Let's continue our short overview of the Quote to Cash area today with a look at upfront support for Hardware and Software Products as well as Support Renewal quotes and orders.
What is upfront Support? That is a support service that is sold with the first or initial sale of a product. An example is the sale of 24x7 support service for a Software Product. The duration of this support service might vary (e.g. 1 year, 2 years, 3 years etc.). Usually the Product (HW or SW) that is sold has a default support service which the user (e.g. on a website) or the sales rep (e.g. on internal sales tools) can change. For Software companies the support price might be between 16 - 21% of the Software Product price. Example: Software Package A costs $100 and the 1 year support service that it is sold with goes for $18 (this is 18% of the Software Product price). This brings the total price to $118. If the customer is qualified to get a discount it is important to note that the price of the Software Product and the price of the support service are interdependent and subject to VSOE and Revenue Recognition regulations. Example: Our customer in the example above requests a 20% discount for the $118 Software Package A and 1 year support service. It might not be possible to discount the Software Product and the support service in the same way without doing a carve out. Since I'm not an expert on this topic I leave it at that but note that this topic can be fairly complex and requires the guidance of a Finance expert to ensure VSOE and Revenue Recognition compliance.
Ideally we want to have one system that allows us to sell Hardware Products, Software Products and Professional Services. This system should determine VSOE compliance automatically in every region/country.
Note: Some companies will make it mandatory that with every Software or Hardware Product Sale a support service product is sold and others will leave it as optional. This can be enforced in various systems and processes (e.g. add a support service in the product configuration tool every time a software product is selected).
What customers usually also request is a possibility to co-term support services. This refers to the ability to align various support services to one timeline.
Example: Software Package A was bought on June 15, 2013. The one year support service runs from June 15, 2013 - June 14, 2014. On November 15 the customer wants to buy Software Package B also with a one year support service but he wants to align the support service for both products from June 15, 2013 - June 14, 2014 (instead of having the support service for Software Package B from November 15, 2013 - November 14, 2014). This will highly simplify the handling on the customer side and the seller side.
Support Renewal quotes and orders: What I mentioned above is the initial sale. Once the support service is expired it will come up for renewal. Example: Software Package A was bought on June 15, 2013. The one year support service runs from June 15, 2013 - June 14, 2014. On June 15, 2014 the contract will expire. We want to go back to the customer well ahead of time (e.g. in April 2014) to renew the support services (e.g. extend them by 2 years).
Support Renewal services represent a considerable part of many businesses and so it is critical that the business processes and systems in this area support this critical need.
Some challenges in this area are finding the correct products to renew (Example: 12 months ago Hardware Product A was sold with sku's (Stock Keeping Units) ABC, DEF, GHE. In the meantime sku ABC is no longer available. Now we need to determine the replacement sku(s) for ABC. If several NPI (New Product Introduction) cycles are skipped this becomes obviously more complex.)
In order to enable this capability in a system something called an Installed Base is needed. The installed base provides information which products are installed at the client side.
There are many more details that could be added but for our short overview this should suffice.
Next week we continue with --> Professional Services (Consulting and Education Services) and Enterprise License Agreements
