Back to Treya Academy

What is a Client Services Company?

What do marketing agencies, custom software development companies, law firms and design studios all have in common? They are all client services companies (sometimes called professional services or consulting companies). While the service they offer is different, they all share the same business model.

What is a business model, anyway?

A business model is the core of how a company operates and how it makes money. A grocery store, for example, purchases products from suppliers and sells them to customers. To run a successful grocery store, they must purchase the products for cheaper than they sell them for. They also have a physical location, staff the store with employees, maintain checkout lanes, and manage inventory. Each one of these factors can be quantified, measured and improved. Together, they make up the grocery store's business model - which is the same as any retailer's business model.

The client services business model

A client services company sells their services to clients in exchange for a fee. These services utilize the time of experienced practitioners, such as software engineers, creative directors, designers, copywriters, product managers, quality assurance testers, etc. To be successful, the company must sell the time spent delivering theses services for more than it costs to pay the practitioner delivering them. This calculation is called gross margin (or gross profit) and it's one of the most important metrics for a client services company.

Client services companies package their services in two ways:

Time and Materials - the company invoices the client for the time they spent delivering the services, usually in units of hours or weeks. The client pays an agreed upon rate for that time. Sometimes that rate is based on the role of the practitioner, and sometimes it is a flat rate for all practitioners (often called a "blended rate").

Fixed Fee (also known as a project fee or a recurring fee) - the client agrees to a fixed price for the services to be delivered. The client is not told how much time was spent delivering the services, because they are not paying for time, they are paying for the services to be delivered.

Companies can be successful in both structures. It's best to use a fixed fee when you know exactly how much time will be spent delivering the services (and your margin of error is small). It's best to use a time and materials structure when you don't know exactly how much time will be spent delivering the services, such as the development of a new product or feature.

Even if you sell at a fixed fee, your profit margin is still derived from how much time you spend delivering the services. In simple terms, if it took you a month of two people working full-time to deliver a project for $50,000, and you paid them $15,000 a month each, your gross margin is $20,000. If you only earned $25,000 from that project, you lost $5,000.

For that reason, all client services need to track the time billable employees spend delivering services. Smaller firms may start out with larger units of billable time (like weeks) because they don't have the operations in place to track time granularly. However, in order to grow, they must transition to tracking time by the hour - even if they aren't explicitly selling hours. The percentage of time someone bills versus the time you pay them for is called your utilization rate, another very important metric for a client services company. A full-time employee is typically being paid for 40 hours a week, so if they bill 20 hours a week, their utilization rate is 50%.

Know your business model and use Treya to track it

A lot of new businesses fail when they don't understand their business model. For example, if you are a custom software development services company, your business model is entirely different than a company that sells software. If you try using the same sales processes as a SaaS company, your business will fail.

Treya is built specifically for client services companies. Every feature is designed to support this business model without the need to customize a general-purpose platform. Treya's CRM capabilities give you tools to build project plans, pricing and invoice schedules that make sense for client service companies. Spend your time selling, hiring and billing - not on fighting a platform that wasn't built just for you.