What if the customer says “I can only spend $x on support”?

In tough times pricing negotiations can get very tough and some customers are essentially setting their own price. They decide how much they will spend on support and present the vendors with an ultimatum: they won’t spend more than a certain sum, take it or leave. What can a vendor do?

1. Establish a relationship with the head of the line of business group that uses your product prior to the ultimatum. Price ultimatums are typically set by the purchasing team, which usually knows little about the way the support contract benefits the company. If you can instead negotiate with the head of the business group that uses your product you will find much more understanding of what’s needed. Naturally this assumes you planned ahead: relationships take time to evolve.

2. Demonstrate that the current price is a great deal. Often support pricing carries hefty discounts that originate in the history of the business relationship — but the “list price” is rarely shown in the quote. Try showing it. Psychologically the bill seems lower if it is a result of a discount (and many purchasing agents are compensated on the discounts they negotiate, so could become more accommodating if you serve one up to them.)

3. Show options. Here again the same bill can seem lower if paired with a higher option. Try sending all bills with two options, the current setup and the offering level right above it.

4. Use the next-lower option during negotiations. Say you have three support offerings, Bronze, Silver, and Gold, and the customer bought Silver. If they balk on price offer to sell them Bronze. At least you salvage some money and with any luck the users of the support will push to restore the level they enjoyed to begin with. (I would not show the lower option on the original quote; keep it as a back-pocket option.)

5. If needed request “custom” concessions. For instance let’s say the customer refuses Bronze support (they need 24×7) but won’t pay the price for Silver. Perhaps you can cut down on the number of technical contacts as a partial compensation for your concession. Generally speaking do not make price concessions without asking for something in return. Remember that concessions you make today will likely carry over “forever.”

6. Remember that mission-critical tools are just that. If your customer’s usage of your products is mission-critical they may negotiate very hard, but in the end they do need the service. Offer a few low-cost perks to soften the edges (e.g. an additional support contact, a few free training seats) but hold firm on the overall price.

Incenting the support engineers on support renewals

For most vendors, first-year support is sold with the product and earns a commission for the sales rep. It’s best if the commission is at the same rate as the commission on the product so as to highlight the value of support. After all, the price tag on that initial year may be lower than the product cost but support is an annuity, so very valuable for the long run.

Beyond the initial sale the responsibility to renew support typically passes from the sales rep to a dedicated renewals rep. Renewing support is a very different exercise than selling product. For one thing, the success rates are much higher. In an enterprise sale context over 90% of support contracts renew. Therefore renewals reps are usually paid not on commission but with a bonus if they meet their targets. Neither the original nor the current account rep gets anything, although some vendors pay some commission on all renewals to attenuate channel conflicts, or pay a full commission if the account rep had to get involved to complete a specific renewal.

And where is the support staff in all that? After all, the support engineers are the ones who deliver the service, the quality of which has a big influence on renewals. I have not seen the support engineers receiving bonuses or other incentives based on renewals. It doesn’t mean it shouldn’t be done; it’s just not done usually. Bonuses for support engineers are typically based on objectives they can control such as customer satisfaction and productivity. Support managers and executives tend to have more financial-based objectives, especially if the renewals staff reports into Support. In that case the Support VP should have a support revenue target that determines part of the compensation. (And there would also be a margin requirement for support.)

Would it be wrong to reward support engineers with a fraction of the renewals revenue? No, although I would be concerned with rewarding everyone from the same pot without regard to different levels of effort (the individual who gets terrible customer sat surveys should probably not get the same rewards as the one with a collection of 10s) as well as what happens with a named support engineer who loses a  customer for reasons that have nothing to do with the engineer’s performance, such as after a merger.

If you think it’s important to link support engineers’ compensation to the renewals I would suggest creating a pool of bonus money based on the renewals revenue and paying bonuses drawn from that pool and calculated from the performance data (customer satisfaction & productivity.) That way if renewals are good then everyone benefits, to the level of their contribution.