Top Metrics for Professional Services in a B2B SaaS Company

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarkit.

And I'm CAC, better known as Dave Kellogg, independent consultant, EIR at Balderton Capital, and author of Kellogg.

And together we are the Metrics Brothers.

And a dynamic duo at that, Ray.

Dave, I would have to add an entertaining duo also.

I suppose it depends on how you define entertaining, Ray.

Well, I know you've accused me of having a pretty low bar on what I find humorous, but if our listeners actually made it to the end-of-show disclaimer, I think the entertainment value would be pretty self-evident, Dave.

Yeah, Ray, and I think both people who did that really enjoy the disclaimer, uh, but you know, it keeps the lawyers happy.

Exactly. Well, after last week's episode on the metrics that matter to a Chief Customer Officer, we talked about doing a deep dive into the 3 functions that typically are under the CEO's responsibility. And I thought, let's start with professional services as the metrics that matter to them this week. What do you think?

Yeah, I think it's a great place to start, Ray. You know, I think PS often gets— I'm going to say PS instead of professional services a lot, so just heads up. I think PS often gets overlooked in SaaS companies, particularly in SMB and mid-market. But the way I look at it is primarily kind of regardless of who you sell to and what your offering is, if it requires services for customers to be successful, you know, as is often the case in SMB and mid-market and almost always the case in enterprise, then PS becomes critical.

You know, I'm glad you clarified that you said PS and not BS because we don't do BS here on the show, Dave.

No, no, that's off the agenda.

Okay, well, let's first of all hear a word from our presenting sponsor. The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Grothright have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave @Kellogg and Ray on LinkedIn @RayReich. Thank you so much for listening to the Metrics Brothers podcast. Okay, Dave, let's dive into the top level first, and that is the role of professional services in a SaaS company. Because before we get into the metrics that should matter to the head of professional services, I think it's important to highlight what they typically are responsible for. You want to take that?

Sure. And I think this, this statement is less controversial than it used used to be, but as you'll reveal in the data you show in a minute. But I believe that kind of my reductionist mission statement for professional services in a SaaS company is to maximize ARR without losing money. And what does that mean? It means that SaaS companies are valued at a multiple of ARR, and services is either ignored, or if it gets too big, it can be a negative, but it's almost never a positive. Nobody ever goes, oh, let's pay more for your SaaS company because you've got 40% services at 25% margin. And that like doesn't happen. So I think people need to remember the goal is to maximize ARR, which is how the company ultimately is valued, and to do that without losing money. Because look, we both know that you could run a pure PS business. If it was Dave and Ray Inc. as a PS shop, we could run it anywhere between 25% and 30% margins, maybe more. But I think that's a mistake in a SaaS company because you want PS around to help with other things, right? To help with sales cycles, to help save customers at risk of churn. to help make people successful in general, um, and, and to help train partners, right? There are all these things you want those highly skilled PS people doing. And to me, and you, you could argue this is sloppy, but we want to take that, you know, 25% profit that could have been there and invest it in those things because ultimately we're trying to maximize ARR.

I love the way you reduce this to the core kind of goal of any SaaS company, and that's to maximize ARR growth. So, I'm going to take it down just one more level. If you're a PS leader, you're doing that, but you also want to make sure that every new customer has a successful deployment, whether that's successful configurations, integrations, customizations, data loading, reporting. Sometimes PS will take training and onboarding, sometimes that's PS, but make sure that the users are actually ready to engage if it isn't PS. And of course, over time, adoption. And maybe over time is try to get that product into production as quickly as possible. So we start recording subscription revenue and make sure that the customers are using it. So I'd kind of take it down to those 3 things. Dave, what do you think?

I think it's reasonable. You know, I think you touched on this already, but the only potential difference is some SaaS offerings are actually light enough that the customer success rep can do the onboarding for you, right? That there really isn't a big deployment phase. And as you mentioned, you know, in mid-market and enterprise, when you're connecting multiple systems, together, cleaning up data, integrating data, building reporting, right? Then you definitely get PS involved and you need a PS org.

