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Professional Services

Moving to a Professional Services Subscription Model

Benefits, Best Practices, and Considerations for Moving to Subscription Offers

3 min read
By David Young
Subscription services is the new, appealing model for many Professional Services Organizations. Delivering recurring revenue is considered higher value toward the overall evaluation of the company. These new services pivot the focus from product or engagement success to the longer view of customer success. 

Subscription-based products are being fueled by various innovations in cloud computing and mobile connected devices, and are the main reasons behind the spiking interest in Professional Services to move to a subscription model. As more companies take the initial steps to create subscription service offers, it’s become an increasingly popular topic.

What are Professional Services Subscriptions?

Professional Services subscriptions are services that are designed to be renewed, unlike traditional, transactional project-based services. They focus a bit more on customer needs and outcome rather than product functionality. 
 
Subscription services really need to be thought of as a “renewable” service that has a recurring revenue model paid for up front, with revenue being recognized over the course of months or years. Subscription/renewable services routinely have a flexible consumption model leveraging vouchers or credits and typically have contract terms and conditions that include language such as “use it or lose it” within a certain timeframe.
 
Let's face it–if a subscription service is not renewed, it is essentially a transaction. Thus, renewing the subscription is a new priority for Professional Services delivery teams. Project Managers and Customer Success Managers need to come together and lean in to become more focused on long-term success for the customer.

How Does It Change What We Do Already?

Recurring services revenue involves many changes across the organization. It requires the organization to come together and approach the overall customer engagement differently, with more focus on the customer’s desired outcome instead of the company’s desired outcome.
 
The move to a renewable professional services subscription model requires a collaborative approach, bringing Sales, Customer Success Managers, and Professional Services project managers together to stack hands on the customer value journey. The change involves all customer-facing resources to align on the overall charter to drive long term customer success and increase renewal rates.

Making the Move to a Professional Services Subscription Model

We find more companies are taking a component or smaller-block approach when defining new subscription offers. Funding for these smaller blocks is through flexible currency, such as credits, vouchers, or blocks of hours that are paid for as part of the subscription. 

They become part of the entitlement for the subscription and the customer can, in many cases, self-serve from the services catalog list of offers. The focus of ratable revenue recognition is introduced as a new concept for some companies, further complicating flexible consumption and subscription roll out.
 
Operationally, this shift requires new customer consumption analytics. If the model is “use it or lose it,” losing the entitlement due to lack of consumption puts real pressure on the likelihood the customer will renew. Consumption dashboards are also needed to provide information on customers maximizing the use of their subscription, making them good candidates for upsell opportunities.
 
Some operational efficiency can be expected by moving to subscription services. The need for deal reviews and “statement of work” reviews can be notably reduced or eliminated. Flexible consumption models (aka credits or vouchers) involve a single procurement process with the customer and gives flexibility to the credit/voucher owner to apply them as desired.

This approach reduces the procurement process and overall timelines to get a new service engagement started, leading to a reduced timeline in achieving the desired outcomes.

Common Challenges and Questions

Integration is paramount to establishing a holistic view of the customer experience, from the initial contact to ensuring a lifetime value and a delighted customer along the way. The golden thread of customer ID across CRM, CPQ, ECMS, Pricing tools, Customer success tools, PSA, staffing/schedule and of course finance tools are just the top-of-mind systems that need to be connected. Dashboards for consumption analytics, win/loss, and renewal/churn become higher priorities.
 
During the delivery of the subscription professional services model, the entire delivery team needs to know the scope of work being delivered (as defined by the service catalog) and know the boundaries. Clear guidelines on when something exceeds the defined scope–which could in turn impact how the revenue is recognized–needs to be well defined. Risk management and scope management are a priority in transactional services and become even a higher priority for subscription services.
 
One of the common challenges when it comes to recognizing the revenue for the professional services subscription is the need for the project managers to fully understand the scope of work and to keep the delivery motion within that scope. Allowing for variation can lead to failing financial audits, and so educating project managers on the ratable revenue recognition rules and the long-term impacts of it is very important.
 
To help complete the cycle, Customer Success Managers and Project Managers need to collaborate on where the customer is in the consumption and value journey. Clearly defined responsibilities in the form of RACI charts is a must. Outlining when Customer Success Managers should be involved and when the Project Manager is involved leads to key cost savings.

Based on a recent real time poll, more than 50% of companies responded as being “curious” or taking initial steps toward subscription models for professional services, while others have had some initial success or are piloting offers. TSIA’s point of view is to go into the professional services subscription model with the clear understanding that this is different and requires a different approach across the various internal workflows and customer facing interactions. The move will require a new or, for some, a renewed focus on customer value. The move also puts new requirements on tracking and trending consumption of the professional services subscription entitlements.
 

 September 7, 2021

David Young

About Author David Young

David Young is the senior director of professional services research and operational best practices for TSIA. In this role, he is responsible for developing and delivering research programs that are focused on helping TSIA member organizations build and optimize professional services. He is also responsible for leading and delivering operational best practices to member organizations. David has over 25+ years of experience in technology, operations, analysis, project management, and consulting, including experience in hi-tech semi-conductor industry, software product development, program management and professional services working in large enterprise and small startup organizations. 

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