads (PSQLs)

What is the relationship between PS, CS, and AM?

• Clearly define roles & hand-offs (this is especially important when transitioning clients from onboarding to launched)
• Include all three roles in any high-impact meetings with customers (ex: kick-off and go-live/wrap up meetings; EBRs; etc.)
• Include all three roles (PS, CS, and AM) in account planning sessions
• Encourage joint accountability for retention & expansion

What are healthy CSAT and NPS scores for professional services?

CSAT should be 90%+ (4.5+ out of 5; 9 out of 10_

NPS should be 50 or higher.

Regardless, build processes to take immediate action on low scores (0-6 for NPS; under 50% for CSAT).

How should salespeople position professional services?

• Tie sales comp to PS attach rates. Otherwise, AEs will seek to maximize ARR at the cost of services revenue & margins.
• Position as an essential enabler for faster time-to-value, lower risk, and higher ultimate success rather than an ‘add-on’
• Introduce services early in sales discussions
• Train sellers to position clear services packages with standard scopes and outcomes. Do not expect or attempt to get sellers to position complex services offerings.
• Establish pricing guidelines that give sales appropriate flexibility while maintaining margin discipline.
• In competitive situations, highlight services expertise as a differentiator, particularly for complex implementations or transformational projects.
• Involve service leaders in strategic deals to help shape solutions and demonstrate expertise.
• Develop proposal templates and presentation materials that effectively communicate service value propositions, and consider service-led workshops or assessments as sales tools to demonstrate expertise while qualifying opportunities

What’s the right balance between remote and on-site service delivery?

The optimal approach combines remote delivery for efficiency with strategic on-site engagements for relationship building and complex work. Design a delivery methodology that leverages technology for collaboration while recognizing when face-to-face interaction adds value. Consider customer preferences, project complexity, and geographic factors when making these decisions. For enterprise customers, critical milestones like kickoffs, executive reviews, and go-live support often benefit from in-person presence. Regardless of delivery method, establish clear communication protocols, documentation standards, and project management practices to ensure quality and transparency