Support Pricing in a Downturn

If you thought it was hard to sell support a year ago, you must be feeling a little down today… Here are some ideas for pricing and selling support in a downturn.

Give the customers choices. Customers are human beings: if they feel they are being forced down a unique path, they are more likely to ask for special conditions, such as a better price. Giving them options puts the decision power in their hands. (I’ve noted before that too many options have the opposite effect, so don’t go overboard.)

Be cautious about price hikes. Clearly this is not a good time to raise prices, even if you haven’t done so for the past several years. I would avoid across-the-board hikes, but you can continue to raise prices for customers that are “catching up” from a highly-discounted price, especially if they have been aware of the adjustments.

Demonstrate value. Each feature of your support offerings must be associated with clear benefits from the customer’s perspective. For instance if you are bundling free training with your support offerings but your customers are specifically forbidden from travelling the lovely free training may not be so attractive. Know your customers.

Train the sales reps. It’s very hard to be selling during a downturn, and it’s very tempting to give discounts in an attempt to make a sale, any sale. Many sales reps don’t know much about selling support and will easily fall on the easiest trick in the book, discounting, when it comes to support. On the other hand, a well-trained rep is able to communicate benefits to customers and match them with the program they need and can afford — sans discounts.

Review the discounting policy and discipline. As we know, support commitments last a long time, so discounting upfront will mean years of misery on the delivery side, so hold the line — firmly — on discounting support. Better give some ground on product or throw in a short-term concession.

Do share what you are doing with support pricing  in the current economy.

Support Offerings for SaaS Vendors

Support offerings for SaaS vendors are not that different from support offerings for licensed software. Typically I see a set of increasingly rich offerings, with prices to match. The main difference compared with licensed software is that support is not priced separately, but rather as a component of the overall service. Another difference is that 24×7 support is more often, although not always, included in the lower levels of support.

Here would be a typical set of SaaS support offerings, with typical boring names that you should replace with more exciting and branded names of your own.

• Bronze: bundled with the service (“free”). Business hours support with 24-hour response time target. Limit of two support contacts
• Silver: premium cost of 5% of the subscription. Extended hours or 24×7 with a 4-hour response time target. Limit of 4 support contacts.
• Gold: premium cost of about 10%. 24×7 coverage and 1-2 hour response time. Assigned rep or access to senior reps. Limit of 6-8 support contacts.

Q&A for SaaS Support

Q: Do I need 3 support levels?
A: It all depends on your audience. Generally one is not enough so 2 would be the minimum advisable. Don’t go offerings-happy. A good portfolio is one where each program is clearly differentiated from the others, which is hard to do with many offerings.

Q: Should I restrict Bronze Support to electronic support only?
A: Perhaps. The problem with restricting support to electronic communications is that it can be more difficult and more costly to resolve issues if the support rep cannot talk to the customer. So even if you restrict the input channel it might be a good idea to encourage reps to call customers.

Q: Shouldn’t I restrict the volume of questions?
A: Restricting the volume of questions is very frustrating to customers and hard to police to boot. Better restrict the number of contacts and handle any abuses individually.

Q: Can I really restrict the number of contacts?
A: Yes you can, with the idea that customers will channel questions through the contacts, hence handle much of the “easy” ones themselves. However you can certainly offer either a separate (added-cost) offering to deliver full end-user support.

Q: What’s the idea of the Bronze level?
A: The Bronze level provides a safety net for all customers. Many vendors make the response time targets for Bronze so long that “serious” customers all choose to upgrade.

Q: Do I need to quote pricing using percentages?
A: No, you can certainly charge fixed amounts. The percentages are here as guidelines for the computation. So if you charge $100 for the basic subscription about 20% of that amount is support ($20, for Bronze.) A silver subscription may be $105, with $25 of that for (Silver) support and Gold would be $110 with $30 for support.

Q: Are the support offerings the only difference between subscription levels?
A: You may choose to bundle any other number of features. For instance premium subscriptions could include online training, or tighter uptime deliverables. This writeup is focused on support only.

 

How do you handle SaaS support? Add a comment and let us know!

Anything wrong with fixed pricing for support?

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.