From “Free” to “Fee” – The Challenge of Unbundling Support

Amongst the common challenges that all companies and their customer contact centers face as they mature, one of the most serious is the transition from “free” to “fee” based support services. During an Office Hours conversation, a CEO from an established software house stated the problem succinctly: “For some years now, I’ve been bundling some of my support costs into the price of my software product and then charging an annual maintenance fee for support & upgrades. But I’ve never been sure of the economics. Is there a better approach? How can I transition from “free” to “fee” while keeping my customers happy?”

The traditional “bundling” approach to Support costs is a mixture of profit-taking strategies. You’re realizing the bulk of your profit from the customer from the initial sale, and planning on getting the rest over time incrementally from the maintenance fees. Unfortunately, almost invariably, while you may have an accurate picture of your profitability at the point of the initial sale (and even that is suspect!), everything after that moment becomes an exercise in “guesstimation.” The result of that scenario inevitably leaves money –frequently big money–lying all but invisibly on the table while the productivity of the team is being sapped.

The problems with the bundled model begin with a lack of knowledge. The basic costs of providing support are largely uncounted. How much does it really cost you to answer the phone or the e-mail? What’s the current value of your investment in knowledge resources in the heads of your support reps and in the knowledgebase system itself? What will the cost be to maintain those knowledge resources over the next year? How many times will the “typical” customer call in the first 90 days after go-live and at what cost to you? The case management system in your center may be great at tracking individual support or service cases/tickets through to resolution, but it doesn’t tell you anything about how to manage your support/service operation on a profitable basis.

How much of the maintenance fee should be allocated to Development for their ongoing work? The typical answer out of the engineering team is: “All of it.” Development costs are just as fuzzy as those in Support.

The first step out of the bundled-support swamp is to carefully define what you mean by Support, and then properly set your customers’ expectations to align with that definition. For example, what, specifically, is a bug? You know you can’t charge customers for dealing with your faults, not if you want to maintain good long-term relationships. Training-over-the-phone, however, ought to be a billable service. How much will your customers willingly pay for it? What else will they pay for? And what, exactly, will it cost you to deliver it? You need to design your support product every bit as carefully as you do your technology packages.

The era of bundled break/fix support needs to be over. It provides no economic value to anyone, and never did. The industry drifted into it from lack of design and vision about the true nature of what was being sold. It’s time to move towards customer centricity in more than words. The beginning is to design and restructure the customer support contact center to be about authentic value-based services, focused on increasing the productivity and profitability of your customers in their use of your technology. And in the process, significantly increasing the value of your company.