When did 20% become the new 15%?
It seemed to have started with tipping wait staff… And it seemed to have happened overnight. All of a sudden, a couple of years ago, 20% became the standard for tipping. Is it because service has gotten that much better? In researching why, I discovered that it basically boils down to your and my laziness. Apparently 15% was just too hard for us to figure out. It’s easier to figure out 20% of a bill on the fly than 15%. You simply round up, move the decimal point one place, and double the result. Ta da!
When it comes to tipping, paying 5% more than I used to pay isn’t really that big of a deal–and calculating 20% certainly requires much less thinking on my part.
Coincidentally, for some reason, at about the same time tipping went from 15% to 20%, so did software maintenance. So, why did it change? Has the service from software vendors gotten that much better? I think not–if anything, software maintenance has gotten worse. The standard percentage paid for software maintenance has increased because vendors, who are seeing lagging license revenue, want to maximize software maintenance as a revenue stream. It’s long-term, it’s predictable, and it’s high margin.
With software maintenance, unlike tipping, a 5% increase is more than just chump change. And, while we can be lazy when it comes to figuring out what to tip, as procurement pros, we can’t be lazy about calculating software maintenance.
I remember the good old days when I could get the first year of software maintenance “free,” and the 15% maintenance was calculated on the negotiated price of the software (not the list) for the software that you actually used, it was paid in arrears, there were no annual escalators and, if I canceled software maintenance and then re-subscribed, I didn’t have to pay a penalty on top of back maintenance.
Things sure have changed, but we only have ourselves as procurement pros to blame. Yep, it’s your fault that 20% has become the new 15%. You haven’t pushed back on vendors enough and you’ve been too lazy to articulate why you shouldn’t pay 20%. So, you rationalize that 20% is reasonable and you cave into the vendor. Enough of you (us) have done that so that the standard has changed from 15% to 20%. Big deal that you negotiated huge license discounts–any first-year junior buyer can do that. If you don’t negotiate the maintenance fee, your savings on the front-end could be easily wiped away. Being able to negotiate maintenance fees down separates the junior buyers from the true procurement pros.
But, it’s not too late to change back to the good old days. You just need to stand your ground with vendors and be able to articulately argue why 20% is too much. Ask questions, get information, and argue your position! Here are some questions that you can use to push back on vendors that are demanding 20% for software maintenance:
- Why can’t I get maintenance “free” the first year? OK, so why can’t I get a “free” warranty for the first few months?
- Why can’t maintenance start after the warranty period?
- What am I getting for 20%? Where is that money actually going? Doesn’t functionality peak at some point?
- Why do I have to pay you to fix your own bugs?
- Do I really need / use that much technical or “how to” support?
- How many people do you have maintaining the software? Why do you need so many people to maintain its software? Can’t you offshore that to reduce maintenance costs?
- Why aren’t you taking advantage of electronic mechanisms to reduce technical support costs (like online knowledge databases)?
- Why do I have to pay maintenance on software that really isn’t being used?
- Why should I have to pay software maintenance in advance?
- Can you separate the cost of actual maintenance from how-to / technical support?
- I won’t really be using the software or be able to take advantage of new functionality while I’m implementing the software, so why does maintenance start when I license the software and why can’t it start when the software is actually installed / accepted?
- I’m only able to install half of the total licenses in the first year, so why do I have to pay maintenance on all of the licenses?
- Will I have to pay any future “enablement fees” or are all new versions / functionality included as maintenance? OK, why isn’t that included as maintenance?
- I heard that my buddy got maintenance at X%, how come I’m not getting that deal?
- Why is there a X% increase on maintenance every year? Doesn’t your software get better, not worse every year, and therefore require less maintenance? My users certainly get smarter on the software and use less technical support…
- How is the increase calculated? Why can’t increases be tied to something that makes sense, like CPI?
- Since there’s an annual increase, and the maintenance could therefore increase to a significant compounded percentage, why isn’t there be a cap on increases?
- If I cancel maintenance and then re-subscribe, why do I have to pay all back maintenance and a penalty on top of that? Why isn’t paying back maintenance enough?
Check out Frank Scavo’s blog for more enlightening posts on combating over-the-top maintenance fees.