Welcome to the January 2012 edition of the FT Word. Feel free to forward it to your colleagues. (They can get their own subscription.)
Topics for this month:
The FT Works indicator – 6.4%
Using video for support
Support pricing, support discounts
The FT Works Indicator: 6.4%
In its January, 2012 issue, CRM Magazine reports that CRM providers experienced a 6.4 % growth in 2011, up from five years of very tepid 1.5% — with the expectation that growth will continue at a much healthier 4% rate for the next five years. This is seen to be driven by a greater need to invest in customer management during the slow economic recovery, the move toward cloud-based deployments, and the move by CRM providers to better integrate social media into their offerings. This is very much the trend I’m seeing with FT Works customers, at least when it comes to investing more in customer relationships and moving towards cloud solutions. I’m thirsting for better integration of social media with traditional CRM functionality.
Using Video for Support
A big thank you to Jim Gillis for suggesting this topic.
In the past few months, I had a chance to work with two providers of video services (who, not coincidentally, use video chat to deliver support) and I used video in a number of training programs, both to deliver training through videoconferencing services (something I have been doing for several years) and to create sales training (to sell support, of course!) to be delivered as, I hope, a clever mix of videos, narrated presentations, and live interactions. As you may know, my first love, before support, was training and I’m always happy to go back to my early days!
Let’s explore how videos can be used for support:
– For training. Many support organizations are distributed and training budgets are not unlimited (perfect understatement, don’t you think?) So while I continue to think that face-to-face, direct interaction between learners and instructors is the best, most effective way to learn, leveraging both taped instruction and live, video-based instruction allows learners to get almost the same benefits at a much lower cost, and with significant time savings. I find that video-based training needs to be cleverly designed to be effective – more than live training, where a gifted instructor can take so-so course materials and transcend them into greatness. I also find that the demands on the instructor to make video-based live training work are enormous since it takes much more effort to create a relationship with the learners through ether. But still, video-based training is a godsend. (And it works to train customers, too.)
– For self-service how-to’s. I often hear that customers “don’t read” – and video can be the perfect antidote. Simply tape a demonstration of how to install the update, how to hold the device, how to customize the application, or whatever is challenging your customers. Post the video on your web site, or on YouTube. It’s really a small-scale training effort, targeted towards one particular procedure.
– As a real-time, face-to-face, assisted support delivery channel. Chat providers are adding video capability to their offerings – or you can go with a video provider for a great-quality image. Instead of a disembodied voice on the phone, you can see the other party and have a much more personalized experience.
– Send video emails tailored to the customer’s question for an asynchronous solution. (See, for instance, MailVU).
The video channel is not as straightforward and certainly not as familiar as others, but I think its use will increase rapidly. Here are some tips from my clients’ and my experience to make it work best for you.
1. How-to videos are easy to shoot. You don’t need a slick, “perfect” video to demonstrate how-to’s. Actually, an overly produced video may turn customers off.
2. Target self-service videos to frequently-asked questions about tricky procedures. A simple how-to document may not merit a video – but it may if your audience is resistant to written instructions.
3. Short videos are usually best. A long, rambling discussion will get turned off. This is not a problem for how-to’s but it is a challenge for longer training modules. If you must go to self-service mode for training, create small chunks. And as with any self-service mechanism, include interactions with the instructor, whatever the mode possible (videoconferencing, phone, email).
4. If you have lots of self-service videos, think about how they will be indexed and searchable.
5. Video chat is ideal for nurturing relationships. Consider targeting it to high-value accounts or high-value interactions, for instance for new customers who need more TLC as they get started.
6. Even video providers, who have a built-in interest to highlight their solutions, use video chat when needed to solve customers’ issues, but they don’t usually allow customers to open issues via video. This is not unlike the common decision for B2B vendors to use chat as a troubleshooting tool, but not to open support cases.
7. Screen sharing may work much better than video chats if the focus is on a computer screen. Don’t just use video because you have it.
8. Video chats seem ideal for account management reviews, escalation conference calls, and other communications with high emotional content.
9. Look in the mirror! We are used to thinking that a good voice will serve you well in support, but appearance counts (from the waist up, at least!) when on a video chat.
10. Check the quality. A poor video solution, especially combined with poor lighting or a misaligned webcam, may not convey the professional appearance you are after…
11. Think from the customer’s perspective. Some customers may not have a camera on their computer, they may not want to download anything, or they may not want to show their messy hairdo.
12. Think about internal use, too. Being able to see remote colleagues is a boon to collaboration.
Are you using videos for support? Let me know about your experience.
Net Pricing, List Pricing, and Support Pricing in General
A big thank you to Ravi Desai and another reader who asked to remain anonymous for suggesting this topic.
Question #1: Do we charge support fees based on list pricing or net pricing?
This may be the most common question, bar none, that I get about support pricing. And it’s easy to see why there is so much passion about it. After all, discounts are common and large discounts are not rare – so since support pricing is usually a percentage of the product price a net pricing approach would slash support revenue, and potentially for years to come.
