Why You’re Not Getting Paid for Software

Product Strategy

Too often, capital equipment companies fail to capitalize on aftermarket software revenue. The most common rationale is that equipment buyers just won’t pay for software.

The software in this context is just one of the many subsystems that must be present for your equipment to perform its function. It’s the part that provides the equipment’s user interface, process control, and data management. Just like hardware components, its performance should be validated at the time of delivery, and then warranted against defects during the warranty period. If you’ve done that, then it’s fair to expect to get paid for software maintenance, repair, and upgrades just as you are for hardware.

On the break-fix side of the ledger, the software is usually sold as a renewable, annual maintenance contract. For an annual fee, the customer receives a certain level of technical support, bug fixes, and new features. These contracts typically specify

  • Release update frequency,
  • How bug fix requests will be handled,
  • How feature requests will be handled, and
  • Pricing.

On the upgrade side of the ledger, the approach is the same as it is for hardware. Define the upgrade, define the customer value and price, then promote it.

If your customers are objecting to paying for software maintenance and upgrades, don’t just throw your hands up and accept that equipment buyers won’t pay for software. Instead, ask yourself why they’re not paying. The likely culprits are

  • Your relationship with the customer is strained because you have been unable to meet as-sold specifications for your equipment. Asking for a software maintenance fee would just add fuel to the fire,
  • Your software hasn’t performed as advertised. You keep giving away maintenance updates in your quest for baseline customer satisfaction,
  • You never fully specified the software capability and reliability at the time of the equipment sale. Therefore, you don’t have a basis for what is owed the customer as part of the original sale versus what is chargeable as software maintenance or upgrades, or
  • You haven’t put together a compelling software maintenance or upgrade offering that details the value your customer gets for his money.

The bottom line is that the software’s role in your aftermarket strategy is no different than other subsystems.