Jackson999

Enterprise Software Vendors Now Vulnerable to Maintenance Payment Reduction

50-70% of tech companies revenues come from maintenance (M&E) fees. There is commonly less revenues from new sales than many believe. M&E is the principle driver of tech business and development, not new sales revenues.

The fact that so much revenue is dependent on maintenance streams is why some large companies will give you their whole software suite for free in exchange for a 5 year M&E lock in (old Computer Associates, Oracle, etc).

List price M&E typically ranges from 17-22%. But most companies will go down to an 8-10% M&E rate for a 3-5 year lock-in if you negotiate hard. That isn't a bad deal since you are not just getting support but also upgrades w/o charge.

I would recommend that companies always get a contract in place that limits their M&E to the PRICE THEY PAID for the software, not the current list price, which is what most customers who don't know what they are doing agree to, either explicitly or implicitly. When company product sales are on the decline, companies will often raise the list price of their products so that they can milk more M&E revenue out of existing customers.

There is a tipping point where companies will try to renegotiate M&E or threaten to drop it. But dropping M&E (or skipping payments) isn't a good idea if you plan to stay with the software because most contracts specify that you have to make up missed M&E if you want the current product or support. Whenever I start a new sales job, I pull the contracts and histories for existing customers and ensure that they are all up-to-date on their M&E. I have made some good money doing this.

Customers need to read and understand what they are signing! At a prior company I worked for, they actually had a clause in the contract which let THEM cancel the contract on 30 days notice, for any reason whatsoever. This of course, effectively negates anything the customer negotiated originally (for instance if the company was acquired and got new management). I was amazed at the number of companies that left themselves exposed by signing off on a contract with this clause without any question.