In this next “From Impossible” excerpt, you’ll see that you can add 15-20% to your enterprise SaaS by not making this one mistake…
Every Tech Company Should Offer Services
Many companies, especially early tech companies, are afraid to build a professional services team (or do anything manually) because “it’s not scalable.” Especially if you’re doing SaaS for the first time (or even the second), the whole idea of charging for “services” may seem anathema.
- If your product is so easy to use that you hardly even need sales people, why would you need to charge for implementation? For support? For training and engagement?
- And isn’t it a bit unseemly to charge for services? Doesn’t it label your product as old-school, clunky, inelegant, or complex?
- And isn’t the revenue from services a waste? For example, it’s not recurring and it’s not true ARR. Does it even count? After all, you’re a SaaS company.
Turns out, in the majority of six-figure contracts, virtually every seven-figure contract, and quite a few five-figure contracts there’s always a services component.
And it almost always seems to average out to 15–20% of the annual contract value.
Save Customers Time
Jason [Lemkin] remembers the first time he experienced this confusion himself, on one of our first high-five-figure contracts at EchoSign. We had a brutal negotiation over price. And then, at the end, they sent us a Schedule for Services. After getting beaten down on the annual contract price, the Schedule for Services they sent us (without me even asking) guaranteed us another $20,000 a year in services, with $250 an hour as the assumed price for the services. In medium and larger customers, there’s always change management to deal with when bringing in a new vendor. And they not only understand there’s a cost associated with that – your buyer wants to do the least amount of change management possible by herself. If you can do the training for her for a few bucks and it saves her a ton of time, that’s an amazing deal.
In medium and larger customers, they often have no one to do the implementation work themselves. So even if you weren’t saving your customer money—by helping with implementation, roll-out, support, and so on—they probably have no one to do this internally anyway. You’re going to be doing some, a lot, or all of this for them. They are okay paying for this, in the enterprise at least.
It’s Budgeted For Already
And most important, it’s how business is done, and it’s budgeted. When most larger companies enter a new vendor into their ERP system, they typically add an additional budget item or two along with the core contract price. There will be one additional line item for service and implementation, in most cases. And in some cases, an additional line item for other add-ons necessary to make the implementation a success (e.g., an EchoSign on top of Salesforce). Both of these are often line-item budgeted at 15–20% of the core contract value for the product.
- You probably can’t charge another 15–20% for services and implementation and training for a $99 a month product. Well, maybe you could, but it’s probably unprofitable and not worth it.
- But, as soon as the sale gets into the five figures, consider adding 15–20% for services. You’ll probably get it.
- And plan for charging, and delivering, additional services in mid- figure and larger deals. The customers are happy to pay, and in fact, will expect it.
Your Company Will Benefit
And if you don’t charge, you’re simply leaving money on the table. You’ll have to do the work, anyway. You may send negative signals that you aren’t “enterprise” enough, that you aren’t a serious vendor.
And importantly, this extra services revenue still “counts” as recurring revenue if it’s less than 25% or so of your revenues. I don’t mean that literally (it doesn’t recur), but what I mean is that Wall Street and VCs and acquirers and everyone will still consider you a 100% SaaS company if less than 25% of your revenues are nonrecurring. And you’ll get the same SaaS ARR multiple on those extra services revenues: same multiple, no extra work, 10–25% more revenue, extra, non-dilutive cash owing into the business.
Don’t leave the services revenue on the table.
we hope you enjoyed this From Impossible To Inevitable excerpt!