Maintenance Agreements: How to Ensure Your Revenue Stream Continues Through the Recession
It’s inevitable: in a recession, most businesses are trying to cut costs wherever they can. Every business owner is seeing the effects of this all around them.
So, if you are a software company, how do you keep your maintenance agreements from being the target of one of these cuts?
The Software Licensing and Master Services Agreements Blog addressed this issue in a blog post this past week, summarizing an op-ed piece written by Chris Dowse and Ben Galison, which advises that software companies take the following steps in this economy: 1) create a positive customer experience; 2) understand customer usage; and 3) deliver business value, not technical service.
These are all good points. As business owner who has considered whether or not to enter into these contracts for my business, I can tell you that when customer service is bad, it is hard to justifying paying for a maintenance agreement, since you know that you will receive minimal support if and when you need it. In tough times like this, it may be tough to motivate your customer service people to deliver good service, but it is really critical to maintaining a positive customer experience. If money is tight and your customer service people are not doing a great job, you can almost count on customers not renewing your maintenance agreements.
At the same time, the value that the maintenance relationship provides is also critical. For my own business, I have often weighed the potential value lost by cancelling the maintenance contract versus just buying the updated product down the road, and in most cases, I have decided that it is best for my business to just hold off and buy the updated product down the road. In an economy like this, software companies should anticipate that their customers will be making the same calculation, and focus on delivering enough value through maintenance that the customer will determine that signing the maintenance contract is a better value than holding off in order to buy an updated version of the product down the road.
Beyond customer service and value, are there other considerations that may come into play in deciding whether or not to terminate a maintenance contract in the recession? Well, a big consideration is going to be financing the maintenance fee. If your business is requiring a large maintenance fee right now, in the middle of the recession, to continue maintenance, there is a good chance that the customer is not going to renew. While I don’t typically advocate for clients to agree to breaking down the fee into smaller payments, it may be necessary to make such a concession in this economy if you want to keep your customers. You should consider the option of allowing customers to pay in quarterly or even monthly installments. While being this flexible does open the door to the possibility that a customer may not be able to continue the contract due to low finances in the middle of the contract, it also increases the likelihood that they won’t allow the contract to expire immediately right now, cutting off the revenue stream.
Another option right now may be to offer a discounted price in exchange for the customer signing up for a longer term than just the usual one year period. Customers may be able to better justify the expense if they receive a discount and can lock in a single price for the contract over a longer period of time than just a single year.
The bottom line is that difficult times require some creative solutions to maintain your customer base and your revenue stream. Staying in tune with what your clients want and need is the best way to maintain your revenue stream, so that it will survive the recession.