Pricing software maintenance and support costs - how to?
Discussion
Many moons ago I posted about our latest and greatest software product.
Well, we are nearing completion now and after a demo we have a buyer interested. Where I'm realy struggling is with costing the support and maintenance.
The product comprises a central database that is accessed via web pages. The database is populated via any number of remote capture sites (RCS) that pump network event information into the DB based upon a set of filters applied at each RCS.
This is primarily designed for satellite comms, but essentially it's all 3GPP and User Plane events that we are collecting. So someone switches on their satellite phone and we collect that event. Then they activate the PDP context and we collect that event. Then they visit a website and we record that. Send an email, do some ftp, we record it.
We have a bunch of PHP driven pages that allow Operators to search for and monitor (in real time) the events that are being captured so they can see for example if a Handover fails, of if a Registration to the network fails.
Now, we are licensing this software at a fixed rate for the Network Analyser Database and Remote Capture Site software. However we are struggling to comprehend what our prime customer is expecting when they say 'Mainenance of the software'.
Normally this customer expects development of software that they will finally own, a normal delivery of a development contract. However, in this instance we are determined to remain as sole owners of the code. So we have our own development schedule (for this product) and we fully intend to continue the development to ensure that this product remains viable in the markets we are targetting.
Now, I'm confused because the person were are negotiating with seems to keep asking for maintenance costs. Surely the mainenance costs should be our responsibillity? And, it is in our interests to develop and maintain the code such that it can be sold to other customers.
Based upon the fact that we expect to sell this software into other arenas should I tell this customer that there are no maintenance costs and hit them for a support contract (my idea of a support contract is that someone can dial a number and get a coherent answer to their problem)
I'm confused, and out of my depth with this. My analagy is that it's like running a ship. I used to work in the engine room and suddenly I'm captain and pilotting the ship.
I'm not sure we should be offering them a maintenance contract, we should be offering them a support contract, such that if they want help using the software then we'll answer the phone and guide them through it.
So, how should one price up maintenance and support?
Any advice from you lot would be gratefully received
best
Ex
Well, we are nearing completion now and after a demo we have a buyer interested. Where I'm realy struggling is with costing the support and maintenance.
The product comprises a central database that is accessed via web pages. The database is populated via any number of remote capture sites (RCS) that pump network event information into the DB based upon a set of filters applied at each RCS.
This is primarily designed for satellite comms, but essentially it's all 3GPP and User Plane events that we are collecting. So someone switches on their satellite phone and we collect that event. Then they activate the PDP context and we collect that event. Then they visit a website and we record that. Send an email, do some ftp, we record it.
We have a bunch of PHP driven pages that allow Operators to search for and monitor (in real time) the events that are being captured so they can see for example if a Handover fails, of if a Registration to the network fails.
Now, we are licensing this software at a fixed rate for the Network Analyser Database and Remote Capture Site software. However we are struggling to comprehend what our prime customer is expecting when they say 'Mainenance of the software'.
Normally this customer expects development of software that they will finally own, a normal delivery of a development contract. However, in this instance we are determined to remain as sole owners of the code. So we have our own development schedule (for this product) and we fully intend to continue the development to ensure that this product remains viable in the markets we are targetting.
Now, I'm confused because the person were are negotiating with seems to keep asking for maintenance costs. Surely the mainenance costs should be our responsibillity? And, it is in our interests to develop and maintain the code such that it can be sold to other customers.
Based upon the fact that we expect to sell this software into other arenas should I tell this customer that there are no maintenance costs and hit them for a support contract (my idea of a support contract is that someone can dial a number and get a coherent answer to their problem)
I'm confused, and out of my depth with this. My analagy is that it's like running a ship. I used to work in the engine room and suddenly I'm captain and pilotting the ship.
I'm not sure we should be offering them a maintenance contract, we should be offering them a support contract, such that if they want help using the software then we'll answer the phone and guide them through it.
