Pricing optimisation

Support and maintenance are critical parts of the development lifecycle. It ensures that software continues to function properly and meet the needs of users. However, pricing these packages can be a challenge.

There are several factors to consider, including the:

• cost of providing support and maintenance ;
• value of the software to the customer ; and
• competitive landscape.

It is important to balance these factors to set a fair price for both the vendor and the customer.

Use subscription models

These are becoming increasingly popular for support and maintenance contracts. This is because they allow customers to pay on a recurring basis, which can be more predictable and affordable than paying for ad hoc support on a project-by-project basis. Also, having more revenue contracted on a recurring basis will increase a technology company’s valuation in a corporate finance transaction.

Offer tiered pricing

This allows customers to choose the level of support and maintenance that is right for them. This can be an excellent way to attract customers who are willing to pay more for a higher level of support. When pricing these different tiers, it is critical to be transparent with your customers so they understand how the pricing is structured and why you are charging the prices you are.

Bundle support and maintenance with the software licence

This can increase customer satisfaction as the support team can help the users to make best use of the software. This will help increase the vendor’s long-term retention rates and, therefore, the company’s valuation.

Use value-based pricing

Focus on the value that the support services provide to the customer. Instead of pricing on a cost and mark-up basis, emphasise the benefits and outcomes that customers can expect. Highlight how your support services improve their software experience, increase efficiency, reduce downtime and enhance productivity. Customers will be more inclined to invest in your offerings by emphasising value.

Consider the value of the software to the customer

It is important to consider how your software fits into the customer’s business. If you sell ‘mission-critical’ software, they will likely desire more support.

Be flexible

There may be cases when you need to offer discounts to large customers or businesses looking to sign long-term deals. Signing long-term contracts can benefit technology companies as it gives a potential investor/acquirer much more certainty around revenue projections. This would be reflected in a higher revenue multiple being used to calculate the company’s valuation in a corporate finance transaction.

Review your prices regularly

It is important to benchmark your pricing against your competitors regularly to ensure it is still competitive and effective. You may be required to tweak your pricing strategy due to market forces.

By following these strategies, you can establish support and maintenance prices which are fair for both vendor and customer. This can help you to attract and retain customers, as well as helping to improve your bottom line.