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INTRO SMA (Support and Maintenance Agreement) for Custom Software

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CQuinn

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Apr 24, 2019
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Our company currently provides custom software products for many different industries. Many of our solutions are end to end business solutions that often include multi-integrations to third party API's that eventually require an SMA (Software and Maintenance) agreement by the end or during the project development and upgraded cycles. I am having trouble in trying to price these agreements.

Our SMA Agreements do not cover new development or new projects related to the covered software, only support and maintenance of existing software. Typically in my research I found the the cost of an SMA for different complex software being sold, cost about 20 to 22 percent of the cost of the software.

I have a situation where a client has spent about $350K on a custom solution from us and it is quite sophisticated. If I were to charge him %20 per annum, it would cost them 70K or $5,883 per month. This seems excessively high. We also have a clause in our SMA that we review the SMA quarterly to take into account new development costs that are added to the SMA agreement after the initial SMA agreement goes into affect. This particular client also currently owes my of 50K that he trying to catch up on from previous development.

Any advice you can provide me would be greatly appreciated! Thank You!
 

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Jeff Noel

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We know too little about your software to fix a price for your maintenance contracts.

Here is a couple questions that might help you figure out your price:

Will the software require/include several updates or major updates yearly ?

  • If major updates or a single major update comes about every year, new features could warrant the higher costs.
Is the software highly customized ?
  • If it is, take that into account: it requires more extensive work (and often a dedicated resource) to plunge back into custom code developed for one specific customer compared to your own baseline framework that you adjust for all customers at once.
 
OP
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C

CQuinn

New Contributor
Apr 24, 2019
13
3
14
We know too little about your software to fix a price for your maintenance contracts.

Here is a couple questions that might help you figure out your price:

Will the software require/include several updates or major updates yearly ?

  • If major updates or a single major update comes about every year, new features could warrant the higher costs.
Is the software highly customized ?
  • If it is, take that into account: it requires more extensive work (and often a dedicated resource) to plunge back into custom code developed for one specific customer compared to your own baseline framework that you adjust for all customers at once.
Thank you for your reply!

We provide multiple customizable solutions, the one in question is called ProSTART and is a end to end starter solution (Client Sever Solution) a framework that includes many modules all the way from Prospects to Invoicing that we highly customize for our clients, sort of a deliver and extend model, that we customize and add new features etc. that closely fit our clients unique business processes. While a lions share of the work is completed, there are still ongoing and continuous requests for new features and modifications to the solution. This also includes custom web integrated web portals, accounting software integration, etc. which would be included in the SMA. I hope this sufficiently answers your question?

Yes the software is extremely customizable but takes senior level developers to usually make these requested changes. Part of our agreement is to include knowledgeable developers for the clients solution. You make a good point here.
 

Jeff Noel

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Seems like an ERP. You're providing a digital backbone for a business. I believe asking for 20% of it's value yearly is worth it.

The only reason Microsoft isn't selling new versions of Windows is because they're selling our data now.
If you don't want to go into the process of selling another bulky software (by bulky, I'm saying we're not installing VLC here, it's a complete solution for them) to your existing customers, the best way to keep their money coming in is a maintenance contract, in my opinion. Unless you develop really useful modules (since you're developing in modules, good move by the way) that could be sold (take a look at Acomba, they offer solutions AND a huge pack of modules. They make money off: Solutions sales, modules sales, support).

I'll go deeper into Acomba business model:

They sell support plans
You need help with our software ? You better pay $1500/mo. You want us to call you back in the next 4 hours ? That's $2500/mo. You want your answer in the next hour ? That's $5000/mo.
That's only support. (Numbers are coming out of nowhere, but that's roughly the price of the different support subscription levels)
They sell solutions
I believe the base price is $799. There is zero customization done for the customer. They want something ?
The answer is Modules.

They sell modules
Modules start at $219 for small ones, and custom pricing for bigger modules like "project management" which includes custom development. We can easily hit the mid $XX,XXX mark for custom modules... and some modules have yearly subscriptions.

Why am I telling you all of this if their software is $799 and yours is a customized ERP (or some complete solution which I don't know the acronym) selling at $150K-$500K ?