Yeah. And right before we get into the metrics that matter to the professional services leader, TSIA did a really nice benchmarking study. Now, this is in the second half of '22, so it is a little over a year old, but they surveyed a bunch of professional service leaders, both inside and outside of the SaaS industry. And 85% of companies said that customer adoption and value to the customer is the top strategic priority. And it wasn't even close. It was like a 10x factor. And then they broke it down, Dave, into how services revenue is kind of segmented. And it's like 54% of PS revenue was implementation-centric. Only 20% was consulting, kind of advisory services.

Yeah.

And 8%, I was shocked at this, but 8% was custom development. So that's kind of the way it broke down overall. Probably changes by product category, right, Dave?

It can. I mean, first, let me comment on the data itself because Ray's looking at a chart. I don't know what page it's on, but in this report and the fact that, you know, 85% of companies think, you know, value and adoption is the top criteria for PS is not surprising. It's good in my mind. The surprising part was that in 2018, only 14% thought that. And this has been steadily on the rise. So I feel like, you know, the word is getting out. My mission is getting out that, hey, we do PS in a SaaS company not to generate revenue, not to generate margin, right? Not necessarily to win customers, although I do think they're very helpful presales. But the primary purpose is 85% now agree about customer adoption and value. And the only thing shocking there is it was only 14%, what, 5 years ago, 4 years ago, 5.

Yeah. I'll tell you, Dave, before we get into metrics, I got to share a little bit of a story. Probably the biggest misalignment I ever had in a subscription revenue company was when our professional leader, she was so good at optimizing PS revenue. Attach rates were very high. Margins were 35%. But we would often take a $200,000 enterprise deal instead of getting $150,000 to $180,000 out of The software subscription, she'd want to take 30 to 50% of that. And I had that discussion. That's just not how we're going to drive enterprise value. So I'm glad to see that adoption and even retention are key criteria today versus maximizing PS revenue and PS margin.

Yeah. And I wonder how much of that was her fault, right? Because sometimes when you see misaligned PS people, like, look, I worked once with an empire builder who just loved to have a lot of direct reports. And as far as I could tell, he wanted to build it just because it made him or her him in this case, feel more powerful. Your example, it's at least possible to me. I'm just wondering if she was compensated on margin, because if she was, if she was incented to have big margin, she's going to want to carve out a bigger chunk of the deal for services, right? And try and drive a high margin on that. So sometimes it's not people's fault, they're just responding to their incentives. And this, by the way, is like— I like to give kind of a Florida PS, but I just like to say your job is to get 5% margins. If you go as low as zero, I'll be okay with it, and I will give you zero I'll give you a lot of punishment for going below zero, but I will give you zero reward for being above 5, right? And if you design the comp plan that way, it will more naturally align them with sales.

Yeah, that's interesting because from some benchmarks last year, we saw that the median professional services margin was actually in the 20s, and I was shocked at that. But it tells me—

That's high. You know, there is a reason to do that, Ray. I don't talk about it that much, but Look, you can generate cash off PS, and that's the argument. The biggest counterargument to me, and I've done it, is when you're strapped for cash, it's like, hey, we can run this thing. We could be running at 35% margins. Why don't we run it at 20%? And then I can get some cash out of it, and I can kind of split the difference. But in general, to me, if you're like— let's go back to ZURB. If you're swimming in cash because you raised all kinds of money at a fantastic valuation, I don't know why you need to be driving 20% margins on services. You might be growing faster if you took some of that that work and supported sales and supported success more.

I agree. Well, let's, let's double-click into the top. I'll call them the lagging indicators, the outcome metrics that a PS leader or professional service organization would be held to. And I think in the CCO, the Chief Customer Officer episode, we kind of were aligned on the top 3. And the first one was revenue or billings, that you got to measure that because you need to know how your Contributing to the short-term top line. So revenue, billings, and I would think that underneath that, attach rate's pretty important, Dave.