Here’s an example:
Product list price = 500k
Product net price = 250k (that is, discount = 50%)
Support price = 20% of product
Support price based on list = 100k
Support price based on net = 50k (discount = 50%, yet again, but on a much smaller base!)
Clearly charging support based on the net price yields much less revenue, but look at it from the point of view of the customer. If you insist on charging full list price for support, the customer would be paying 100k’s worth of support for 250k’s worth of product would feel that the support charge is a whopping 40% — very steep!
To minimize customers’ and sales reps’ concerns, and also to comply more easily with VSOE rules (although net pricing is emphatically not the only way to comply with VSOE) I’m seeing more and more vendors adopt a net pricing policy for support. The advantage of net pricing is simplicity (only one percentage to remember), which translates to better acceptance by customers and sales reps.
Vendors who are not using net pricing may grant no discounts on support (this is rare, and pretty much inexistent for high-priced products, but some vendors do stick to a no-support-discount policy), or they adopt a separate discount matrix for support. So for instance in the example above they may discount the support cost from 100k to 80k, for a 20% discount – much less than the discount on the product, so still likely to produce a bit of a shock for the customer with a 32% effective ratio of support to product cost. Worth trying if you think the discipline of a separate support discount matrix.
Question #2: What’s the going rate for support pricing these days?
In short, it depends (a lot!) For enterprise software, I commonly see 18% as the price for “basic” support, whatever that means for the vendor – which could be business-day support. 24×7 support is usually around 20%, and higher levels of support, including assigned support engineers and/or proactive account management, in the mid 20s. (I believe that it’s best to charge all support based on a percentage of the product price, with appropriate minima, rather than use fixed amounts that do not scale for larger customers, but this is religious-war territory that I will avoid for today.) 15% support percentage days are over for software! Hardware support percentages are significantly lower.
I am not seeing a decrease in the support pricing percentages, even with the economic tightening of the past years. If anything, percentages are going up (but discounts are up, too, and the trend toward net pricing is not exactly buoying support revenue).
Question #3: What happens with renewals?
Customers are negotiating more these days, pushing back on support costs as they adapt to tighter budgets. Renewal strategies depend on the overall pricing strategy for support.
· Vendors that charge a fixed percentage of list price with no discounts use the same approach for renewals. They are limited only by (a) any yearly increase cap built into contracts, so that if the vendor increases prices across the board by 10% but the cap is 5%, the support bill can only increase by 5% for that particular year and (b) the customer’s willingness to pay. No-support-discount vendors are vanishingly rare for high-priced products, I repeat!
· Vendors that apply discounts to a fixed percentage of list price often apply the same discount to the updated list price of the product, with the same limits as above – and the complication that, if a customer made multiple purchases over time with different discounts the calculations can get ugly.
· All other vendors simply uplift (or should uplift) the support cost year to year, using some formula that calculates increases based on contract volume (lower volume means larger uplifts), geographies, and a host of other factors, all subject to individual contract caps, of course. The beauty of using uplifts is that it works well over the long run to maintain equitable levels of pricing for both customers and vendors.
I continue to see a trend towards more transparent support pricing, including for renewals. Customers will negotiate, of course, but it’s a lot easier to defend pricing that is simple and explicit. I believe this is why we are seeing more and more net pricing with yearly uplifts. It’s utterly simple, even if the uplifts vary with the size of the contract. It makes sense. It seems fair. But it’s not the only way to go and I do see vendors using other methods successfully, so there’s no need to switch to it if you are satisfied with your way of pricing support and renewals.
If you’d like to learn more about support pricing, see Selling Value.
FT Works in the News
Third Tuesday Forum Breakfast – January 17th
The next Third Tuesday Forum breakfast is on January 17th and will feature a very special guest, Catherine Aurelio of Apigee. Catherine will be speaking about Gamification: Using Game Design Principles to Engage Customers and Staff. Prepare to be very intrigued by Catherine’s innovative ideas.
ASP’s 10 Best Web Support Sites Nominations – I’m a judge!
Sixty days left to apply to the Association of Support Professionals (ASP) Best Web Support Sites award and entries can be submitted starting now at http://www.asponline.com/12entry.pdf. The awards are wonderful recognition to the winners, of course, but all participants receive actionable advice from industry practitioners, including yours truly, so it’s a great learning tool as well. You can read more about the awards at http://www.asponline.com/whyenter.html.
Curious about something? Send me your suggestions for topics and your name will appear in future newsletters. I’m thinking of doing a compilation of “tips and tricks about support metrics” in the coming months so if you have favorites, horror stories, or questions about metrics, please don’t be shy.
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About FT Works
FT Works helps technology companies create and improve their support operations. Areas of expertise include designing support offerings, creating hiring plans to recruit the right people quickly, training support staff to deliver effective support, defining and implementing support processes, selecting support tools, designing effective metrics, and support center audits. See more details at www.ftworks.com.
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