Professional services firms have the opportunity to build out highly profitable businesses with the right mix of expertise, project management skills and authentic relationships with customers. However, tactical and strategic obstacles can stymie growth and profitability along the way. Issues may arise around team building, communication, resource allocation and simply ensuring that billable hours are accurately tracked and reported. This guide digs into some of the most common challenges facing professional services firms and offers strategies for how leadership can plan for and conquer them.

What Are Professional Services Challenges?

Professional services firms provide clients with specialized insight and advisory services to help them run their businesses more effectively. However, sometimes professional services companies can be so focused on specialized customer engagements that they struggle to handle the broader range of business concerns required to profitably run their own internal business. For instance, a law firm may be effective at helping companies navigate litigation, but it could struggle with marketing and effective resource management. An accounting firm may know the ins and outs of financial reporting, but it may struggle with building a sustainable business culture and retaining its talent.

Key Takeaways

  • Professional services firms will face headwinds in the next 12 months from downward pricing pressure and decreased demand for services.
  • Companies will have to redouble their efforts not only to build and maintain strong client relationships, but also to effectively manage resources and expertise.
  • Recruitment and retention of talented experts remains a major concern for professional services.
  • Automation and data will play an outsized role in helping professional services firms overcome their biggest pain points.

Professional Services Challenges Explained

A recent professional services industry survey shows that professional services firms are facing increasing downward pricing pressure from clients and decreasing client demand for services — both of which are detrimental to profitability and staff usage levels. As things stand, half of the professional services firms surveyed reported that they expect less client spend in the coming year. As companies face these obstacles, they’ll need to address a range of common challenges that impact the health and viability of their businesses in order to ensure that they maximize profitability, no matter the market conditions.

Professional services firms must remain tightly focused on customer service and service delivery, but company leadership also must orchestrate a number of moving parts as they bring projects and engagements through their stages. The challenges and concerns they must continually consider include talent management, customer acquisition, resource management and financial performance.

15 Challenges Faced by Professional Services Companies

The following are 15 of the most common challenges faced by professional services companies as they endeavor to grow their business and maximize profits.

1. Customer Acquisition and Retention

Customer relationships are everything in a professional services business. Some professional services firms may struggle with the lengthy process of building brand awareness, courting new prospects and securing clients for the long haul. Savvy professional services firms understand that while marketing is crucial, maintaining a superior customer experience is what helps keep customer acquisition costs manageable and builds a strong customer base.

Tip: Professional services firms that are able to elevate themselves from being simple suppliers of labor or subject-matter experts into trusted advisers tend to do best at gaining the referrals and trust necessary to attract and retain customers who engage in lucrative multiyear contracts.

2. Scaling the Business

Whether building up from a solo freelance business into a small team with multiple service experts or evolving from a small consulting shop into a larger professional services enterprise, scaling business growth can be a difficult transition for professional services organizations. Organizations may struggle to rightsize their business systems and technology, and they typically face new challenges when trying to optimize profit amid increased operational and administrative overhead.

Tip: As they scale up, professional services firms that develop more formalized business processes, automate wherever possible and move away from a one-off statement of work mentality to a set menu of services can avoid growing pains along the way.

3. Adopting and Onboarding New Technology

Adopting and onboarding new technology can pose significant challenges, particularly in professional services fields, such as law or accounting, where employees may not be technically adept. Nevertheless, implementing new digital capabilities that help a professional services firm glean actionable insights from available data, optimize talent and resources through better planning and allocation, and automate repeatable tasks can make all the difference in boosting service profitability.

Tip: As professional services firms invest in new technology, they’re most likely to succeed if they make a plan that emphasizes incremental changes, maps innovation to those processes that work well and helps elevate or change those that hold the business back. Layered on top of that should be a solid system of training for end users and an adequate amount of internal promotion to make sure employees actually make use of newly implemented technologies.

4. Sourcing and Retaining Talent

Professional services firms are built upon the trust that clients place in their pool of talented subject-matter experts. As such, sourcing and retaining talent is tantamount to success. Recruiting and holding on to the right mix of high-performing professionals can be a tricky prospect in today’s competitive labor market — especially so in professional services, where it’s easy for employees to jump from one company to another or start their own consultancy. According to a recent study, the professional services industry has the highest turnover rate of all industries.