Yeah, to me they're different concepts. You keep going— Ray is a sales guy down deep, he hides it well, but attach rate to me is a sales metric, right? It's how much you're attaching to orders, and I think it's a great metric for sales, just like bookings is a great metric for sales on PS. And I do think the PS team should support sales to drive those metrics. But, um, so yes, yes on attach rate, but, but I'm going to agree with what you said the first time, which is, look, the number one metric for professional services should be this quarter's revenue/billings, because our job primarily is to convert backlog into billings. That's what we do here. And the other way to say it is we make happy customers by converting backlog into billings. Because if you're in the backlog, somebody sold you something, and you presumably want it, right? So I need to burn through that in a way that's predictable and delivers the revenue I'm supposed to.

Yeah, I'm going to, I don't know if I double-clicked, I'm going to double-click on that now. One of the reasons I think that attach rate, and let's define what attach rate is, see if we agree on what the— is I look at the total professional service bookings and I divide that by either total bookings or software subscription bookings, or I do it on a number of new customers with PS versus the total number of new customers. Do we agree on what attach rate is?

Uh, close. So I, look, I think of it literally as attached, like there's a services order stapled to a subscription order. I would personally measure attach rate as PS bookings divided by ARR, not bookings, because to me, if you do a 2-year year— if you do a 2-year deal, 100 units of ARR, that's 200 units of bookings, and it gets into the— it makes the metric noisy. So I would actually do it by ARR. How big is their annual subscription? It's 100. How much PS did we sell with it? And that would be the attach rate.

And the reason I'm pushing back a little bit is if you know for a fact that using your PS organization leads to higher gross revenue retention or customer retention overall, then I think it's important to say, oh, well, 85% are using our deployment and we know that's going to lead to higher GRR. So that's why I mentioned it, Dave.

Yeah, look, I think attach rate is a great metric. Don't get me wrong. I just, I will debate whose job it is. That's the actual debate we're having. I think I think companies should measure attach rate, they should have goals for attach rates. The only caution I'd give on what you say is just remember, partners are fine too. And I don't think partners are included in attach rate because it's not our booking, right? Because my main goal is to make sure customers are satisfied. And if a $100K order needs $30K in services, I want to make sure that somebody sold it. And I don't particularly care if it's me, to be honest. I just want to make— my first concern is the person getting what they need to be successful. Right.

And then I put right under revenue and billings that professional services leader, because she or he knows driving ARR and retaining ARR is the company's biggest goal, that we should constantly know what the target of new rev— of PS revenue to subscription revenue is and try not to go above that because that could have negative impact on enterprise value. So I think the PS leader should monitor that. You agree with that?

Ish. So I view it as a planning item. When you make your plan, you need to treat 20%-ish as a cap on how big your services business could be. So I'm a big believer in capping services because it forces allocation of a scarce resource, i.e., which customers do we work on and which ones do partners work on? And the way you get that happening, the way you also stop the empire builder, is you just cap the thing. Say, we're making a plan for next year, you can't be higher than 20%. If you want to be lower, we can You can talk about it, but you can't be higher. And therefore, I've got a built-in cap. So I view myself as protected by the plan, right? Because I took that issue off the table in planning. But yes, I need to monitor it and I will monitor it. Anybody who's going to produce a P&L that splits the two. So, so yes.

Now, the second one, I don't think there's going to be a lot of disagreement, but you, you did put some guidelines around that earlier in the episode, and that is gross margin as a percentage. Critical that we know what it is to make sure we're not losing money. But you're saying let's keep it lower so we're not taking a percentage of bookings away from the subscription and throw it into PS to have higher margins, right?

