Should SaaS companies have a lot of professional services revenue?

Answered by: Jason Pressman, Managing Director

Category: Marketing and Sales

SaaS companies need their customers to renew on an ongoing basis, which requires building long-term relationships and continuing to provide value. There’s an idea floating around the tech industry that SaaS companies shouldn’t have a lot of professional services revenue because the product should stand on its own. That’s not necessarily true. We see successful enterprise-oriented SaaS businesses where 20 percent of their revenue is professional services. For a company that provides a high-touch service, customers may require support in figuring out how to handle something like architecture integration. And it’s okay to charge customers for services — right from the start. As Marketo Founder and CEO Phil Fernandez says, “there really isn’t any friction about asking customers to pay for services.” If you let them know the product is great, it will transform their business but it’s not easy and it will cost money, they will spend it.

Usually to go public, entrepreneurs need to break even on their professional services business but early on, they can lose money on services in order to make their customers as happy as possible. Workday’s professional services became an increasingly important component of the business as its product became more complex, connecting to lots of other systems and collecting large amounts of data. Customers were paying a lot for Workday and relying on it heavily, so professional services were essential to ensuring Workday could deliver on its full promise and keep customers satisfied.