So, how should one price up maintenance and support?
Any advice from you lot would be gratefully received
best
Ex
"Maintenance" and "Support" are just two expressions for the same thing.
Very traditional in business software.
For example: We sell a HR processes application (sql, web pages) with the functionality broken into a number of "modules" (Timesheets, Attendance, Holidays and Absences, Expenses and Self Service). When you buy it you select the "modules" you need and your licence fee reflects the number of users and the number of modules.
You get 90 days support and maintenance thrown in for free. Most customers negotiate that up to a year.
Subsequently "support and maintenance" costs 15% of licence fee per annum. (Very traditional number 15%).
What does that entail?
1) Unlimited telephone support (answering questions)
2) Hotfixes to any bugs found that cause operational issues
3) Quarterly/six monthly updates and upgrades fixing non-operational bugs and adding minor (and often major) improvements to functionality of the modules you've bought.
4) New versions of the modules you've bought
We offer a slightly more expensive version which includes
6) Remote management of the application (we actually push buttons on behalf of the client)
What it doesn't cover:
New "modules". New functionality: for example if we built a Recruitment function.
Site visits - unless necessary to provide (2) or (3) above.
Consultancy and configuration
Training
New products we write - whether or not they have similar functionality to the existing one. For example we might rewrite a product from scratch using a new database and new runtime environment (e.g. from SQLServer/ASP to MySQL/PHP or SQLServer and ASP.NET). There might be a discount for existing clients but that would be "new" and we'd want to charge to reflect the work we put in.
I hope you get the idea. Its a way of charging the client for the inevitable pile of work they will create when they actually start using the software.
Its also their way of ensuring YOU are obliged to keep the software running for them. For example when SQLServer 6.5 SP2 came out it broke many people's applications when they upgraded the database. Our clients on support and maintenance got the help they needed to keep their copy of our application running. More often you get OS changes that break something. Support is the insurance policy...
Oh BTW: The Microsoft model is different. They don't charge 15%. But if you want the whole new version you have to pay an "upgrade" fee - a LOT more than 15%!
That and the industry is moving in the direction of rental. Typically software rental costs 35% to 40% of licence fee per annum but does include support. For clients it offers a lower initial cost - for you it means if they like the software and run it for a few years you get more money out of them.
Hope some of the above is useful.
Very traditional in business software.
For example: We sell a HR processes application (sql, web pages) with the functionality broken into a number of "modules" (Timesheets, Attendance, Holidays and Absences, Expenses and Self Service). When you buy it you select the "modules" you need and your licence fee reflects the number of users and the number of modules.
You get 90 days support and maintenance thrown in for free. Most customers negotiate that up to a year.
Subsequently "support and maintenance" costs 15% of licence fee per annum. (Very traditional number 15%).
What does that entail?
1) Unlimited telephone support (answering questions)
2) Hotfixes to any bugs found that cause operational issues
3) Quarterly/six monthly updates and upgrades fixing non-operational bugs and adding minor (and often major) improvements to functionality of the modules you've bought.
4) New versions of the modules you've bought
We offer a slightly more expensive version which includes
6) Remote management of the application (we actually push buttons on behalf of the client)
What it doesn't cover:
New "modules". New functionality: for example if we built a Recruitment function.
Site visits - unless necessary to provide (2) or (3) above.
Consultancy and configuration
Training
New products we write - whether or not they have similar functionality to the existing one. For example we might rewrite a product from scratch using a new database and new runtime environment (e.g. from SQLServer/ASP to MySQL/PHP or SQLServer and ASP.NET). There might be a discount for existing clients but that would be "new" and we'd want to charge to reflect the work we put in.
I hope you get the idea. Its a way of charging the client for the inevitable pile of work they will create when they actually start using the software.
Its also their way of ensuring YOU are obliged to keep the software running for them. For example when SQLServer 6.5 SP2 came out it broke many people's applications when they upgraded the database. Our clients on support and maintenance got the help they needed to keep their copy of our application running. More often you get OS changes that break something. Support is the insurance policy...
