5 Ways for Microsoft Partners to improve profitability from your Professional Services team

Microsoft partners are under tons of pressure. Lots of competition externally and even more competition from within the Microsoft ecosystem. Partners are also dealing with resource shortages which are in part the source of rising resource costs.

To make it even harder, technology buyers are generally becoming more reluctant: deals are getting longer and smaller and more deals are going to no-decision.

Finally, Microsoft is taking more of the software margin from partners that helped fund their growth.

As a result, partners are becoming more reliant on professional services revenue to drive profitability. So how do you do it in 2025? Here are five ways to increase your professional services profitability:

Stop doing free work

This is a killer. You’ll find yourself burning through new budgets too quickly to the point where the project budget is shot but the project is nowhere near complete. Here are some ways to eliminate free work.

Provide tighter scope definitions and project assumptions. Templating project plans and SOWs is a great start.
Run a REAL weekly project status meeting ensuring team members are getting done what needs to get done. Delays cost money.
Make customers accountable to their work items and timelines, how many times do projects get delayed because customers can’t hit their marks?
Stop underestimating task efforts.
Track progress to make sure that your team is burning budget at the same rate they are progressing on tasks.
Close projects that are completed, preventing resources from grabbing hours that will never get paid.

Give work to lower cost resources

Senior resources are great, but they are also very expensive. The best PS teams spread around work to more junior resources, lowering the average cost per project. Delegate efforts like configuration, testing, and training that can easily be performed by more junior resources with some oversight from the senior resources. Leave the high value, high contention tasks like requirements gathering and analysis work to the senior resources.

Drive higher utilization

The goal would be to get resources to 75% ‘billable’ utilization. That is, 75% of their working hours are on projects that are driving revenue recognition. As projects shift out, or stall; you need to have a backlog of work that can backfill bigger projects that have gaps. A great way to do this is to keep a backlog of small effort work orders that can be squeezed in during the weeks that a resource has availability. Make sure these are scheduled as soon as they come in.

Sell smaller scale projects

This may seem counter intuitive, but smaller projects are actually less risky, less complex and will have a higher win rate. They are also a great way to get new customers ‘off the street’. You can even try positioning the first project as a fixed scope for fixed price project. Fixed priced projects are milestone based and significantly speed up revenue collection. Customers love them because it makes them feel like the risk has shifted to the vendor. But when they are run correctly, with the right rigor, they are less risky to the vendor because payment is no longer a leverage point.

Don’t forget to invoice

This happens all the time. One of two situations:

Companies forget to invoice completed project billing milestones because of the hand off between professional services and accounting. The milestone isn’t billed timely, and it becomes a little more difficult to get it paid if the project isn’t going smoothly.
Companies fail to invoice time and material efforts because the work order amounts are too small, or they couldn’t be bothered setting up the change request properly.

Either scenario is preventable with proper process and tools.

What’s the impact of getting this stuff right?

Well, according to SPI research, the difference between a Level 1 maturity PS team and Level 5 maturity PS team is as follows:

More revenue growth (18% vs 8%)
Higher bid to win ratio (70% vs 45%)
More referencable clients (95% vs 50%)
Employee utilization (87% vs 55%)
Project with ontime delivery (94% vs 61%)
Project margin (51% vs 29%)
Revenue per billable resource $313K vs 88K
Profit (26% vs 4%)

How does R40 Performance help?

We provide:

Best practices across all areas of Professional Services. From proposal and estimation, to project management, to team management.
Performance coaching to your leadership and project managers.
A Microsoft based system to manage project delivery, resource management, and billing
Reporting, benchmarks, and insights
Operational assistance to your PMO process on a weekly basis.

We have decades of experience running services teams in the Microsoft ecosystem. We’ve collected all the best practices and built the tools to turn your organization into a Level 5 maturity driving more revenue and profitability.