Ongoing software support revenue

[Daniel Smith]

Hello All,

I am modeling a software business for my company. Within that business, I have set up software update and upgrade annual support. I have update support priced at 5% of list of the total software installed and upgrade priced at 20% of same. I've modeled out the revenue mix over the next 5 years with projected growth numbers. All of that being said/written do you folks have any thoughts of what an optimum mix should be in the 1-5 year timeframe for the annuity support income VS. new licenses? I have my own ideas but thought I would throw this out there.

Thanks!


Dan

[Jason Cohen - blog.asmartbear.com]

Simple: You should always be getting more revenue from new customers than from maintenance.

Companies that live primarily off maintenance are dying. If you're in the lifecycle where there truly aren't enough new customers in the world to buy your product, congratulations, but still you're now dying and need to invent something new.

Expect most of your smaller companies to not renew. Expect the larger companies to renew. Without knowing what type of customer you have it's hard to say more than that.

[Lou Immendorf]

Hi Dan,

Could you share some more information?

It is difficult to answer your question without knowing more about what your expected costs will be for new development vs maintenance (or, at least a ratio of these costs), how big/mature is the expected market for your products, how much competition you will face and how long will it take for your products to contain enough features to be truly competitive/interesting to client.
Forecasting growth is a good exercise but keep in mind that 5 year plans very rarely work out and growing this software business will require adapting to the unexpected.
You should plan for your initial startup phase maybe even the full 5 years to have little or no revenue from maintenance unless you already have a built-in customer base.

Good luck, Lou

[Ken Hughes]

Dan,

Depends on where you are in terms of the evolution of the company and the size of the product....

If it is enterprise software and you're in early stages (in fact anywhere up to having a major market share) then likely you will have to provide support/installation/upgrades just to enable sales - don't plan for this to be a profit centre....
Industry norms for this kind of solution would be 20 - 25% which covers support and upgrades...


.. KJ

[David Locke]

The mix between support income vs. new licenses would vary depending on where you are in your adoption lifecycle. Are you a market leader? Are you facing price-based competition now? Will you be transitioning markets during your projection? Have you consumed 50% or more of your market?

David Locke