Every Tech Company Should Offer Services

Many companies, especially early tech companies, are afraid to build a professional services team (or do anything manually) because “it's not scalable.” But you can't scale something that doesn't work yet. And there's no better way to understand what it takes to make customers happy than to work hand-in-hand with them.

Especially if you're doing SaaS for the first time (or even the second), the whole idea of charging for “services” may seem anathema. It sure seemed like that to me at EchoSign.

• If your product is so easy to use that you hardly even need sales people, why in the world would I need to charge for implementation? For support? For training and engagement?
• And isn't it a bit unseemly to charge for services? Doesn't it label your product as old-school, too clunky, inelegant, or complex?
• And isn't the revenue from services a waste? For example, it's not recurring and it's not true ARR. Does it even count? After all, I'm a SaaS company.

Maybe. Perhaps for the 15% of the world of super-engineers or Early Adopters, charging for services doesn't make any sense.

First, let's assume you've nailed your product offering. But you probably haven't, not to the extent you believe. Services gets your people hands-on with customers, and can be the best way to learn the details of which customers find it easy, and which ones find it hard, to get value from you stuff.

Okay, so you've nailed your product and you're following the money upmarket. Let's talk about the money.

Turns out, though, that in the vast majority of six-figure contracts, virtually every seven-figure contract, and quite a few five-figure contracts there's always a services component.

And it almost always seems to average out to 15–20% of the annual contract value.

I remember the first time I experienced this confusion myself, on one our first high-five-figure contracts at EchoSign. We had a brutal negotiation over price. And then, at the end, they send us a Schedule for Services. After getting beaten down on the annual contract price … the Schedule for Services they sent us (without me even asking) guaranteed us another $20,000 a year in services, with $250 an hour as the assumed price for the services. I didn't fully understand what was going on until I became a VP in a Fortune 500 tech company. But the answer, it turns out, is simple once you get it.

First, in medium and larger customers, there's always change management to deal with when bringing in a new vendor. And they not only understand there's a cost associated with that (soft even more than hard) … your buyer wants to do the least amount of change management possible by herself. If you can do the training for her for a few bucks and it saves her a ton of time, that's an amazing deal.

Second, in medium and larger customers, they often have no one to do the implementation work themselves. So even if you weren't saving your customer money—by helping with implementation, roll-out, support, and so on—they probably have no one to do this internally anyway. You're going to be doing some, a lot, or all of this for them. They are okay paying for this, in the enterprise at least.

And most important, it's how business is done, and it's budgeted. When most larger companies enter a new vendor into their ERP system, they typically add an additional budget item or two along with the core contract price. There will be one additional line item for service and implementation, in most cases. And in some cases, an additional line item for other add-ons necessary to make the implementation a success (e.g., an EchoSign on top of Salesforce). Both of these are often line-item budgeted at 15–20% of the core contract value for the product. So…

• You probably can't charge another 15–20% for services and implementation and training for a $99 a month product. Well, maybe you could, but it's probably unprofitable and not worth it.
• But, as soon as the sale gets into the five figures, consider adding 15–20% for services. You'll probably get it.
• And plan for charging, and delivering, additional services in mid-five-figure and larger deals. The customers are happy to pay, and in fact, will expect it.

And if you don't charge, you're simply leaving money on the table. You'll have to do the work, anyway. You may send negative signals that you aren't “enterprise” enough, that you aren't a serious vendor.

And importantly, this extra services revenue still “counts” as recurring revenue if it's less than 25% or so of your revenues. I don't mean that literally (it doesn't recur), but what I mean is that Wall Street and VCs and acquirers and everyone will still consider you a 100% SaaS company if less than 25% of your revenues are nonrecurring. And you'll get the same SaaS ARR multiple on those extra services revenues: same multiple, no extra work, 10–25% more revenue, extra, nondilutive cash flowing into the business.

Don't leave the services revenue on the table.

What Jason Invests In, and Do You Need to Raise Money to Scale?

Through my own venture capital fund, I look for two and a half things when I'm investing in companies: great founders, better than average economics (how easily they make money), and a space that may be interesting in a year or two.

1. Great founders: Because I've been a SaaS founder myself, I look to invest in founders that are better than I was by comparison. They may not know as much as I do now, but are they better at their age than I was?
2. Better-than-average economics: I look for companies with a better use of economics than what I experienced at EchoSign. If you're selling something at $1,000 but can charge $10,000 for the same work, it's just 10x easier.

