Sometimes the line between consultant, contractor, and professional services firm can be confusing. Yet the distinction is important, because it helps your business organize properly and align around the best practices and technologies that support the actual work of your organization.
There is overlap among consultants, contractors, and professional services firms, but there also are distinct differences. Let’s look at what defines a professional services firm, and how it varies from the other two business forms.
A business is a professional services firm when it focuses on an intangible, often bespoke service that helps a customer manage a specific part of its business. This service can come from a contracting firm that focuses on this specialized knowledge, or it can be a service offered by a vendor that helps support the vendor’s products.
Common professional service firms include technology implementation, engineering support, accounting, legal, marketing, custom development, post-implementation value realization, analytical services, and project management, among others.
One key distinction between consulting and professional service firms is that professional services including performing the specialized work being addressed. A consultant will advise on a specialized topic but not actually perform the work. A professional services firm, on the other hand, actually does the work.
So an accounting consultant will advise on a tax issue and suggest the proper method for handling it from an accounting perspective. An accounting professional services firm, on the other hand, will actually manage the books for a business and address the tax issue from an accounting perspective.
This distinction between consulting and professional services often blurs, however, because many professional services firms include both consulting and professional service management within the same company and as part of the same service. The key distinction that makes a business a professional services firm instead of a consultancy, however, is the hands-on performance of work. A consultancy advises a professional services firm does some or all of the actual work.
The intersection of consulting and work performance also differentiates a professional services firm from other types of contract work. Because professional services firms operate in a domain of specialized knowledge and often mix consulting with actual work on behalf of customers, these firms take a leading role with customers instead of simply serving as additional human resources. Professional service organizations frequently lead customers in the specialized area where they provide service.
As noted above, a professional services firm typically takes a leading role with customers in its domain of specialization. A customer will usually bring aboard a professional services firm to advise on a particular area of business and then have the firm fully or partially implement and manage this area of the business.
The work we do as an ERP implementation partner is a good example of a professional services business in practice. Businesses hire us to help consult on selection and implementation of their planned enterprise resource planning system. Once we’ve helped them with ERP implementation planning, which is the consulting side of our business, we then assist with the actual ERP implementation and the ongoing maintenance or custom development required after rollout.
There are two basic business models for professional services firms: a revenue model, and a product/sales support model.
With a revenue model, the main goal of the professional services business is driving direct financial performance and profit. In this model, a professional services business is structured primarily to make money since the business exists to make profit directly. The mix between billable and non-billable time will skew toward billable hours and income-generation as a result.
The primary goal of a product/sales support model for a professional services firm, on the other hand, is supporting the company’s core products or services. These product/sales support operations focus more on the sales and utilization of a company’s core revenue-generating products and services, and they will utilize billable hours but focus more heavily on non-billable work such as customer adoption and/or pre-sales support. Service revenue won’t be ignored, but it is a secondary consideration for the business.
All but the simplest professional services firms require software beyond spreadsheets for efficient management. Typically there are three technologies used for service management.
First, professional services firms use professional service automation platforms (PSA), which oversee staffing and resource planning, client management, and time tracking and billable hours.
Second, they rely heavily on project management software for managing client projects and deliverables. This project management software may be part of their larger PSA or a standalone solution.
Third, professional services firms that help with ongoing operations and maintenance often employ remote monitoring and management software for integrating with client systems as part of the ongoing support relationship.
To drive efficiency and simplify backend systems, professional services firms often use an ERP system tailored for their industry. The use of an ERP solution for backend management delivers greater analytical and automation opportunities over a series of standalone technology solutions.
Hopefully, this brings clarity to whether or not your business is a professional services company or another type of business. For clarity on the technology side and how ERP might be able to help, see our article, The ERP Features Most Important for Professional Services Companies or contact one of our ERP consultants at (801) 642-0123 or info@nbs-us.com.