For an organization running on old third party application paying for expensive annual maintenance is not feasible but if a working system is not provided with up-gradation, the business operations may get frozen and the buyer may spend a significant amount on non beneficial R & D within the organization.
Negotiating the deal
Many organizations feel the amount paid on annual maintenance is not worth but today many vendors provide software deals which include future costs.
It has also been found in report released by Meryl Lynch that more than 50% companies succeed in negotiating the price of annual maintenance. Organization can categorize the future needs depending on their business and historical data and analyze the value of historical data, and based on historical data, the company can find out the need for future maintenance and bargain price based on it.
Importance of annual maintenance
A third party ERP can provide a patchy solution which has to be worked by the IT personnel which gets expensive in the long run and it can even halt everyday processes. Preventing expense on annual maintenance is not a solution to reduce expense on IT because many clients's using ERP software use only 60% to 80% of the features of a software and therefore future assistance is required.
It is required because the database gets old, the servers are outdated and the operating system changes every year. The new version of the software can provide developed version for new demands and update helps in fixing many other related issues. The new versions also require support, middleware and other features which may need up gradation. Every application has a limited life cycle and after a certain level the application may not work properly and then either the company has to go for a new system which can be excessive expensive or the company can go for annual maintenance.
Generally the cost is not more than 20% although only a few companies take more than 20% from customers and cost is more for demand software. Generally the companies ask for a price that is 12% to 18% of the price of the software and the buyer can further negotiate the cost. Sometimes the prepay negotiation provides a better deal because the cost can increase with year.
There are many other factors which define the cost and sometimes the vendor can provide a five year deal. Many small organizations are not willing to pay heavily for safeguarding the software and therefore the organizations do not want to buy it but buyers can go for negotiation and look for various other options.
The cost can depend on users or sometimes one license can be used for even increased number of users. Some vendors charge for every new user and sometime the cost is based on the number of transactions. The company going for a new ERP solution can ask for the charges taken on annual maintenance in the last five years to compare it with current costs to find out how it is priced by the vendor.