Professional services has spent decades with a relatively straightforward way of connecting the work a firm does to the money it makes.

More work usually means more people. More people create more billable hours. More billable hours create more revenue.

There are plenty of variations on that model, but the relationship between time, capacity and revenue has remained remarkably persistent across the industry.

That relationship is starting to come under pressure.

Across our recent six-part podcast mini-series, Unlocking Value: The Tech Disruption Story, our guests approached the changing professional services market from very different perspectives. Yet one question kept surfacing in different forms: if the amount of time it takes to do the work changes, what are clients actually paying for?

Pricing is part of the question, but the implications go much further.

It affects what firms sell, how they deliver it, where clients perceive value and, ultimately, how a professional services business grows.

A model built around people and time

Sarah Edwards from Kantata has spent around 30 years in professional services and made the point that, for all the change the industry has seen during that time, its underlying commercial model hasn’t moved very far.

Firms still rely heavily on people and billable hours. Growth has traditionally meant adding more people, increasing rates or finding ways to improve utilisation.

The pressure now is to grow revenue and margin without the same linear increase in headcount. At the same time, clients increasingly expect work to be delivered faster and can do more themselves than they could previously.

The result is an obvious tension for firms whose revenue still depends heavily on how much time their people spend doing the work.

The issue isn’t that time-based pricing is about to disappear. For plenty of work, it remains practical and appropriate. The question is what happens when time becomes less closely connected to either the cost of producing the work or the value the client receives from it.

When five days becomes five minutes

Deb Ashton from Certinia put that problem particularly clearly.

With a traditional time and materials model, the logic is easy to follow. A consultant spends five days doing something, records the time and the client is billed at an agreed rate.

But what happens when technology allows the same piece of work to be completed in minutes?

As Deb pointed out, the value of the outcome hasn’t necessarily fallen simply because it took less time to produce. Yet the old connection between time spent and price charged suddenly becomes much harder to sustain.

This is where conversations about value-based and outcome-based pricing tend to begin.

The difficulty is that measuring time is easy. Measuring value isn’t.

Most firms can tell you exactly how many days went into an engagement. Being able to show what changed for the client as a result is a different discipline altogether.

Clients are changing the calculation too

This pressure isn’t only coming from what firms can now do more efficiently. Clients are changing their expectations at the same time.

Sri Ganesan from Rocketlane described services teams that are beginning to rethink how the work itself gets done, rather than simply using AI to remove some of the administration around it.

The distinction is important because it changes the work itself, not just the cost of delivering it.

If technology can materially shorten implementation or delivery, clients will increasingly question timelines that are based on how long the work used to take. Sri is already seeing that happen.

The opportunity for firms is potentially significant. Shorter projects can create more capacity and make it possible to serve more clients. But they also raise an important commercial question: who captures the benefit?

Does the client pay less? Does the firm retain more margin? Does it use the additional capacity to grow? Or does the proposition change altogether?

There isn’t one answer, but those are commercial decisions that firms will increasingly need to make deliberately.

Where clients see value is moving

The other side of the equation is what clients are prepared to pay for.

Jon Stead from CMap sees signs that some of the work professional services firms have historically charged for is becoming easier for clients to access elsewhere.

Analysis is a good example. If technology makes it quicker and cheaper to gather information, interrogate it and reach an initial answer, simply producing the analysis becomes harder to differentiate.

Jon’s view is that more of the value is likely to move towards what happens next: applying judgement, implementing the answer and helping the client make change happen.

Expertise still matters, but where it earns its keep may be changing.

For firms, that means understanding much more precisely which parts of an engagement clients genuinely value and which have historically been chargeable largely because they required someone’s time.

Proving the result becomes more important

Jonathan Corrie from Precursive argues that professional services firms should think about delivery as part of the growth engine, rather than something that simply happens after the sale.

If you do something valuable for a client and can demonstrate what changed as a result, you create a much stronger reason for them to buy again.

many firms are still much better at recording the effort involved in an engagement than the result it produced.

Timesheets, utilisation, project costs and recovery rates give leaders a detailed view of what went into the work. The client’s experience of value is often captured much less systematically.

If firms want to become less dependent on selling people’s time, that balance will need to change.

Being able to define the intended outcome at the start, track progress towards it and demonstrate the value delivered at the end becomes part of the commercial model, not simply good account management.

Disruption changes what customers are willing to pay for

Jason Soar’s experience in grocery offers a useful parallel. The rise of online grocery and the discounters gave customers credible new choices and forced established supermarkets to rethink what customers valued and how they wanted to buy.

Professional services is very different, but the same principle applies. When clients have new ways of solving a problem, firms can no longer define value purely by reference to how they have always delivered the work.

The implication for professional services goes beyond finding a new way to price the same work.

Firms also need to ask whether the work itself, and the proposition around it, still reflects what clients are prepared to pay for.

This is bigger than value-based pricing

None of this means every professional services firm needs to abandon time-based pricing and move wholesale to charging for outcomes. There are good reasons why time and materials has endured for so long, and there will be plenty of situations where it continues to make sense.

Jon made the point that true outcome-based pricing can be difficult because a consulting firm rarely controls everything that determines whether an outcome is achieved. Fixed fees, retainers and other commercial models all have their place too. The shift we’re seeing is less about one pricing model replacing another and more about firms having to understand much more clearly where clients see value in the work they do.

As technology changes how much effort is required to produce some of that work, the distinction becomes more important. Firms will need to be clearer about the problem they’re solving, the difference their expertise makes and the result the client is buying. In some cases that may lead to a different pricing model. In others, it may change the proposition itself or where the firm’s people spend their time.

Professional services isn’t suddenly going to stop selling time, but firms may find it increasingly difficult to rely on time as the main way of explaining why their work is valuable.

Continue the conversation

This article draws on insights from all six episodes of Unlocking Value: The Tech Disruption Story, our mini-series exploring how technology is reshaping professional services and what separates the firms that adapt successfully from those that struggle to keep pace.

Featuring perspectives from Jason Soar, Jon Stead, Sri Ganesan, Sarah Edwards, Deb Ashton and Jonathan Corrie, the series explores everything from AI, delivery and pricing through to operating models, expertise and the future of professional services. 

Listen to the full series here.