Why you need to charge your customers for implementation

One of the most debated topics in B2B software sales is the charging of an implementation fee. There was no fee for implementation in just about every situation where I have come in to help setup or fix the team. There are some excellent pros and cons for both sides of the argument. I have written my thoughts below, and I am looking forward to hearing your thoughts. 

Cost of Resources

The most important reason, from my experience, is that great resources cost money. If you are implementing enterprise software, with possible integrations and development work, the resources to do that will usually cost money, at least $75k for your least expensive team member. These people are your brand post-sale, and need to inspire confidence during pre-sales and throughout the implementation. If you are scaling, the number of resources needed will need to climb at some proportion to the new sales. 

For example, let's put some hypothetical round numbers out there. Your current revenue is $15MM per year. Your average deal is $75k per year. That means you will need to implement 200 customers over the course of the year. If all sales are split evenly over four quarters (which we know never happens), that means your team is possibly handling 50 new customer implementations at any given time, with variability between 30-90 days for average deployment. Throw in that HUGE deal that takes up half of someone's time. How many concurrent implementations can your team handle? 5? That means you need a staff of possibly 10 resources (remember- round numbers). 

10 (resources) x 75,000 (salary) = $750,000 (cost of resources)

Congrats! You are now running a million-dollar P&L. Now, the board has asked your sales team to get 2x revenue next year. That doesn't mean you can suddenly double your staff. Scaling efficiently means that you need to find more efficient ways of getting customers live and possibly investing in tools and people. The RIGHT people. Hiring a crop of cheaper resources will not fix this problem, and more times than not will complicate them. 

To complicate things more, at this stage in a company, much funding is going into Sales, Marketing, and R&D. Budgets are tight. How will you fund these new resources? Let's do some more math. 

400 (customers) x $15,000 (implementation fee) = $6,000,000 (PS revenue)

If you charged each new customer a modest $15,000 fee, you would have more than enough revenue to pay for fantastic resources that would rave about the tremendous implementation experience. Customers will happily renew as they see the value (TTV) early with your software. 

The reality is that your team should not be servicing all 400 customers. There should either be some self-servicing option for customers on the lower end. If the product is too difficult for that, the product team should fix that. You will also have usually 1-5 new customers per quarter that will take up some significant resource time. Your team will also most likely have those deals that are HUGE deal changers and you might consider charging considerably more for them.

Now that we have covered the cost of resources in detail, here are some other fast points:

Photo by Mary Herron/iStock / Getty Images

Free is a four letter F-word

There is nothing that devalues your brand image worse than being free. Customers are very keen on the "Perception of value" (In this Hubspot article, the perception of value is explained). By charging nothing for your implementations, the following happens:

• It demonstrates a lack of confidence in your solution

• It squeezes your profit margin unnecessarily.

• Large enterprises usually pay for quality and will be suspicious. 

Net/net- People don't value free

Improve CAC Recovery and Retention with Implementation Fees

According to this report," implementation fees dramatically improve customer acquisition cost or CAC recovery and improve retention rates across different ARPU customers considerably….Companies with implementation fees typically see roughly 10 to 20% better net retention across different ARPUs than their non-implementation fee cousins."

One note that you will see in this report is that there are some lower conversion rates when charging fees. In my experience, this is a good thing. As you move to sell into the enterprise, you will want to stop focusing on smaller businesses that will churn faster. 

Key Takeaways:

• The resources you will need to implement customers in a scalable and repeatable manner need to be high quality, and you will need to have the revenue to pay for them. 

• Prospects don't respect or value free

• Organizations that charge implementation fees see better net retention and CAC revovery. 

As always, comment below, and if any of this sounds confusing, send me an email at jeff@jeffkushmerek.com, or schedule a call.