Support is big business

ASP, the Association for Support Professionals, just published its annual survey of support revenue. ASP reviewed the financial reports of 100 public software companies in August and found that services as a whole (support, consulting, training) provided more than half (56.9%) of total company revenues, across the board. And this is good, profitable revenue since margins are close to 60% (56.8%), with both revenue and margin percentages up since last year.

If we just look at support the survey found that it constitutes a very respectable 38.9% of total revenue with a remarkable margin of over 83.2%, so much higher than for other services such as consulting and training.

If you find that your executive team still looks down on support as an afterthought or worse, perhaps sharing these numbers would help?

For more information about the survey go here.

Maintenance Math

(with thanks to JB Wood)

maintenance $ = # contracts * average contract size

which means:

1. The renewals rate is critical. And especially with smaller customer bases the attach rate (% new sales that include support) is also important.

2. Discounts erode the average contract size so they must be watched. For maintenance disocunts are often “forever.”

How important is competitive analysis for support?

Knowing your strengths and weaknesses vis a vis the competition is critical for success if you want to successfully sell a product or a service, but does it matter for support since, after all, customers can rarely purchase it from another vendor?

Yes because

1. Presenting a reasonable (as measured against the competition) support portfolio underscores that your company is a reputable vendor that can be trusted.

2. Removing the obstacle of having to defend unusual support offerings makes life considerably easier for the sales team.

3. Offering defensible pricing schemes makes negotiations easier and faster (and deters uncontrolled discounts.)

4. A competitive portfolio makes it easier to renew support contracts.

5. A comprehensive portfolio allows you to redirect customers’ requests for extras towards purchasing a higher level of support.

So indeed, a competitive analysis of support offerings is a great idea!

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.

Who are your prospects?

Selling support is different from selling products in many ways but one difference is inescapable: it’s hard to sell support for product X to customers who don’t already own product X. In other words, your pool of prospects is limited and defined ahead of time.

So why do we often restrict the pool further, to those customers of product X who already have a support contract? That’s right: most support organizations focus their selling efforts on renewing existing contracts and completely neglect customers who dropped support in the past. That could be a good thing: many customers who drop support do so because they are no longer using the product, so they won’t need support either. But what of customers who dropped support because of budget considerations or a temporary shelving of the product? What about instituting a “get in touch” program to contact customers who were once on a support contract but dropped out? If they are no longer using the product, make a note to leave them alone and move on. If they are using the product, see if you can put together a reasonable “come back to the fold” offer.

Delivering support through the channel

If you use resellers or distributors, in many case they will want (or need) to deliver the first level of support to your customers. Here are some tips to ensure success.

• Work out a reasonable revenue split. Revenue splits are eminently negotiable depending on how responsibilities are split between the reseller and the vendor and, naturally, their negotiation skills. Aim for a 50/50 split assuming that the reseller provides first level support and no onsite component is included.
• Track the supported customers. There needs to be some type of registration of customers (or systems) so you can audit the records.
• Define training and certification requirements for the resellers. The worst thing can could happen, both for the customers and the vendors, is that the reseller pockets the money without delivering any support to speak of. All issues go back to the vendor and the customer gets very slow service. To counter that, require resellers to maintain a certain number of trained staff members in-house. You can even define several levels of certification and tie different revenue splits to different levels, a wonderful incentive for the resellers to do more.
•  Actively manage the support relationship. Designate someone to watch over the interactions of the resellers and the support team. It should be reasonably easy to spot the resellers that are abusing the system or simply need to (re)train their staff. Ideally you should be able to audit customer satisfaction on a regular basis as well as observe the internal dealings between the reseller and support.