Friday, September 08, 2006

Maintenance & Services Ratios/2006 for Software Companies


Watertown, Mass.-- For high-end software companies, revenue from support- related services continues to pull ahead of product and license revenues,
according to a new research report from the Association of Support
Professionals (ASP). The report, based on data from a hundred major public
software companies, shows that maintenance and professional services now
generate 50.8% (median) of total revenues for a typical software company.

"Though there are still major companies that remain almost exclusively
product-centric, most successful software vendors these days have adopted a
business model that depends heavily on services," says ASP executive
director Jeffrey Tarter. "That shift in emphasis from products to services
has happened quietly, but it's definitely the new economic reality of the
software business."

Services also make a substantial contribution to overall profitability, the
report points out. Maintenance is the top cash cow, with a gross profit
margin rate of 82.8% (median). Professional services, a category that
includes custom development, consulting, and training, is a more people- intensive business, but still delivers a median 19.7% margin.

"Services revenues, especially from maintenance, also tend to be highly
predictable and usually involve at least some advance payment," says
Tarter. "Moreover, services build customer loyalty, so additional license
sales are often the direct result of a positive services relationship with
a customer."

The ASP's "Maintenance & Services Ratios/2006" report notes that software
companies vary considerably in their emphasis on services, but suggests
that the ASP's data provides basic peer-to-peer benchmarks for services
contributions to revenues and profits. The report includes tables that
identify all one hundred individual companies and provides their most
recent fiscal year top-line revenues, services revenues, and services
costs. The report also comes with an Excel spreadsheet that provides this
data in electronic form.

In addition to the benchmarking data, "Maintenance & Services Ratios/2006"
includes expert commentary on revenue recognition rules, internal P&L
reporting, and the impact of attach and renewal rates.

Copies of the "Maintenance & Services Ratios/2006" report are free to ASP
members (membership fee is $80/year). For more information, visit

The Association of Support Professionals is a membership organization that
publishes research reports for software tech support managers and
professionals, operates a network of regional chapters, and conducts an
annual competition for the "Ten Best Web Support Sites."


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