Software Pricing Considerations – Software Maintenance

As we mention in a previous post, software cost can be broken out into 3 components (Software License, Software Maintenance, and Implementation Services) If you are looking to implement a SaaS or Cloud solution then you will also have a Service Level Agreement (SLA). For this post we are going to focus on the Software Maintenance cost.

Software maintenance is the annual cost that you pay for upgrades and support of the software. The software maintenance cost is driven by a percentage of the initial software license fee – which is usually between 16-25% of the license cost per year. You need to pay close attention to a couple of items in the software maintenance agreement as you negotiate the contract: 1) How the maintenance cost is calculated, and 2) when the maintenance cost begins.

The first item to consider is how the annual maintenance cost is calculated. Many vendors base this cost on the “List Price” of the software. While most likely you will be getting a significant license price up-front discount, the vendor’s typically charge maintenance based on the higher list price. While this is not always negotiable with the vendors, you should at least get clarification from the vendor and may be able to negotiate this calculated cost.

The second item is when the annual maintenance cost begins. Most vendors start maintenance the moment you sign the contract, or begin the implementation. Make sure that you have a good understanding of when this starts. Depending on the vendor and the clout of your company, you may be able to negotiate starting maintenance at a later date.

Cloud solutions charge monthly or annually, so maintenance is a part of the service they provide. Because this is a recurring cost – it is critical that you understand how they charge for the use of the software so you can buy the right number of licenses. If you overbuy licenses, your costs will be high every year – which adds up significantly over the long term.