Several years ago I was biased against Software-as-a-Service (SaaS) startups offering consulting services. The previous thinking was that it was better for the startups to focus exclusively on recurring revenue and to hand off any consulting revenue to partners. Now, I believe the top priority is to deliver an amazing solution and make customers happy. While that can be done with partners, startups are better off doing it in-house for quality control reasons during the early years. Once the startup hits the growth stage ($5 million+ in revenue), incorporating channel partners becomes more important.
Here are a few thoughts on consulting services revenue in SaaS:
- SaaS valuations multiples aren’t affected by services revenue as long as it’s less than 25% of total revenue (e.g. a startup that’s heavy on consulting revenue won’t be viewed favorably, all things equal)
- Freemium products, which are self-service to get started, still have consulting opportunities
- Most technologies need a couple generations of refinement before they’re self-service (email marketing has reached it but marketing automation hasn’t)
- Productized services are a great way to deliver customer hand-holding
- Bigger companies are even more likely to pay for services, and often expect it, as change management is hard
Consulting services, and the corresponding revenue, are commonplace in the software world, SaaS or otherwise. SaaS startups would do well to ensure customer success and incorporate consulting services as needed.
What else? What are some more thoughts on consulting services revenue in SaaS?