I'm not sure I said all that, but yes, I agree on gross margin as a must-know metric. And to your point, Ray, a lot of early-stage SaaS companies don't calculate it. I've worked with companies where step 1 is, you know, I go, what's your services gross margin? They say, don't know, we just do an overall gross margin and we throw PS and COGS. And it's like, well, then we gotta, we gotta Stop that. So, so first calculate it. Then we had the discussion earlier about what should the target be. Should it be 40? No. Should it be 0 or above? Yes. And then where you wanna land between 0 and 40 is up to you. I encourage single-digit positive, but if you need cash, I might go— personally, I'd recommend 20, 25. To me, you raise a sales issue, which I often forget about, but there's definitely this kind of carve-out effect. Wait a minute, the customer only has 100 units of money. How much do we wanna take as subscription versus services? Look, I don't love that framing, and I try, and I know it's gonna happen sometimes, but I try with the customer to agree on ARR first, and then say, you know, let's negotiate our ARR. How much do you have? And then say, okay, we think you need this much services. I know it doesn't always work, but I certainly don't wanna encourage the customer to think, you've got 100 units, how much do you wanna spend on each? Because Invariably, that leads to one place, right? When you start with that framing, you go, well, we want 100% subscription, 0% services. And, you know, that's why I don't like it.

Yeah, no, I agree, you don't start there. But in the Fortune 500s, you know, when you talk to procurement and they're like, well, with subscription and services, it's 140 units. I've only got 100 units that we can allocate to this.

So you often end there. I agree, you don't start there, but you will often end there. I totally understand.

Got you. The reality of negotiating way too many of those deals. Okay, number 3.

You still wanna impose it on somebody else, right? If the customer doesn't have that predefined view, I don't wanna start it. I just wanna say it costs $100,000 a year for your software, and hey, you wanna— you should buy some services. I sell them, mine are expensive. I have partners who are cheaper. You know, let's talk about how we get you set up and successful. But I'm not disagreeing with you, but the thing that would bother me, Ray, is when we show up and we kind of plant that idea in a customer's head if it's not there already. Don't plan it.

Totally agreed. And then the third top-level outcome metric, I put it as billable utilization. And I intentionally said billable versus utilization, because if you do utilization, it's like, oh, 91% of the capacity was used. But I want to know what percent of total capacity was used in a billable manner versus unbillable. What say you about billable utilization as number 3?

Yeah, utilization itself could be a very slippery slope, like is training utilization? Oh, I was training. is doing sales support utilization. I mean, you can argue that kind of any productive work is utilization. And when you do that, you make the metric more and more meaningless. So I like billable utilization, as I think we talked about last time. Billable itself can be gamed. Am I billing at 20% of my normal rate because it's rework? Am I billing at some massive discount because sales wanted to push all the money over to subscription? So to me, I think my preference is billable utilization above a certain price floor. Like, if you're billing at 5% of your normal rate, not billing. So you could put a floor on it. The other way to do it, as we talked about last time, is just use realization, because realization counts dollars, not hours. And therefore, it's kind of— the correction is inbuilt into the metric.

That makes total sense. And I'm gonna keep us going because, man, we're gonna dedicate a session to professional services. We're already like 15 minutes into it. But the 2 others I had on the outcome metrics were backlog, because that's the predictor of how much revenue and billings you're going to have in the future. And then I put time to production because in larger enterprise deployments, being able to compress that time can start counting the gap revenue for this subscription sooner. So those are 2 more I recommend.

Great. So let's talk about the lagging ones, Ray.

Okay. Well, the one more I was going to highlight is PS engagement. So I didn't say revenue, but of the deals that we closed, how many did have PS? And what's the difference in gross revenue retention for those deals that engaged our professional services organization and those that didn't? Because to me, that justifies why we're investing professional services, even if it's only at 0 to 5% gross margin. So do you think that metric is a fair one?

It's all right. It's creative. I like where you're going with it. I mean, there's a lot of other factors that can drive GRR, right? Um, I think it's fun to take take a look at it. Look, if I wanna measure PS, I'll do it more directly. I do post-implementation CSAT, which most people do, which is the day after you're implemented. First, it's good to get agreement. Do we agree we're done with the consulting project? That itself, for many consulting organizations, is a struggle, right? There's ambiguity about when we're done. So the nice thing about this metric is, you know, you force agreement with the customer on, we're done now, right? Yeah, we are. Good. Here's a survey. And then I wanna know your services CSAT and your product CSAT at that moment. And that is, I think, Okay.

