May 15, 2007

Professional Services: Golden Egg or Money Pit?

Offering product-independent Professional Services provides several benefits to the product-focused companies bold enough to invest in them. Profits, increased account control, and subtle product tie-in compel many firms to bring these services to market.

"If you are selling solutions, selling consulting can be the high-margin part of the solution sale," says Thomas Lah, Director of Solution Engineering for SGI Global Services. "But to do it right, you have to keep in mind the ultimate impact on product sales."

Doing it right, however, is kind of like juggling four balls in the air - you need to keep them all moving at the same speed.

First, don't stray too far from your firm's area of core expertise. When choosing a professional service niche, sell what you are known for. Kathy White Learning Systems, a small southern U.S. publisher of reference books for critical care nurses, sells on-site nursing education, delivered by the Founder, Kathy White, RN. SGI sells professional services in Visualization and Imaging. "We help our customers solve unique problems in areas that are aligned with our traditional markets," Lah says.

Services can't be stored, freeze-dried, or mass produced. High-level consulting is a people-intensive business, and its output is created fresh, on demand. This always costs more than management expects, especially at first.

Third, expect high-level service sales channels to be different than those serving the product side of the business. "SGI sells consulting at the 'Executive' level in its target accounts but will frequently successfully sell IT products at the department-head level," says Lah.

Finally, recognize that the consumer of a professional service (who benefits) and your target customer (who pays for the service) are not necessarily one and the same. "Although our educational services are produced for and delivered to nurses," says John Mitchell, Marketing Director for Kathy White Learning Systems, "our customers (buyers) for this service are drug companies and professional associations." That means that your marketing effort could be complicated. For example, you might need to sell to one target (drug companies) but satisfy the needs of a different target market (provide education that nurses value).

Professional services can provide the high road to market validation and niche dominance. But they can also become a money pit that drains needed profits from other business units. Success depends on expert execution and a willingness to adapt to the demands of a fundamentally different business dynamic.

5 Key ideas

1. Great way for a product company to establish leadership in a competitive niche

2. Although NOT about selling more products, it's still important to select services within your product area expertise

3. Be alert to opportunities to incorporate learning from consulting engagements into future product enhancements

4. Plan for complexity in selling and delivery: your customers may not be the consumers of your services, and neither of them may have an interest in your products

5. Be realistic in spending future professional service profits; prepare for some hiccups in the beginning.