What % of sales revenue do you budget towards technical support

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Permalink Reply by Diccon Vokins on February 5, 2009 at 12:22am

Hi Steve,

I’ve done a small bit of research on your topic and my findings to-date have been pretty inclusive. The simple answer seems to be that % of revenue allocated to support seems to vary massively across different software product categories.

First what level of support are you planning to give your customers and how do you want to charge them for this? Are you providing them an all upfront insurance policy / pay as you go / base service with extra costs of additional support? Are you planning to charge yearly support & maintenance fee (around 20% ish of licence fee is common)? What does this include, i.e. 24/7 or 9-5 support, what SLA, are upgrades in/out, etc. Have a look at some of the Microsoft licence arrangements as they’ve done quite a bit of work in structuring this.

The vendors I looked at tended to allocate a percentage of their yearly maintenance & support revenue to pay for the cost of supporting their customers’ use of their product This allocation may be as low as 10% of the technical support cost for very mature/simple products/clients, 50% for the newer/more complex products, and 100%plus for product that included yearly regulatory updates that vendors provide free of charge.

A key consideration is how much of the maintenance and support fee you account for as revenue at the time of receipt. A lot of companies seem to get into trouble as they bank their support and maintenance fees as revenues on receipt, but then get stuck as they can’t then fund their support costs as the next 12 months play out.

Hope this makes some sense and helps in some way. Give me a shout back if it’s all double Dutch


Cheers
Diccon

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Permalink Reply by David Locke on February 5, 2009 at 6:01pm

You could research what your competitors, or like software vendors spend on support. That might be nearly impossible for private companies, and doable for public companies. Then, you could convert that to a percentage.

Rather than start with some percentage, figure out what it is going to cost your customers, and then figure out how much you can spend to mitigate your customer's problem. Don't price support as cost plus. Price it as a component in the offer bundle.

Support is a matter of complexity. Over time, you will need reduce the complexity of your offering. Later buyers will not deal with complexity, particularly late market customers. You will have to spend some development money's to reduce your complexity.

What does on-premises installed entail? What's a smart client?

You will need historical data before you know if you are spending enough on support. Support can be a differentiator, and a strategy. If it is a strategy, it has to be the strategy across the entire company. If it's a differentiator and a marketing strategy the full cost need not be bore by support. There is some reality to crediting support, training, and documentation for retention. They earn their keep, but look like pure costs. It depends on how you want to look at it. If you get the upgrade sale, or a cross sale, or a subscription renewal, it will be because the customer didn't have a problem with your product, or the problem got taken care of promptly. Support contributes to this, so they should get a cut of those sales, and not a percent of the previous sale.

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Permalink Reply by Mark Dalgarno on February 5, 2009 at 6:31pm

David Locke said:

Don't price support as cost plus. Price it as a component in the offer bundle.

Support can be a differentiator, and a strategy. If it is a strategy, it has to be the strategy across the entire company. If it's a differentiator and a marketing strategy the full cost need not be bore by support. There is some reality to crediting support, training, and documentation for retention. They earn their keep, but look like pure costs. It depends on how you want to look at it. If you get the upgrade sale, or a cross sale, or a subscription renewal, it will be because the customer didn't have a problem with your product, or the problem got taken care of promptly. Support contributes to this, so they should get a cut of those sales, and not a percent of the previous sale.

Customers speak to each other so if you have a reputation for crummy support it will get around. Conversely an excellent reputation for support will also get around. As David notes this can be a differentiator and can help win (or lose) new business.

Support is part of the total 'product' offering. If you're positioning your product at the high-end don't position your support at the low-end, mixed messages like this will confuse the customer.

It's likely that you will be able to segment your customers by the different levels of support they'll want or need. This could lead to an opportunity for you to sell different support packages for those different segments. If they're getting someone on-site to do an installation will they also expect people to come on-site to fix problems or is this something they'd pay extra for for example?

Another thing to think about is whether the software is mission-critical to you customers? They may expect 24x7 support in this case which should be charged at a premium. Will you be selling round the world? 24x7 'local' coverage may be needed. This is going to cost you more and so again needs to be pricded accordingly.

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Permalink Reply by Mustafa on February 11, 2009 at 12:47am

Steve the answer varies based on the coverage of support to how complex is the application. One way of looking at it is what is the customer willing to pay.
Most businesses are used to paying anywhere from 12% (for absolutely basic offsite business hours support) to 22% (for 24x7 onsite support) of software purchase price.
You mileage may vary but your costs need to basically come under this.

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Permalink Reply by allan kelly on February 12, 2009 at 2:56pm

Rather than a % of revenue I'd tend to ask: What do people need? and What will they pay? Its a product offering like any other.

Using support to make up for a crummy product offering is poor, as Mark said, word will get around.
On the other hand if its a product people need a lot of support with then you don't want to under price it.

You also want to think about what you mean by "Support". A telephone line? Bugs fixed on demand? Do you provide training, on site install, etc. All these can be packaged up in different ways depending on your product.

The other way of looking at support is as a revenue stream. You might want to give a years free support to start with but after that have people pay, make it a profit centre in its own right - although that could create some conflicts.

Although it complicates matters to start with you could also think about Gold, Silver, Bronze type support. You know Bronze gets answers in a week, Silver in a day and Gold in an hour. Give Bronze free with the first year but encourage people to upgrade - this should also give you a feel for what people need and what they are prepared to pay for.

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Permalink Reply by Michael Pryor on February 16, 2009 at 7:15pm

For our company it's about 3% of revenue.

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