Archive for February, 2010

VALUE BASED PRICING TO BOOST SERVICE REVENUE

Friday, February 26th, 2010

This post has recently highlighted that service and support have become increasingly significant contributors to corporate top lines and profit margins (Service & Support Management Has Earned a Seat at the Executive Table).

The TSIA survey which provided data for that post, Maintenance Pricing Practices Survey 2009, also revealed that many service and support organizations either already have, or are planning to add new service offerings to their service portfolios. Examples of such new services include:

  • dedicated support resources and technical account managers (TAMs),
  • best practices consulting,
  • customized software support,
  • specialized training to help customers get the most value from the vendor’s product or solution,
  • and a wide variety of other services that companies may not have previously offered.

Companies are adding these new services primarily for either, or both, of these reasons:

  1. to protect and preserve the maintenance revenue stream that has become so vital to their organization,
  2. to grow services associated revenues and the resulting margins.

One challenge many companies face in adding these new service offerings is how to price the services once they are decided upon. Fortunately, a TSIA partner company specializes in pricing strategies and may be able to provide some thought provoking and valuable advice along these lines.

Our partner, Value and Pricing LLC, has just published a white paper that touches on this very topic. The paper, titled “Pricing Strategically in the Complexity Avalanche” can be downloaded for free here.

I’m struck in particular by a couple of sentences in this report:

“In the current environment, the simple definition of (maintenance) pricing success is to capture as high a percentage of the license price as possible. In the digitized future, the business objective will be to maximize margin across a portfolio of service offerings consumed by a variety of customers.”

I think many service organizations are today struggling with this very thought. The Value and Pricing paper may provide some insights into new ways to think about pricing future service offerings to both yours, and your customers’, best advantage.

Thanks for your interest – IT MATTERS!

Michael Israel

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Posted in Maintenance Pricing, Service Profit Margins, Service Revenue | No Comments »

COMPENSATION PRACTICES and SALES TRAINING FOR MAINTENANCE CONTRACTS WILL BOOST SERVICE REVENUES and MARGINS

Tuesday, February 2nd, 2010

In last week’s post, Service & Support Management Has Earned a Seat at the Executive Table, I highlighted some findings from our recent Maintenance Pricing Practices survey. Those highlights underscore the importance of placing a senior executive in charge of maintenance and support operations. The data from this broad based survey clearly indicate that profit margins from service operations benefit when a senior vice president or higher level exec is in charge of service.

A few more tidbits of information from the survey and the subsequent in-depth report.

- Compensation practices matter. When service management compensation is based at least in part on service profitability, average profit margins on service revenues can rise by an average of 2.7%.

- Training matters. When those responsible for selling service contracts receive training in these three fundamental areas: negotiation skills, sales training, and service & support value proposition, average service revenues can rise by as much as 3.5% and average margins can improve by more than 2%.

- Enterprise hardware companies are more likely to consider service operations a profit center than are enterprise software companies. More than three-quarters of all enterprise hardware companies claim to operate service as a profit center. Only about half of software companies see service and support as a profit center, which is somewhat surprising given the high margins service yields for those software companies that do operate service as a profit center. This might have something to do with the fact that many software companies now embed support as part of their Software-as-a-Service (SaaS) or cloud computing solutions and don’t charge customers separately for support under their subscription or edition agreements. TSIA will gather more information about this in our new benchmark survey.

The full report, Maintenance Pricing Practices, is available to TSIA members and is available to non-members for a fee.

Thanks for your interest – IT MATTERS!

Michael Israel

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Posted in Hardware and Software Support, Maintenance Pricing, Service Profit Margins, Service Revenue | No Comments »