How Much for that Maintenance in the Window?

[The following is an excerpt from the Software Licensing Handbook. If Google never gets around to allowing you to “view inside” the book, I guess I’ll have to do it here over time.]

Maintenance and support comes at a price, usually expressed as a percentage of the license fees paid in the license agreement. This should encourage two things from the customer’s side:

  • Negotiate the initial license fees down to the greatest possible discount. If this is a perpetual license, these fees will not recur.
  • Negotiate the maintenance and support fee percentage down to the greatest possible discount. Industry average is between 8 and 12 percent for 8-5 M-F support (allowing for a 3-5% increase for 24×7 support), while most providers initially request 20 to 25 percent.

Additionally, maintenance and support fees act in a similar manner to other fees in that they can increase over time simply due to provider choice. Therefore, negotiating a cap on the increase in any fees is always advisable and almost always accepted by the provider, even if not included in their initial language. As with future orders in a license agreement, an increase of 3% per year is almost always acceptable, with the possibility of tying the increase percentage to the Consumer Price Index.

Providers will sometimes have difficulty in accepting a perpetual cap on the maintenance fee. This is usually either based on a future income concern or as a result of revenue recognition. With respects to maintenance fees, revenue recognition is not applicable. However, it is not unreasonable for the customer to need to realize that a provider who locks in maintenance perpetually might not be able to afford to provide services in the future as a result of lowered income. Compromise can sometimes be found in setting a time limit for the cap, but then stating that the parties will return to the negotiation table to discuss the next year’s fees.

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