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“Professional firms do not sell time (although they often bill that way). Rather, their stock-in-trade is skill.”
~David H. Maister, in Managing The Professional Service Firm
Professional services firms have plenty to offer to right-fit clients: deep technical expertise, advanced project management and project planning skills, and a steady hand through change.
They also face sideways competition from another class of businesses: managed services providers.
There are significant differences between these two professions, but there’s also a good deal of overlap — enough that it can be hard (especially for clients) to pin down exactly where one category ends and the other starts.
Here’s a quick explainer that lays out what the general differences are between managed services and professional services, along with how businesses might decide between the two.
What are managed services?
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Managed services are any of a wide range of business functions (services) that a business or organization relies on an outside partner to run (manage), usually on an ongoing day-to-day (or as-needed-yet-ongoing) basis.
Most businesses that use managed services turn to the outsourcing model for specific business capabilities that lie outside the business’s own core competencies.
IT is the go-to example. In fact, managed IT services are so common that if you come across the term “managed service providers” (or MSPs) without any other context, it’s a safe bet they’re talking about IT outsourcing.
Within managed IT services, you’ll find MSPs offering a range of professional IT services:
Day-to-day IT support and troubleshooting
Helpdesk
Cloud services
Data backup and disaster recovery
Cybersecurity
Network monitoring
SIEM and SOC
Beyond IT and related technology, the managed services model shows up in areas like these:
Transportation and logistics
Supply chain managed services
Utilities (water and power)
Marketing (“Marketing as a Service”)
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What are professional services?
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Professional services are typically not ongoing, day-to-day relationships. Instead, they tend to be project-based, occasional, or one-off in nature. Businesses turn to professional services agencies for specific challenges, expertise, or technical skills they don’t need to use all the time and can’t source internally.
Depending on how you define the term, professional services can be a large category, with around 910,000 entities (this figure counts units of multi-unit firms individually).
Typical IT-related professional services contracts include:
Cloud migration and digital transformation
IT consulting
Systems integration
Deploying a new technology (hardware or software system)
Data architecture
Business continuity planning
All of these are related to the sorts of tasks and responsibilities an MSP would handle, with one key difference: These are one-off projects that are often large and difficult, usually with a defined endpoint.
Other common non-IT-related professional services include these:
Business consulting
Legal services
Project management
Creative services/marketing/marketing consulting
Events planning and management
Key differences between managed and professional services
The line between these two service types can get fuzzy. There are exceptions to every rule, and there are agencies attempting to offer both under one roof (that’s where things tend to get really fuzzy).
That said, when you look at most typical managed services vs. professional services, you’ll see key differences in each of these areas.
Service delivery model
As we’ve already covered, the way work gets delivered is one of the biggest differences. With managed services, service is ongoing: as long as you’re in business, you’ll always need an IT help desk, so there’s no clear endpoint for that line of service.
Professional services tend to be time-limited and project-based, or at a minimum they’re tied to a single event or initiative.
Scope of work
Managed services tend to be more general or wide-ranging, such as a managed IT contract that covers all general IT needs. Professional services tend to be more focused on one specific problem, topic, or initiative.
This isn’t to say that MSPs don’t have technical skills: the typical generalist MSP still maintains a staff with far more experience and skill than a non-technical small business would ever be able to maintain.
But it’s feasible that an MSP wouldn’t have the kind of technical and project management experience to plan, execute, and manage a complex cloud migration, AI implementation, or big data project. For something big, time-limited, and highly complex, a professional services contract may be the smarter choice.
Engagement duration
“Depending on the industry you are in, acquiring a new customer can cost five to seven times more than retaining an old one. Specifically, I’ve seen that in SaaS, on average, it can cost four to five times more. . . A significant factor . . . is that consumers tend to buy from brands they trust.”
~ Saravana Kumar, Founder & CEO, Kovai.co
Managed services tend to set up annual contracts, with a heavy focus on maintaining or renewing those contracts indefinitely. Most successful MSPs make their offerings “sticky,” so switching to a competitor is obnoxious. They also tend to worry more about client management since keeping existing clients is built into the model.
Client experience matters to professional services firms as well, but not with the same level of intensity. Professional services firms tend to set up project-based contracts, where the entire scope of work (and budget) for the engagement is established from the start. When the contract ends, so does the working relationship (at least until the client needs their services again).
Pricing structures
The typical managed services contract is built on a subscription-like model, where the client pays a monthly or annual fee for included services. The idea here is that clients level out costs (and potentially save money overall).
Professional services contracts tend to be more limited in scope and may involve higher levels of specialization (and cost). They may be priced on a per-project basis or billed by the hour.
Both approaches might be subject to project cost management as well.
Nature of relationship
Last, the nature of the client relationship is different.
Think of the difference like the difference between an emergency plumber and a home renovation company.
The plumber is there when you need them, with little to no notice. Point of contact to resolution is measured in hours or days, but the relative complexity of the job is lower.
The home renovation company will take months to go from the initial point of contact to resolution. There’s an initial consultation, the development of a detailed plan, then scheduling, and finally, a team of workers shows up and does the work.
You wouldn’t hire an emergency plumber to do your entire home renovation (even though that plumber probably has some overlapping skills). But you also wouldn’t expect your home renovation company to start your next six-figure renovation six hours after you call them.
It’s not a perfect analogy, but most of the time, a professional services firm will be like the renovation company: It will respond more slowly, but with more detail about much more complex events. A managed services firm will work on a faster timeline, but on less wide-ranging and perhaps less complex projects,
Deciding factors in the use of managed services vs. professional services
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So, what do businesses look at when deciding between managed services and professional services? These factors play a major role.
IT requirements
First is the complexity and nature of a company’s IT requirements related to the project or services being outsourced. These can dictate the choice between managed and professional services.
Does the project involve a high-level strategy and vision setting? What about a one-time, highly complex IT operation (like an enterprise cloud migration)? If so, a professional services agency is probably in the mix. However, keep in mind only expert cloud advisory services can optimally guide enterprise cloud migration.
If the goal is ongoing IT support, cybersecurity awareness training, or other less advanced and ongoing business needs, then a managed services provider is likely the place to start. To protect against cyber threats it's important to invest in proper antivirus software to further support your IT team.
In-house capabilities
How much a business can handle internally will make a difference, too. A small business without a functional IT department needs an MSP just to keep the website’s lights on. But even a business with a substantial IT department may lack the deep technical skills within its in-house team to implement a data analytics and visualization project.
Strategic focus
An organization's strategic focus can also influence the decision between managed and professional services solutions. Does the client need to focus on core business growth or operational stability? Reducing day-to-day complexity and decision-making?
Or does the client need to focus on specific project execution, on getting that one thing done that their internal IT team can’t handle (or doesn't have time to do)?
The first set of focuses leans heavily toward managed services, while the second leans toward professional services.
Level of control and collaboration
Last, consider the desired level of control and collaboration within a company related to the service or project under discussion.
A managed services provider is more likely to operate as a trusted partner or collaborator, listening and adapting to the client's needs. A professional services firm is more likely to dictate the terms: an “if you want to benefit from our services, here’s how it needs to go” approach.
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Businesses may need managed services or professional services (or both) for various functions or projects, depending on the focus, complexity, length, or format.
Whenever clients choose your agency, you need to be ready. You need to start—and stay — organized and proactive, keeping every piece of your clients’ projects on track and accounted for.
Teamwork.com is project management software that helps client service organizations like yours do exactly that. It’s built specifically for teams doing complex client work, and has a full-suite of tools to help you manage your projects, teams, and clients in one place.
More resources for IT service providers and MSP's:
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