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2011 Maintenance & Services Ratios
Technology pundits are always on the lookout for disruptive changes in the software world, but they ve mostly missed one of the biggest transformations of the last few years the greatly expanded role of services. Though there are still major companies (notably Microsoft) that remain almost exclusively product-centric, most successful software vendors these days have adopted a business model that depends heavily on services. Among larger companies, services typically generate more than half of all corporate revenues; for powerhouse vendors like SAP and Oracle, the services ratio often exceeds two-thirds of revenues and a substantially larger share of profits.
Yet the large and growing role of services is often under-measured, under-managed, and under-invested. To provide some necessary benchmarks for the services side of the software business, the ASP has compiled current data from a hundred public software companies (all of which are named in the report, with data on revenues and services-related financials) on the performance of their services operations. In addition, we consulted top experts on services metrics and accounting issues to offer guidance on the fine points of maximizing services revenue and correctly tracking those revenues.
The ASP's Maintenance & Services Ratios report covers the following topics:
For those who want to explore the underlying data in more detail, the report includes an Excel spreadsheet that contains all the financial data used for our calculations.
- Revenue contribution of services to total revenues (percentage and absolute dollars)
- Profit margin on services (percentage and absolute dollars)
- Impact of company size (contribution and margin)
- Maintenance contribution and margin (percentage and absolute dollars)
- Professional services contribution and margin (percentage and absolute dollars)
- The bundled subscription model
- Revenue recognition rules for services revenue
- How to design a management P&L for services
- The role of renewal and attach rates
- A financial model for launching new services
by Jeffery Tarter
Copies of the survey are free to ASP members in the members-only area.
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