Importance of recurring revenue

If your software business has a traditional licence-service-maintenance revenue model, do keep in mind how potential buyers will view the recurring revenue from maintenance.
 

* A low attrition rate means that your clients value the maintenance that you provide. How has the attrition rate changed over time?

* Where it happens, understand and document why clients have stopped taking maintenance. How long can new clients be expected to keep maintenance, given the experience of the past?

* Do the biggest maintenance clients represent a disproportionate part of the total maintenance income? If so, reflect on whether these clients could consider dropping support, or worse still, use of your system.

* Does maintenance allow clients to upgrade to new releases or do they just receive bug fixes to their purchased release? The relationship of the support team with a client is an excellent platform from which to sell additional training services, upgrades and so on.

* Overall, what proportion of revenue is from maintenance? You would think that the higher the better, but this is not always so. At 40%, 50% or more, the seeming security of a large proportion of revenue coming from maintenance may in fact indicate that there is a problem gaining new clients.

 

Your customers are the best advert that you have for the value of your software. Their willingness to pay for maintenance is a direct financial indication of how much they continue to value your product and support in the years to come. Make sure that you are aware of and have recorded, by client, changes and especially losses.

Posted by , on 25 July 2011
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