   ---

   If you're selling something at $1,000 but can charge $10,000 for the same work, it's 10x easier.

   ---

3. An interesting space: I look for something that's vaguely in a good space. Markets change, but I want to back a business in a space that's likely to attract someone else's investment down the road.

What the Headcount of a 100-Person SaaS Company Looks Like

Early stage companies (under $2 million) are often a bit shocked by how many people and roles they will need to get to, and past, $10 million. SaaS requires many functions beyond engineering, especially if it's sales-driven: outbound, SDRs, inbound, field sales, marketing, Customer Success, support, more complex product management, etc. Roughly speaking, most founders will need to hire about twice as many people as they'd planned. So let's break it down.

Let's say you are at $10 million ARR and decently funded; you'll probably have 100 headcount by this point, or at least by $15 million ARR. What will it look like, if it's a sales-driven model? You're not “sales-averse,” waiting for leads to come in organically, but rather, you are actively investing to grow leads and sales faster.

Let's say sales are growing at 100% annually and you want to hit, say, $20 million ARR the next year.

On the sales side, we'll need about 40 headcount at $10 million ARR (to grow 100% the following year):

• One VP of Sales, and probably a VP or Director of Sales Ops, and at least one analyst under her (headcount of three). Say 20 sales reps to fully hit the $20 million ARR plan because we're adding $10 million in ARR next year, and more by the end of the year. (That's a yielded quota.) Really, we'll want more than this toward the middle of the year because we'll be adding so many net new bookings/ARR. Budget for 25 in all.
• At least eight SDRs to handle lead generation, outbound prospecting, and responding to inbound leads. Situations vary widely, but a 1:3 ratio is good for modeling purposes. Many companies have this team in Marketing, so that Marketing can be the sole owner of a lead generation quota.
• Probably three to four sales directors to manage the 25 reps (8 reps per director is a standard ratio that works well).
• I'm not even breaking this down between small businesses versus enterprise, inside versus in the field. By $10 million ARR, you'll probably want to have two to three people in field sales for big deals.

In Customer Success, we'll probably need about 20 headcount:

• Assume $1.5 million ARR per CSM. So we'll need about 15 CSMs to hit our plan for next year, although we can hire some later in the year, so we can call it 15 for now.
• A VP to manage them, two directors to manage half of the CSMs each, and probably an analyst to support her in data analysis, and so on (four).

In marketing, it can vary based on outside vendors, but I'm guessing four to eight employees:

• VP Marketing
• Director, Demand Gen
• Director, Field Marketing (events, etc.)
• Content Marketing
• Product Marketing
• Probably, Marketing's own Lead Qualification reps to manage the MQLs (two to three).

In support, we want 24/7 support at this point, including phone support. Let's assume that requires five headcount, minimum, ideally six.

Okay, we're up to around 70 people without a single engineer!

Now let's cross over into the product division and engineering.

In product, we're going to need at least four employees, and even that isn't much fat:

• A VP of Product to manage the whole thing
• Two to three product managers to manage segments of the product, integrations, releases, and so on

In DevOps/TechOps, we're going to want probably three to four folks just to ensure 24/7 coverage. Really, four would be a lot better than three. Pager duty is tiring. Maybe it's really six to seven.

In engineering, I think rough-and-tough, we'll want 20 folks. That's two “pizza box” teams plus a few engineers to do crazy next-gen stuff, and a few to just focus on fixing things, back-end, and so forth. We'll want two designers who can work with the front-end team by this point.

And finally, we need QA—probably at least eight QA engineers and one manager. You can use RainforestQA or something else to get the headcount down, but otherwise, best case, assume 1:2 coverage. So with 20 engineers writing code, we're gonna need eight folks on QA team minimum, once things are humming, plus a boss for the team.

So that's about 40 in product and engineering you're gonna want at $10 million ARR or so. Or 110 altogether, plus whomever you need in General and Admin, Finance, and so on.

I went over 100, I know, so cut back from there proportionately. But you'll need those extra heads to hit your growth plan.

Note that I have a lot more in sales, marketing, and Customer Success than your typical model looks like for public comps (around 30% in sales and marketing by revenue). But that's often because they are growing more slowly at that point on a percentage basis than you are, they have larger quotas, and/or they aren't investing as aggressively in Customer Success.

In other words, assume the majority of your headcount at a $10 million ARR SaaS business is not building product, but helping to sell, market, and support it.