And then for me, as I'm thinking about professional services that's going to deliver on those outcome metrics, you know, backlog can be either because backlog today predicts revenue tomorrow, but capacity. And when I say capacity, it's not just how many FTEs that you have, or it's times 50 weeks so you can get 2,080 hours. I think you need to factor in based upon historic utilization rates, how much capacity do I really have for billable? Do I allocate 10% of time to rework? Do I allocate 10% of capacity just to onboard strategic customers at a nonprofitable rate? So I think capacity is really important as a leading indicator, Dave, including when you're hiring new people, you know, how many of those can actually deliver 40 hours a week versus 20 hours a week?

Yeah, I think I understand where you're going. I mean, to me, this is largely about the denominator of the utilization metric. Law firms, I think, treat it as 20/80, i.e., 40 hours a week, 52 weeks a year. Most services orgs I work at take out 4 weeks off that. I can't remember the number, but they do like 1,800 or 1,900 in the denominator. I can't remember the exact math. You take a couple of weeks of vacation, a week or two of training. So to me, you normally get this. And by the way, it's an important question to ask when somebody gives you a utilization number. People focus on the numerator naturally, And there's a lot of games you can play with the denominator. Like, what are we divided by? 2,080, 1,800, somewhere in between, lower than that because you've taken a massive allocation for training or services. So, so yes.

And then I think the other thing really important is on utilization, when you're doing utilization or realization, as we mentioned earlier, to know exactly how much of that capacity is being used for non-billable work. Maybe It's an extension of the QA team, or it's fixing issues because the product has deficiencies, or that customer is so strategic, we're going to throw some PS resources just to make sure that they're happy and that they renew. And I don't know if everyone is measuring that non-billable work at a granular enough level.

Yeah, I mean, look, most PS systems, to run a PS org, you need a timesheet system. So you've got a category for that work. I don't know what you call it. At some companies I've worked at, they called that productive utilization, right? So I'm doing something productive, but then again, question, is this self-training productive or not? Is rework productive? Yes, rework would be, supporting sales would be, but the kind of concentric circles I've seen are kind of utilization, productive utilization, billable utilization, billable utilization above some floor. Those are the way I think about it. So I think there's, 'cause there is a difference between doing nothing and going to a training class. Or doing nothing and taking your security training that the company mandates, right? And is security training productive utilization? But you need— utilization itself begs this concentric circles.

Yeah. And then the last 2 I put in here, and they're more traditional, true professional service organization metrics, but it's the billings per consultant and then the effective rate per hour, kind of actualized rate versus list rate. Do you think it's important for a SaaS PS leader to be managing too?

I mean, the issue is when you measure stuff, you start to reward it, right? So if— and this is why we have to measure gross margin, but there's this tendency to want to reward overperforming it, right? So billings per consultant, yeah, I mean, we should know it. Any good person running a services business would do that. But if you give the Consultant of the Year award to the person who had the most billings, you may be incenting the wrong thing. Because that person may grind 2,200 hours a year and bill like crazy, but doesn't help sales, doesn't help customer success, right? And you may have some hero who saved a million-dollar ARR account whose billings were crushed because they were doing all this free work. And so you tell me who's Consultant of the Year. And in my mind, in many ways, the easy answer to that question is you just split it. You actually give some awards based on billing, and those are like the best supporting actor in a foreign documentary, right? It's not Best Picture. And Best Picture is the person who helped maximize ARR the most.

Well, I think we're going to wrap up this episode with the way you started it. The primary mission of professional services and a SaaS company is to maximize ARR without losing money. If you can help do that, you're going to be a hero.

Amen, Brother Ray.

All right. Thank you, Dave. Thank you everyone for listening.

Take care. The Metrics Brothers AI, SaaS, and More is a production of the Metrics Brothers Growth and CAC and a member of the Benchmarket Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told.

Ray?

Information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional or, for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, indirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, reliance upon the information presented here. Ray Grothreich is based in New York City and available on X @RayReich. Dave Kellogg is based in Silicon Valley and available on X @Kelblog. Schedectady, which is French for unspellable, is not our actual production location. Thanks for listening.