Tip: In addition to the fundamentals of competitive compensation and benefits, professional services firms can counter recruiting and retention challenges with strategies, such as offering flexible work arrangements, establishing clear career path growth and building a positive work culture.

5. Resource Management and Utilization

Many professional services firms that start as boutique consultancies with just a few people can do OK managing people and projects from the hip or with simple spreadsheets shared across the team. But as staff, projects and client bases grow, professional services firms will quickly outgrow these manual methods. Spreadsheets soon become unmanageable and complicated, and firms risk losing out on insights and opportunities for efficiencies by sticking with manual planning of how to allocate their people power.

Tip: Just as successful manufacturers must manage costs and materials through appropriate cost management and lean manufacturing principles and systems, best-in-class professional services firms address these challenges through professional services automation (PSA) and sound resource management practices.

6. Managing Remote and Hybrid Teams

According to a recent study, 58% of knowledge workers today work in hybrid arrangements, and 78% want flexibility with regard to where they work. Professional services firms benefit from the real estate savings and retention benefits of remote and hybrid arrangements, but they can also be challenged to effectively manage distributed teams.

Tip: Successfully managing remote and hybrid teams requires strong communication channels and processes, as well as clear expectations and key performance indicators to promote accountability without resorting to draconian calls back to the office or micromanagement.

7. Managing Cash Flow and Demand

Cash flow management and demand forecasting are perennial challenges for professional services firms, which frequently contend with variable project timelines, lengthy billing cycles and the eccentricities of billing arrears for many projects, as well as aging accounts receivable operations and collections headaches. Additionally, the reliance on skilled professionals whose billable hours directly impact revenue adds another layer of complexity to balancing resources and maintaining a steady cash flow.

Tip: Professional services firms can meet these challenges through better analytics and cash flow forecasting, which can help provide leadership with better visibility into looming liquidity issues, cyclical trends and pending expenses that may prompt them to boost cash reserves during flush times.

8. Personalizing Services and Managing Workloads

Personalized services can be quite lucrative when professional services can perform them well. Data from McKinsey shows that fast-growing companies tend to derive 40% more of their revenue from personalization than slower-growing firms. However, it can be difficult to scale personalized services, as they tend to drive up the unpredictability of resource utilization and the processes required to deliver them, thus increasing the overhead for client engagements.

Tip: Mature organizations can overcome the biggest obstacles to profitable personalization through effective use of data analytics and flexible automation. These approaches make it easy to plan out a menu of service options that are easy to tailor to contractual arrangements and bill against without reinventing the wheel every time.

9. Project Visibility

Establishing real-time visibility into project status, expenses and resource usage poses significant challenges to professional services firms that still track their business processes via spreadsheets and other decentralized mechanisms. Firms that glean true visibility into project progress stand not only to manage costs and resources more effectively, but also to more easily provide timely updates to customers to better manage expectations about delivery dates, changes to service-level agreements and more.

Tip: Success hinges on deploying centralized systems that make it easy for stakeholders to both enter relevant data and pull reports on the fly that can offer consolidated insights about what’s happening across individual projects, as well as the entire business. Similarly, project management and collaboration tools that allow teams to access at-a-glance status visibility can be extremely useful for setting client expectations.

10. Team and Client Collaboration

Building strong customer relationships depends on excellent communication and healthy collaboration across a professional services team and with external client stakeholders. But in today’s highly distributed business environment, this kind of collaboration can’t always be sealed with a handshake or in-person team-building exercise. Post-pandemic studies show that customers are more than fine with this, as professional services organizations are increasingly called upon to establish processes and technology to support remote collaboration.

Tip: Strategies to meet this remote collaboration challenge include deploying digital solutions for sharing project status, remote-friendly communication channels and a regular cadence of communication and timely expectation-setting across services teams and clients.

11. Inaccurate Accounting and Billable Hours

Inaccurate accounting and problems tracking billable hours can challenge professional services firms on multiple levels. Not only do errors in billable hours immediately endanger client relationships, but associated accounting errors can cause cascading harmful impacts to financial reporting, regulatory compliance and even the viability of the business. Professional services firms struggling to accurately bill for hours are also likely to be leaving money on the table. Some studies estimate that inaccurate billable hours reporting costs professional services firms worldwide as much as 28% in lost revenue.

