There’s a fundamental math problem baked into most professional services firms: if you’re billing by the hour, your revenue is capped by the number of humans you employ and the number of hours in a day. That model can work for a while. But at some point, it becomes unsustainable.
Maybe you’re already feeling the strain. Margins are tight. Headcount keeps growing, but profit doesn’t follow. Scaling starts to feel less like growth and more like treading water. Meanwhile, product companies are reaching 70 percent margins without adding to their team or reworking their delivery model. So how do you close that gap? In almost every case, the answer starts with technology.
Services Firms and the Margin Ceiling
Most professional services firms operate with gross margins in the 15 to 25 percent range. That isn’t a reflection of bad management. It’s just the reality of time-based billing. When your business relies on people logging hours, your expenses will always grow with your revenue.
In contrast, product-based businesses get those sweet economies of scale that services firms don’t. Once their software is built, the cost to serve the next customer is basically zero. That’s why SaaS companies have margins in the 60 to 90 percent range while still growing quickly.
This disparity in margin isn’t just theoretical. The 2024 Consultancy BenchPress report found that firms that implement Professional Services Automation (PSA) software see an average gross margin increase of 19 percent compared to firms still relying on spreadsheets and manual processes (CMAP / BenchPress, 2024).
If you’re struggling to grow without sacrificing profitability, this is the most obvious opportunity.
How Automation is Helping People Do Better Work
There’s a common fear that automation is about replacing people. In our experience, the opposite is usually true. Automation creates space for your team to focus on higher-value work, like speaking with customers, digging into analytics, inventing new service lines, the kind of stuff that actually moves the needle.
We recently worked with a firm that provided compensation analysis in a tightly regulated industry. Their consultants were spending huge amounts of time entering data into spreadsheets and formatting compliance documents. Together, we built a guided self-service platform that let their clients handle the initial intake themselves. The system flagged anything that needed a consultant’s attention based on some risk criteria that were complex and sometimes fuzzy.
The result wasn’t a reduction in headcount, iIt was a shift in how people worked. Instead of spending their days on data entry, consultants were advising clients, identifying risks, and building stronger relationships. They got more done, felt more fulfilled, and created more value. And when the risk scores went over a certain number, the consultants still got called in to do that highest value work.
What It Means to “Productize” a Service
You’ve probably heard the term “productizing” before. It just means turning part of your service into a repeatable, scalable offering. It’s a way of capturing your expertise in a system so that delivery no longer depends entirely on your team’s time.
This could mean building a Software as a Service (SaaS) platform based on your process. But it might also look like automating client onboarding, packaging your consulting framework into a digital assessment tool, or turning a report into an interactive dashboard. The point is to extract the patterns in your work and build a system around them.
Think about the parts of your service that follow a consistent structure. Do you have templates you use for clients? Standard reports? A defined five-step process? These are signals that your service can be scaled with technology.
Start Small, Think Long Term
You don’t need to transform your entire business model in one move. In fact, you probably shouldn’t. The most successful firms start with one process and improve from there.
We recommend running a simple audit. Map out your delivery process from start to finish. Then ask: where are the bottlenecks? What tasks are repetitive or manual? Which ones don’t really require human judgment?
Once you have that list, prioritize it based on a simple ICE score: Impact, Confidence, and Ease. Look for the process that’s painful today, relatively easy to automate, and would unlock time or revenue right away.
Over time, these small improvements start to compound. Your team will spend less time doing repetitive work and more time driving outcomes, being creative, and doing HUMAN work.
The AI Advantage
Artificial intelligence has changed what’s possible. Five years ago, automating a custom analysis or building a recommendation engine would have required months of work. Today, these AI tools can handle a huge range of tasks, from reviewing invoices for errors to language generation and report writing.
But here’s the key point. AI can replace some of your tasks, but is NOT a replacement for your EXPERTISE. It’s an accelerator. It takes what you already know and helps you deliver it faster, more consistently, and at greater scale.
Your clients still need your insight. They still want your guidance. What AI allows you to do is spend less time preparing the work and more time presenting it. That’s a win for your team and your clients.
Final Thought: Don’t Wait for Someone Else to Build It
If your firm is still delivering services the same way it did five years ago, you’re at risk. Someone in your space is already building a software-driven version of your offering. They may be a startup or one of your competitors. Either way, they’ll be able to serve more clients, more efficiently, at a lower cost.
The firms that thrive in the next decade won’t be the ones with the biggest teams. They’ll be the ones that figure out how to scale their expertise with technology.
If you want to increase your margins, serve more clients, and avoid burning out your team, this is where you start. Not by hiring more people, but by making the people you already have more effective.
Ready to Build a More Scalable Business?
At Sourcetoad, we help professional services firms automate delivery, productize expertise, and build tools that grow with them. Whether you’re looking to build a new product, improve operations, or explore what automation could do for your business, we’re here to help.
Reach out to us to schedule a conversation.
