Case study: Services pricing
Environmental data management services company
Our client - a leading environmental data management services company, offered expert services to medium to large industrial enterprises to support their environmental remediation and compliance management efforts.
Current state
Our client offered environmental management software, implementation services for partner systems, and professional services such as data validation, data analysis, and custom software development. Majority of our client’s revenues came from services which were priced on a time and materials (T&M) basis. T&M pricing not only made revenue unpredictable but it also didn't allow for pricing the expertise that our client brings to these long-term projects
Future state
1. A new pricing strategy to transform the a-la-carte services model into a managed services model with mutually agreed-upon SLAs
2. A new monetization strategy that enables the software revenues to surpass service revenues in 5 years
3. A unified pricing structure for pricing the native and partnered solution services simply and similarly
Problem
1. The T&M pricing metric is commoditized, and does not scale with the scope of and the value of the services provided for environmental remediation
2. The T&M metric makes annual budgeting unpredictable and difficult for clients
3. The overhead is high and staffing levels are managed by utilization which causes stress in the org
4. It's difficult to grow the account value year over year or through the customer lifetime
5. Services are not integrated into the software subscription creating confusion in client expectations
Insight
1. Levels and types of services scale with the scope, complexity, and lifecycle of an environmental remediation project, so should the pricing metric
2. Bundles of services can be created to match SLAs with budgetary requirements
3. Annual service agreements are to be mandatory for clients to have access to expert knowledge and for our client to maintain an expert support team
4. Subscription-based service model enables our client to invest in a more integrated software and service experience which, in time, will empower clients to rely less on services and more on product, and increase the customer lifetime value through usage and adoption
Break-through
We created a multi-tiered managed services model that scaled with customers' scope, activity levels, and service requirements. Meanwhile, we also identified opportunities for service delivery standardization and automation that will continue to improve service margins as our clients' customer base expands. Finally, we created a technology roadmap for our client to realize revenue contribution from software surpassing the revenue contribution from services in 5 years.
Results
We have validated our recommendations with field testing and translated our learnings into product requirements and implementation roadmap. Our client has fully embraced the transformation from the hourly professional services business model into a recurring managed services model. The new revenue model creates opportunities to drive revenues up to 35-50% annually while building a higher margin service organization to support their future product roadmap.