Tip: Professional services firms can overcome these challenges with repeatable tracking processes and technology solutions that make it easier to input hours, invoice against them and easily generate financial and business reporting based on that activity.

12. Waiting on Client Payment

Complex projects and delayed client approvals often plague professional services firms with lengthy billing cycles as it is. Add in invoicing delays on the part of the professional services firm, as well as delays in processing or payment, and companies can experience a cash flow crunch as they wait on client payment.

Tip: Companies can minimize payment wait times by tightening up invoicing procedures and using electronic invoicing technology that makes it easier to automate the generation of predictably structured invoices that are also simpler for clients to process. Some professional services firms also offer discounts to clients to encourage faster payment.

13. Building Company Culture

Building a healthy and team-oriented company culture within professional services firms can be a tricky prospect. Consultants and other billable contributors are often heads-down and super-focused on their work. Nevertheless, a positive culture is crucial, as it helps professional services firms foster collegial collaboration and an open environment that lends itself to superior customer relations. An added benefit: A strong company culture creates loyal employees who tend to stick around.

Tip: There’s no magic formula for culture building. It’s an organic process that starts with authenticity and respect from leadership for their workers and trickles down from there. Experts say some of the key elements of creating a positive culture include a solid employee experience through good processes and easy-to-use technology, rock-solid communication of expectations and rewarding high-performing teams for their work.

14. Marketing and Branding Strategy

A good name and reputation is paramount in professional services, but creating a professional services brand image and marketing against that is easier said than done. Unless they’re actually in the marketing industry, services firms frequently don’t have the internal expertise for marketing, and leadership tends to count on their consultants’ good work and client referrals to speak for themselves. But in today’s increasingly crowded marketplace, brand identity and well-executed marketing plans can make all the difference in driving customer acquisition and loyalty.

Tip: Marketing experts recommend that professional services firms work to improve their brands by promoting the visibility of their experts and thought leaders, focusing on putting out strong content that highlights their expertise and investing in brand presence at relevant trade shows and speaking engagements.

15. Legal Compliance

As regulatory environments grow increasingly complex, professional services firms in many industries are struggling to keep up with compliance demands — both in adhering to regulations and proving that adherence to auditors. This challenge is only escalating for many of these companies. For example, nearly three-quarters of financial services firms say they expect the amount of regulatory information published by regulators to increase over the next year, according to Thomson Reuters’ 2023 Cost of Compliance Report.

Tip: Keeping up with legal and compliance challenges requires a proactive approach. Professional services firms must task dedicated compliance professionals — internal or external — to keep abreast of requirements and help build out systems and processes that are not only compliant but also easy to report on.

Strategies for Overcoming Professional Services Challenges

Whether the business is law, business consulting, financial services or IT service delivery, professional services firms can tackle many of their most pressing challenges through a combination of tactical and strategic measures. Leveraging a good mix of technology, doubling down on stellar customer experience and building flexible but predictable service models all contribute to helping companies grow a profitable and sustainable business over time. The following are 10 of the most common approaches to successfully navigating professional services challenges.