Oh BTW: The Microsoft model is different. They don't charge 15%. But if you want the whole new version you have to pay an "upgrade" fee - a LOT more than 15%!
That and the industry is moving in the direction of rental. Typically software rental costs 35% to 40% of licence fee per annum but does include support. For clients it offers a lower initial cost - for you it means if they like the software and run it for a few years you get more money out of them.
Hope some of the above is useful.
Have to agree with Don here.
We charge around 15%
Users get unlimited telephone support - though most get 1st line through our partners who sell our software (who typically get 30% of the maintenance).
They get all fixes, but we may require them to update to a later version to get it.
They get updates - ie they can update to latest version if and when they want to.
They may get some changes/enhancments free / at a reduced rate if we feel other users might like them, otherwise they pay for them. We try to be flexible on this as we find that we get more bespoke work if we throw in a bit for free now and again.
New modules are extra
Site visits are extra except for a couple of high paying clients who get whatever they want.
Jim
We charge around 15%
Users get unlimited telephone support - though most get 1st line through our partners who sell our software (who typically get 30% of the maintenance).
They get all fixes, but we may require them to update to a later version to get it.
They get updates - ie they can update to latest version if and when they want to.
They may get some changes/enhancments free / at a reduced rate if we feel other users might like them, otherwise they pay for them. We try to be flexible on this as we find that we get more bespoke work if we throw in a bit for free now and again.
New modules are extra
Site visits are extra except for a couple of high paying clients who get whatever they want.
Jim
devdog said:
Have to agree with Don here.
We charge around 15%
Users get unlimited telephone support - though most get 1st line through our partners who sell our software (who typically get 30% of the maintenance).
They get all fixes, but we may require them to update to a later version to get it.
They get updates - ie they can update to latest version if and when they want to.
They may get some changes/enhancments free / at a reduced rate if we feel other users might like them, otherwise they pay for them. We try to be flexible on this as we find that we get more bespoke work if we throw in a bit for free now and again.
New modules are extra
Site visits are extra except for a couple of high paying clients who get whatever they want.
Jim
We charge around 15%
Users get unlimited telephone support - though most get 1st line through our partners who sell our software (who typically get 30% of the maintenance).
They get all fixes, but we may require them to update to a later version to get it.
They get updates - ie they can update to latest version if and when they want to.
They may get some changes/enhancments free / at a reduced rate if we feel other users might like them, otherwise they pay for them. We try to be flexible on this as we find that we get more bespoke work if we throw in a bit for free now and again.
New modules are extra
Site visits are extra except for a couple of high paying clients who get whatever they want.
Jim
Is your product entirely web based or do you install your app on client servers as well?
As the two examples above wouldn't work for a purely web based product (one that you run on your own servers only), for example with a web based application you will only have one code version live at one time - you wouldn't want multiple versions of your product running on your servers as it would become a nightmare to manage. Therefore when you release a new version all customers would be updated to the new version at the same time.
Therefore you don't need a maintenance contract as all customers get all updates - you'd charge a yearly/ monthly subscription (for example based on the number of users)? That way you would include all updates (maintenance) in the basic subscription cost and then could offer different (at additional cost) levels of support depending on which packages they buy.
I've probably confused you even more with that!
TheExcession said:
Don, devdog,
That's all really useful information and gives me an excellent footing to work from.
Thanks very very much!
best
Ex
That's all really useful information and gives me an excellent footing to work from.
Thanks very very much!
best
Ex
You are very welcome, mate. We software business owners have to stick together!
As silent said my comments are based on an installation of the software at a client's site. If you were providing a web service where *you* run the servers in your own facility and your customers access the service via Internet Explorer you might charge a subscription...different algorithm altogether.
But our scheme is pretty traditional in the business software industry and something like it shouldn't shock your clients at all.
ATB
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