Subscription Pricing Is The Beginning Of The End For Margin On Software Maintenance

Here’s what concerns me about subscription pricing.

And I do NOT think any one publisher is alone in how they manipulate their commission  based on how much activity a partner generates (a number they control and can make increasingly difficult for the majority of partners to achieve).

Nobody is Paying You A Lifelong Commission

I’ve been very vocal with SaaS providers who claim that they’re going to pay anyone a margin on renewals that goes on forever (In my opinion they probably will keep paying but you’ll see the tier qualifications push ever upward as profits are constrained and more $$ needs to go into the software publisher’s pockets).

The latest update from Sage (which is not really new but more a restatement of their prior policies toward paying margin on subscription plans and renewals):

1. If you don’t sell 2 deals or $25k – you lose margin on both past and present subscription deals. Let’s say for argument you built your practice up nicely and have 100 customers on subscription but for some reason you stop selling.

Maybe that reason is retirement or perhaps you decide to diversify and take on another product.

Holy lock in Batman – you’re stuck

Note: I realize there is sometimes a “cure” period where you can try to catch up with sales volume before finally losing all margin. For the sake of argument lets assume you’re unable to “cure” what the publisher deems an unacceptable level of sales.

Kiss your entire margin bye-bye (whether a software publisher allows transfer of your book of business to another partner is anyone’s guess — but I guess no).

2. These metrics are subject to change at any time. Publisher needs the ability to increase revenues? Just bump the qualifications to 3, 4 or maybe 10 deals per semester. Don’t think there’s not a spreadsheet somewhere setup for “if then” analysis which predicts how many partners would stop losing margin if the rules were tweaked to require an extra deal (or two) per measurement period.

Re-selling subscriptions does not build a recurring commission revenue stream that you will likely be able to cash out at some any point in the future.

So what you’re left with is laser focussing on your own revenue stream.

  • Access agreement
  • Consulting
  • Business process improvement
  • Enhancements

These services are things that any software publisher will have a tougher time (not impossible – just tougher) taking away from you.

The moral of this long tirade — control your own recurring revenue. Do not rely in the whim of anyone to pay you an ongoing commission.

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Comments

  1. Don’t fall for this carrot and stick approach to making sure that commissions on subscription plans keep flowing your way.

    A far better approach is to assume your commission will eventually be 0 % and build a recurring revenue stream that YOU control.

    I am not saying do not sell subscription deals (or SaaS).

    What I do say is do not assume that those commissions from selling those products will remain stable — or that you’ll build the commissions to a point where you have something of value that you can re-sell eventually.

    I just don’t think that’s happening – whether it’s Sage , Netsuite, SAP, Intacct. These software companies all answer to a higher authority than their reselling partners (Tip: They’re called shareholders).

    At the drop of a hat (or more likely revenues) any of the software publishers will revise their commission structure in a way that cuts us out of whatever portion of revenues they want to keep for themselves.

    Sage have shined a bright light on how this is done — but do not be fooled into thinking the grass is greener on the other side of the fence.

    Build your own recurring revenues that you control. If you’re relying on commissions to build revenue – then in my opinion you are going to be deeply disappointed.

    • I’m pretty sure that conversion from partner accounts to house accounts is included in that spreadsheet.

      Most vendors tend to care very little for the average partner in the channel. Of course if you are a big dog you get attention – and you have big dog problems. There are very few (and I know some) that continue commission payments but does breed a lot of loyalty.

      Your last sentence really says it all – build your own revenue stream!