professional services challenges
These strategies can help professional services companies successfully navigate common challenges facing the industry.
  • Automation: Professional services firms can leverage automation technologies, such as PSA software, to help them radically improve the way they track and manage talent availability, perform project management, plan resource utilization and track billable hours. According to one study, professional services firms that use automation for these types of processes tend to have a 4% to 10% higher billable utilization.
  • Advanced analytics: Advanced analytics techniques can help professional services firms uncover patterns in how their employees operate and how customers engage with them over time. Using data mining and strong data science methods, companies can more accurately forecast trends, identify customer preferences and look for opportunities for upselling.
  • Effective recruitment and retention strategies: Intentional recruitment efforts and employee retention initiatives — backed by data managed through a human resources management system — will ensure that professional services firms build the kind of experienced teams that keep customers loyal and engaged. Key strategies include flexible work arrangements, work-life balance initiatives and employee development programs.
  • Continuous learning and development: Providing employees with opportunities for continuous learning and development is one of the strongest methods for bolstering recruitment and retention. Not only does training keep those on the spear tip of service delivery at the top of their game, it’s also much more cost-effective than constantly sourcing new rockstar consultants amidst global talent shortages.
  • Service personalization: Using artificial intelligence and advanced analytics can help a large professional services organization personalize its communications with customers and identify opportunities for tailoring services to customers’ needs. This needs to be paired with a menu of service components or billing models that are flexible enough to change with a customer’s specific requirements.
  • Enhanced communication strategies: Strong communication, supported by a client relationship management (CRM) system, can significantly benefit professional services firms by fostering robust client relationships, ensuring clearer understanding of client needs and promoting effective collaboration within the organization. Clear and transparent communication establishes trust and credibility, essential for client retention and satisfaction in industries where relationships are vital. Additionally, improved internal communication streamlines processes, enhances teamwork and enables quicker adaptation to evolving client demands and industry trends.
  • Diversification of services: Professional services firms can build more resilient client portfolios, bolster revenue, add new revenue streams and increase market penetration by diversifying the types of services they offer. Diversification also offers opportunities for companies to upsell loyal customers, get a foot in the door with new clients and more comfortably weather droughts in certain service niches.
  • Flexible pricing models: As professional services firms mature in their operating models and grow a larger footprint, many start shifting from an hourly billable approach to value-based pricing models. Value-based pricing involves setting prices based on the perceived value of the services to the client and aligning the cost with the benefits and outcomes delivered, rather than solely on hourly fees or industry benchmarks. Flexible pricing strategies can enable growing companies to bolster the profitability of engagements over time.
  • Proactive legal engagement: Proactive legal engagement with in-house counsel or a trusted law firm can help a professional services firm shore up its contract language, identify legal exposure or risks in its daily business dealings with customers, and stay ahead of regulatory requirements to ensure that the firm will be ready for audits and other compliance tasks.
  • Ethical business practices: When business leaders say what they mean and mean what they say, that’s a recipe for a winning company culture. Ethical business practices are crucial for professional services firms as they build trust with clients, contributing to long-term relationships and client satisfaction. Maintaining high ethical standards also establishes a positive reputation in the industry and attracts new clients. Additionally, ethical conduct fosters a positive work environment, which helps companies attract and retain top talent.

Respond to Change Faster and More Easily With NetSuite for Professional Services

Whether a professional services firm operates with just a handful of consultants or tens of thousands of billable contributors, NetSuite’s professional services automation software can help them profitably grow their practice.

This cloud-based PSA solution provides a blend of CRM, ecommerce and back-office enterprise resource planning (ERP) capabilities that help professional services firms automate processes, unite fragmented data and better control their costs. The consolidation of data gives executives and their employees real-time visibility into project status and business performance, helping to vault their companies into data-driven organizations. On the project level, team leads can review timelines and lean on data to analyze resource needs for better quotes and margin improvement. At the business level, ERP resource management capabilities give leadership the reports and data they need to better plan and allocate resources, as well as simplify billing and financial reporting activities.

No matter where they are on the maturity curve or how many billable consultants they have working for them, all professional services firms have room to improve their business on some level. Though not every firm faces the same challenges, professional services executives can benefit from the strategies described in this article by developing improved processes and backing up those processes with technology, data and automation to strengthen the overall sustainability and success of their companies.

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Professional Services Challenges FAQs

What are the issues in the professional services industry?

Some of the biggest issues in the professional services industry lie in recruiting and retaining both talent and new customers, adopting new technology, personalizing services and managing remote and hybrid teams.

What are the two biggest challenges in selling the value of professional services?

Two big challenges in selling the value of professional services are effectively marketing to customers and establishing a brand identity that differentiates a firm from others in the same market.

What is the pain point of the professional services industry?

A major pain point in professional services is resource allocation. Many firms struggle to understand the resource needs to accurately quote projects, and they are challenged by the need to juggle their expert resources without overtaxing them or leaving them with too little work.

What is meant by professional services?

Professional services are those services offered by a company that require specialized training to carry out, such as legal, financial, accounting, IT consulting, marketing and more.