How to think about Subscription Packaging vs. Professional Services in the early days
Background considerations:
- In the early stage of a startup’s product development phase, your R&D efforts will look like professional services.
- Utilizing professional services engagements for R&D efforts should drive on building features which have the potential to be relevant to other customers
- Any subscription service is basically support when the product doesn’t exist yet.
- As the R&D team spends time supporting customer needs, they will gain valuable insights that serve as the basis for proprietary product features.
- It’s important to get the customers on a subscription contract early on (instead of billing professional services hours) so they’ll have access to future product releases. This ensures high retention for the long term.
- Never sell professional services without a subscription license.
Practical implications:
- Companies can provide consulting services (hourly rates).
- Support should only be sold through a subscription contract.
- With a subscription, customers have access to proprietary features for free. There is no discount for not using the product.
- It’s okay to do things that don’t scale - don’t worry about too much support with early customers. Just make sure it isn’t consulting work.
Professional Services Revenue
Looking a few years into the future, companies will have a professional services department (typically <10% of overall revenue).
It’s recommended to build this in-house before onboarding external partners so the company retains knowledge acquired during the engagement. Think "Should we really have a contractor for a lighthouse customer?"
As mentioned above, do not charge customers for building new features - instead use it as a point of negotiation for more subscriptions or higher tier subscriptions. Customers like professional services - purchasing teams have the budget, but not enough time. Have on record that they’ll save XXX hours with your professional services team on board. Outcomes are also better when people buy professional services.
The company will learn a ton from the professional services team. Make sure there’s internal knowledge sharing and transfer.