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Charging to renew lapsed support

Posted on 2009-04-07
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Last Modified: 2013-11-26
This is not a programming question, but a business practices question. I have an application that we sell commercially. The first 90 days of support are included with the purchase. We then charge the client 15% of the original list price for a yearly support contract, which includes both phone support and updates to the software (we're putting out at least one update per year so the clients can see value received for their money). I know Oracle charges 22% yearly, but they're pricey in everything; I'm not trying to gouge.

Of course, not all clients buy the support. The application has been out for about 18 months, and we're about to release a new version with a number of new features that could potentially interest some users who aren't under support. I'm trying to decide how to price a renewal of support. I don't really want to make it the standard price for the update and a full year of support, as that might tend to encourage people not to automatically renew, but to wait for updates to come out. At the same time, I don't want to price it so high that people are discouraged from coming back.

Any thoughts? Any examples of what other companies are doing? How would you respond if you were the purchaser?
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Question by:ElrondCT
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Expert Comment

by:theo kouwenhoven
ID: 24092562
Hi ElrondCT,

I would say, No support, is no new release. If that kind of customers like to have the new features, they have to buy the application. Because if you give them any other arrangement, it's unfair for the customers that DID take a support contract. and they will ask you why they have to pay the contract is it is not necessary for new releases and they will complain that they payed to much.

Of course I know that it is not realistic or accaptable to handle a customer in that way. But the customer has to pay something for his new release, so I think it's normal that he pay the support contract over the last year to get the update and a oblige him a contract for the next period(s).

Regards,
Murph
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by:ElrondCT
ID: 24097894
So you're suggesting paying for two years' worth of support, one as the price of getting back in the system and the second to actually get 12 more months of support? If the regular support price was $500, then, they would pay $1000 today to get the update plus support through April 2010. That seems a reasonable way to handle it.

Anyone with other ideas?
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Accepted Solution

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theo kouwenhoven earned 2000 total points
ID: 24100151
Hmmm yes that is what I mean. but a little diferent explenation.

He likes to have the new features, but has no support contract, so you give him the possibility to correct the mistake he made by not choosing the support fee. (So he pay's extra anyway, beacuse he pay the fee and didn't has the possibility to used the support over the last period.)
so: You will do him a great proposal, he don't have to re-buy the software but instead he takes a support contract starting the buying date (preferable not only for two years) and he will get the update for free.
(I think this is a good deal for both sides)

Regards,
Murph
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