Posts Tagged ‘service fees’

Your Service Revenues are at Risk!

June 5, 2011

If you are in the enterprise software business you know all about the maintenance contract for services and just how profitable it is to your company. In fact, profit margins from maintenance typically range from 75% to 95% and have been extremely stable over the past 20 years. During this time, customers just paid the annual renewal fees and life was good. Today, things are changing! Your customers are pressing hard to understand exactly what they are paying for in a maintenance agreement and want the price to be lowered.

A typical maintenance agreement has 3 components; upgrades, bug fixes, and tech support. These are all rolled together so that the customer never really knows the exact portion of money allocated to any one component. Hey, most times even we don’t know! Over the years we just created maintenance invoices and customers blindly sent us money that fell straight to the bottom line. Not a bad gig if you can get it. In the past few years we have seen more customers applying all types of pressure to reduce their overall IT costs. They have reduced headcount and curtailed new systems spending but the large amount of money that the CIO is paying for maintenance fees is really sticking out. It is one of the few places left where your customers are questioning the value they receive for the price paid. If you are not being asked to discount your annual maintenance fees, then you soon will be.

When this pressure from customers comes you have 2 choices. First you can roll over and give them a discount (which will probably last forever) or you can stand strong and defend the prices that you are charging. You are either a “fee defender” or a “fee discounter”. So, which one are you? What position has your company taken on the value of the services you offer customers and the fees associated with them? You need to make a decision pretty quickly because it will have a major impact on your overall company financials and your overall customer satisfaction (CSAT). Surprisingly, Fee Defenders have higher CSAT than those companies that simply give a discount when asked.

To really understand all of the complexities of this entire maintenance pressure issue I am taking my show on the road for 1-day workshops. Together with the Kotler Marketing Group, we have developed a series of tools to help you defend your maintenance pricing. Over the next couple of months we will be in Dallas, Chicago, Toronto, and Boston working with dozens of companies that are all trying to figure out the best approach to defend their maintenance dollars. These sessions are highly interactive, reasonably priced, and full of practical concepts that really work. If you are responsible for maintenance revenues then you really need to attend one of these workshops.

If you don’t have responsibility for maintenance revenues, service marketing, or service sales please pass this link on to the person in your company who does. If you want to discuss anything about the maintenance pressure issue, just email me at BillRose@BillRoseINC.com

Want more info about the workshops?