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Professional Services

Professional Services Pricing Trends for the New Year

How the Pandemic Impacted Professional Service Pricing and Rates

3 min read
By Bo Di Muccio
Valid, reliable pricing data for the professional services industry is exceptionally hard to come by. At the same time, it’s also exceptionally useful and actionable.

Do you think you might have room to increase prices, but aren’t sure? Do you constantly battle with sales against the idea that your professional services prices are too high? Are you in the dark about how to price new services? If so, you’re asking the same questions that countless of your peers are asking as well.

It’s no surprise that among the business challenges most often experienced by our professional services members that “improve professional services pricing” is always among the top five. It’s also no surprise that so many of our members opt into our Professional Services Market Rates study.

Professional Services Market Rates Study

TSIA Professional Services Market Rates study has consistently been the most popular study that we do for and with our professional services member companies. With our first study taking place in 2007, we just completed the 15th–yes, 15th–annual market rates study. Every year, it draws a participation rate of more than half of all Professional Services members.

The study provides an amazing wealth of data to those who participate and are granted access to the in-depth data. However, non-participants only ever get access to a high-level summary of the data and have to use metered research inquiries to get any sort of in-depth detail. The high level summary report is typically only for TSIA members and isn’t made available until three to four months after the completion of the study.

However, we recognize that there is an inordinately high level of interest in learning to what extent the pandemic has impacted professional services pricing trends. So, seeing as it’s a new year and the end of the holiday season, I thought I would give readers a gift and outline some data points from our 2021 Market Rates study.

Pricing Rate Pressure

Since the beginning of the pandemic, there has been widespread assumption and fear that there would be pressure on technology companies to drastically reduce professional services pricing. Initially, this fear was rooted in assumptions about market distortions and pressures being caused by global economic chaos related to the pandemic.

Since then, the fear has become more nuanced. Now, it’s less about economic disruption and more about the idea that virtual delivery would lower market-facing rates due to decline in the cost of delivery (less travel, more labor arbitrage, etc.).

By and large, we didn’t see much notable downward pressure on market rates based on the 2020 Professional Services Market Rates Study. This is most likely due to the fact that the annual rate study submissions largely looked backward. So, there’s been huge curiosity about whether the 2021 study would reveal any evidence of the expected impacts. We are, in fact, seeing evidence of rate pressure in the 2021 data.

I should note that our market rates study produces a complex database with a large number of parameters and a rather sophisticated statistical modeling approach. (A summary of the model can be found in last year’s summary report.) But the simplest and best way to show these trends is from a global, blended view.

Professional Services Pricing Trends: 2021 Bird’s Eye View

The crux of the analysis of professional services pricing focuses on three parameters: listed, discount, and as-sold rates. The trend of downward pricing isn’t consistent across all parameters (skill, level, geography, delivery type, etc.), but we’ve aggregated a bird’s-eye view of the data below.
table of rates survey results as discussed below
Professional Services Rates

This view looks at average results across tens of thousands of data points submitted from several dozen TSIA Professional Services member companies in 2019 and 2021. Again, we’re looking at hourly rates on a global (cross-geography), blended (across position, level, delivery type) scale. In short, we’re looking at a high-level hourly rate and discount rate benchmarks based on a huge number of data points and parameters.

The story is pretty clear: professional services organizations largely kept the same rate card between 2019 and 2021 (listed rates only went down by 1%). There is no evidence that rates should have been declining as a matter of pricing design. However, discounting is up 4% and 18% on a percent change basis, which has caused overall as-sold rates to decline by 7%.

Listed rates matter a lot because it’s the first line of defense for professional services price performance. Professional services organizations are pressured all the time to lower listed rates to make it easier for sales to sell services. By and large that didn’t happen, which is overall a good thing.  

The second line of defense resides in discounting policies and behaviors. On that score, it’s plain that there’s been a lot of pressure on sales teams to more deeply discount professional services. A 4% point and 18% increase in discounting over a two year period is not a small change.

However, I would bet my bottom dollar that a lot of professional services folks have been expecting to see a sharper overall decline in as-sold rates than the 7% we are seeing in the data. This decline is material and–all else equal–can certainly give rise to bookings and revenue declines for the professional services business.

Professional Services Rates Moving Forward

It’s important to remember that everything is relative. It wasn’t that long ago that the panic surrounding the tech industry made the collapse of its economy seem like a certainty. So yes, it’s possible to conclude that the pandemic has driven professional services rates down somewhat. But professional services pricing models and structures are still recognizable and easily capable of driving healthy professional services financial hygiene.

 January 6, 2022

Bo Di Muccio

About Author Bo Di Muccio

Bo Di Muccio, Ph.D., distinguished vice president of Professional Services research and vice president of TSIA advisory delivery. He is also the chairperson of the TSIA Professional Services Advisory Board. Using his nearly 15 years of experience in technology industry research, analysis, and consulting, Di Muccio develops and delivers research and advisory programs that help some of the world’s leading technology companies build and optimize their professional services business.

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