Many vendors use percentage pricing for support. For instance, basic support may be priced at 18% of the license price. Would it be wrong to use a fixed price instead?
Fixed prices are just fine. They are very simple to communicate and they can have an effective dampening effect on discount requests. They can be easier to manipulate on price lists and quotation forms.
On the other hand, fixed prices can be awkward when you need to scale them for customers with more licenses or more products. If all your customers use the same product, no problem: charge them all the same amount. But it makes little sense to charge customers the same amount for 1000 licenses or 1 — nor can you charge the customer with 1000 licenses 1000 times more than the customer with the one license.
So before you fall in love with fixed pricing be sure to check how it will scale for larger customers. You don’t want to either leave money on the table or be seen to be gauging your largest and typically most important customers.
I used to run service and support for an ISV that served the Broadcast industry. We based our support fees on a % of MSRP. That is pretty typical. Keep in mind the systems we sold were for a rather large amount of money. 200k +.
We offered the basic 9-5, M-F support for free if you bought a system. That helped our cause in more ways than I can mention here.
We then offered priority 24/7/365 support which was the % of MSRP.
Finally, we offered a Premium option that included the 24/7/365 but added hardware warrantyy as well. At the end of 3 years, we replaced the hardware (PC’s). This option was a few points higher than the previous option.
There is a good topic to be had about making your service department a profit center – but that is a whole different discussion and one that would be rather interesting.
Eric Harrington
COO
TeamSupport.com
eharrington@teamsupport.com
[...] Most support offerings are priced using either a percentage of the license price or fixed pricing. But there’s no law that says you cannot mix the two. A typical example would be a high-end [...]
[...] idea of fixed prices for support We’ve talked about fixed pricing before on this blog (here and here), mostly as an alternative to the common practice of pricing support as a percentage of the [...]