Profit or Cost Recovery? The Identity Crisis of Professional Services in SaaS Companies

Since the "Dawn of Time"

The struggle between profit and cost recovery is as old as business itself. From the earliest days of commerce, organizations have grappled with the question of whether to focus on maximizing profit or simply covering their costs. For professional services teams within SaaS companies, this age-old challenge has taken on new significance. It’s an identity crisis that goes beyond mere numbers, touching the very core of what these teams stand for and how they contribute to the broader organization. So, how do we navigate this enduring dilemma in the context of today’s SaaS landscape?

The Traditional Role of Professional Services in SaaS

For a long time, professional services within SaaS companies have been viewed as the backbone of customer success. Their role? To ensure that customers not only adopt the software but thrive with it. In this traditional view, services are seen as an essential, but secondary, part of the equation. The software is the star, and the services exist to support it.

This has often led to a cost recovery approach. The goal is to cover the expenses of delivering these services, but not much more. The thinking goes that the real value lies in the software subscription, with services merely playing a supporting role.

The Case for Profit-Focused Professional Services

But as the SaaS industry grows and evolves, there's a growing recognition that professional services can be so much more than just a cost to recover. By shifting to a profit-focused model, these teams can unlock new potential:

1. Strategic Alignment: When professional services generate profit, they become more closely aligned with the company’s broader goals. This can lead to better resource allocation, higher-quality service, and a more significant contribution to the company’s overall success.
2. Investment in Growth: A profit-focused approach can justify investing in the growth of the services team—whether that means hiring more specialized talent, expanding service offerings, or refining processes. This investment, in turn, benefits customers and strengthens the company’s position in the market.
3. Standing Out in the Crowd: Profit-focused services can differentiate a SaaS company in a crowded market. Companies that offer high-quality, revenue-generating services can attract customers who value a comprehensive, premium experience.

We’ve seen examples of SaaS companies successfully transitioning to a profit-focused model for their professional services teams. The results? Happier customers, improved financial health, and a stronger competitive edge.

The Challenges of Balancing Profit and Cost Recovery

However, this shift isn’t without its challenges. Balancing the desire for profitability with the traditional cost recovery mindset can be tricky:

1. Operational Hurdles: Changes to pricing models, customer expectations, and internal processes can be daunting. Moving towards a profit-focused model might require a complete rethink of how services are delivered and measured.
2. Cultural Considerations: This identity crisis can also create confusion and uncertainty within the professional services team. Without clear direction and communication, this shift can impact morale and performance. It’s crucial to handle this transition with care, compassion, and strong leadership.

Strategic Recommendations

So, how can SaaS companies navigate this identity crisis in a way that feels true to their values and mission?

1. Finding the Right Balance: The choice between profit and cost recovery should be guided by what makes sense for your company. Consider factors like your company’s size, market position, and customer needs. For some, a cost recovery approach may be the right fit. For others, a profit-focused model could unlock new opportunities.
2. Hybrid Models: Sometimes, a hybrid approach is the best path forward. By combining elements of both profitability and cost recovery, you can create a flexible model that adapts to different customer segments or service offerings. Basic services might focus on cost recovery, while premium services aim for profitability.
3. Leadership with Heart: Ultimately, the success of either approach depends on strong, compassionate leadership. Leaders who guide their professional services teams through this transition with empathy and clarity will help ensure that the chosen strategy aligns with the company’s values and long-term goals.

The Path of Values

The identity of professional services in SaaS isn’t just about profit or loss—it’s about people, purpose, and the future of customer success. As SaaS companies continue to evolve, so too must their professional services teams. Whether you choose to focus on profitability or cost recovery, the key is to make a thoughtful, strategic decision that aligns with your company’s values and long-term vision.

SaaS leaders, take a moment to consider the role of your professional services teams. The choices you make today will not only impact your bottom line but also shape the future of your company and the experiences of the people you serve.

Wally Bruner has been working in the professional services arena for some of the leading technology companies for the last 30 years. Wally is the founder of Early Career Partners, is a recognized leader, pioneer and activist in the early career arena, having designed, launched, and led award-winning onboarding and training programs for front-line sellers and solutions engineers at CA Technologies, Salesforce, Amazon Web Services, and Oracle. Additionally, Wally co-leads the Cross Academy Association for Early Career Programs, a global professional association that develops best practices and frameworks for early career practitioners and organizations. Wally's mission is to cultivate nascent talent and create a synergistic force that propels the early career field to new heights.