I want you to see the options, so you can evaluate the correct pricing.
My opinion is that your 20% yearly maintenance fee is justified and a decent price.

But my opinion is also that you should donate 3% of your gross profits to me forever. Get it ?

You're decision taker.

Take the pen and paper, calculate stuff, look at your competition (or similar businesses if not applicable) and define a price. Approach your customer with an open mind and be ready to adjust your price a little bit if you can't back up your numbers.

Good luck :)
 
OP
OP
C

CQuinn

New Contributor
Apr 24, 2019
13
3
14
Thank you for your reply!

We provide multiple customizable solutions, the one in question is called ProSTART and is a end to end starter solution (Client Sever Solution) a framework that includes many modules all the way from Prospects to Invoicing that we highly customize for our clients, sort of a deliver and extend model, that we customize and add new features etc. that closely fit our clients unique business processes. While a lions share of the work is completed, there are still ongoing and continuous requests for new features and modifications to the solution. This also includes custom web integrated web portals, accounting software integration, etc. which would be included in the SMA. I hope this sufficiently answers your question?

Yes the software is extremely customizable but takes senior level developers to usually make these requested changes. Part of our agreement is to include knowledgeable developers for the clients solution. You make a good point here.
Our ProSTART framework is usually and mostly unique to each client. Part of our SMA agreement for existing ProSTART clients is to offer any new modules we create for other clients at no cost except for the cost of integration.
 
OP
OP
C

CQuinn

New Contributor
Apr 24, 2019
13
3
14
Seems like an ERP. You're providing a digital backbone for a business. I believe asking for 20% of it's value yearly is worth it.

The only reason Microsoft isn't selling new versions of Windows is because they're selling our data now.
If you don't want to go into the process of selling another bulky software (by bulky, I'm saying we're not installing VLC here, it's a complete solution for them) to your existing customers, the best way to keep their money coming in is a maintenance contract, in my opinion. Unless you develop really useful modules (since you're developing in modules, good move by the way) that could be sold (take a look at Acomba, they offer solutions AND a huge pack of modules. They make money off: Solutions sales, modules sales, support).

I'll go deeper into Acomba business model:

They sell support plans
You need help with our software ? You better pay $1500/mo. You want us to call you back in the next 4 hours ? That's $2500/mo. You want your answer in the next hour ? That's $5000/mo.
That's only support. (Numbers are coming out of nowhere, but that's roughly the price of the different support subscription levels)
They sell solutions
I believe the base price is $799. There is zero customization done for the customer. They want something ?
The answer is Modules.

They sell modules
Modules start at $219 for small ones, and custom pricing for bigger modules like "project management" which includes custom development. We can easily hit the mid $XX,XXX mark for custom modules... and some modules have yearly subscriptions.

Why am I telling you all of this if their software is $799 and yours is a customized ERP (or some complete solution which I don't know the acronym) selling at $150K-$500K ?

I want you to see the options, so you can evaluate the correct pricing.
My opinion is that your 20% yearly maintenance fee is justified and a decent price.

But my opinion is also that you should donate 3% of your gross profits to me forever. Get it ?

You're decision taker.

Take the pen and paper, calculate stuff, look at your competition (or similar businesses if not applicable) and define a price. Approach your customer with an open mind and be ready to adjust your price a little bit if you can't back up your numbers.

Good luck :)
Thank you that is great advice! Thank you, I'm going to think on what you said and get back to you later today. Thank You again for an excellent reply. Would you consider consulting on this with us?
 

Jeff Noel

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FASTLANE INSIDER
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Oct 26, 2018
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Quebec, Canada
Hi CQuinn,

Feel free to contact me through PMs if you have more questions. I will do my best to help you out or at least give you another point of view from my developer experience. I'm happy to help.

If some things can be discussed publicly, go ahead and write them down here so other people can chime in or learn.
 
OP
OP
C

CQuinn

New Contributor
Apr 24, 2019
13
3
14
Hi CQuinn,

Feel free to contact me through PMs if you have more questions. I will do my best to help you out or at least give you another point of view from my developer experience. I'm happy to help.

If some things can be discussed publicly, go ahead and write them down here so other people can chime in or learn.
Thank you! I will continue on the forum and after I work the numbers I will get back to you.
 

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