Tipping and Software Maintenance: When Did 20% Become the New 15%?
When did 20% become the new 15%?
It seemed to have started with tipping wait staff... And it seemed to have happened overnight. All of a sudden, a couple of years ago, 20% became the standard for tipping. Is it because service has gotten that much better? In researching why, I discovered that it basically boils down to your and my laziness. Apparently 15% was just too hard for us to figure out. It's easier to figure out 20% of a bill on the fly than 15%. You simply round up, move the decimal point one place, and double the result. Ta da!
When it comes to tipping, paying 5% more than I used to pay isn't really that big of a deal—and calculating 20% certainly requires much less thinking on my part.
Coincidentally, for some reason, at about the same time tipping went from 15% to 20%, so did software maintenance. So, why did it change? Has the service from software vendors gotten that much better? I think not—if anything, software maintenance has gotten worse. The standard percentage paid for software maintenance has increased because vendors, who are seeing lagging license revenue, want to maximize software maintenance as a revenue stream. It's long-term, it's predictable, and it's high margin.
With software maintenance, unlike tipping, a 5% increase is more than just chump change. And, while we can be lazy when it comes to figuring out what to tip, as sourcing pros, we can't be lazy about calculating software maintenance.
I remember the good old days when I could get the first year of maintenance "free," and the 15% maintenance was calculated on the negotiated price of the software (not the list) for the software that you actually used, it was paid in arrears, there were no annual escalators and, if I canceled maintenance and then re-subscribed, I didn't have to pay a penalty on top of back maintenance.
Things sure have changed, but we only have ourselves as sourcing pros to blame. Yep, it's your fault that 20% has become the new 15%. You haven't pushed back on vendors enough and you've been too lazy to articulate why you shouldn't pay 20%. So, you rationalize that 20% is reasonable and you cave into the vendor. Enough of you (us) have done that so that the standard has changed from 15% to 20%. Big deal that you negotiated huge license discounts—any first-year junior buyer can do that. If you don't negotiate the maintenance fee, your savings on the front-end could be easily wiped away. Being able to negotiate maintenance fees down separates the junior buyers from the true sourcing pros.
But, it's not too late to change back to the good old days. You just need to stand your ground with vendors and be able to articulately argue why 20% is too much. Ask questions, get information, and argue your position! Here are some questions that you can use to push back on vendors that are demanding 20%:
It seemed to have started with tipping wait staff... And it seemed to have happened overnight. All of a sudden, a couple of years ago, 20% became the standard for tipping. Is it because service has gotten that much better? In researching why, I discovered that it basically boils down to your and my laziness. Apparently 15% was just too hard for us to figure out. It's easier to figure out 20% of a bill on the fly than 15%. You simply round up, move the decimal point one place, and double the result. Ta da!
When it comes to tipping, paying 5% more than I used to pay isn't really that big of a deal—and calculating 20% certainly requires much less thinking on my part.
Coincidentally, for some reason, at about the same time tipping went from 15% to 20%, so did software maintenance. So, why did it change? Has the service from software vendors gotten that much better? I think not—if anything, software maintenance has gotten worse. The standard percentage paid for software maintenance has increased because vendors, who are seeing lagging license revenue, want to maximize software maintenance as a revenue stream. It's long-term, it's predictable, and it's high margin.
With software maintenance, unlike tipping, a 5% increase is more than just chump change. And, while we can be lazy when it comes to figuring out what to tip, as sourcing pros, we can't be lazy about calculating software maintenance.
I remember the good old days when I could get the first year of maintenance "free," and the 15% maintenance was calculated on the negotiated price of the software (not the list) for the software that you actually used, it was paid in arrears, there were no annual escalators and, if I canceled maintenance and then re-subscribed, I didn't have to pay a penalty on top of back maintenance.
Things sure have changed, but we only have ourselves as sourcing pros to blame. Yep, it's your fault that 20% has become the new 15%. You haven't pushed back on vendors enough and you've been too lazy to articulate why you shouldn't pay 20%. So, you rationalize that 20% is reasonable and you cave into the vendor. Enough of you (us) have done that so that the standard has changed from 15% to 20%. Big deal that you negotiated huge license discounts—any first-year junior buyer can do that. If you don't negotiate the maintenance fee, your savings on the front-end could be easily wiped away. Being able to negotiate maintenance fees down separates the junior buyers from the true sourcing pros.
But, it's not too late to change back to the good old days. You just need to stand your ground with vendors and be able to articulately argue why 20% is too much. Ask questions, get information, and argue your position! Here are some questions that you can use to push back on vendors that are demanding 20%:
- Why can't I get maintenance "free" the first year? OK, so why can't I get a "free" warranty for the first few months?
- Why can't maintenance start after the warranty period?
- What am I getting for 20%? Where is that money actually going? Doesn't functionality peak at some point?
- Why do I have to pay you to fix your own bugs?
- Do I really need / use that much technical or "how to" support?
- How many people do you have maintaining the software? Why does you need so many people to maintain its software? Can't you offshore that to reduce maintenance costs?
- Why aren't you taking advantage of electronic mechanisms to reduce technical support costs (like online knowledge databases)?
- Why do I have to pay maintenance on software that really isn't being used?
- Why should I have to pay software maintenance in advance?
- Can you separate the cost of actual maintenance from how-to / technical support?
- I won't really be using the software or be able to take advantage of new functionality while I'm implementing the software, so why does maintenance start when I license the software and why can't it start when the software is actually installed / accepted?
- I'm only able to install half of the total licenses in the first year, so why do I have to pay maintenance on all of thelicenses?
- Will I have to pay any future "enablement fees" or are all new versions / functionality included as maintenance? OK, why isn't that included as maintenance?
- I heard that my buddy got maintenance at X%, how come I'm not getting that deal?
- Why is there a X% increase on maintenance every year? Doesn't your software get better, not worse every year, and therefore require less maintenance? My users certainly get smarter on the software and use less technical support...
- How is the increase calculated? Why can't increases be tied to something that makes sense, like CPI?
- Since there's an annual increase, and the maintenance could therefore increase to a significant compounded percentage, why isn't there be a cap on increases?
- If I cancel maintenance and then re-subscribe, why do I have to pay all back maintenance and a penalty on top of that? Why isn't paying back maintenance enough?
Great article!
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Hi Heather,
Thanks for the compliment and thanks for reading my blog!
Stephen
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Can you send this to my boss?!?!?!
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Sarah,
Your question tells me that your boss may not be a believer in certification or training. That's very short-sighted. I can practically guarantee that procurement certification and training directly and substantially improves the performance of procurement pros. In other words, your boss is stepping over dollars to pick up pennies by not funding your professional development. I'm assuming, though, that you've made a case that you need (and deserve) to have your company invest in you. Companies need to be able to get the ROI in their investments, including investments in staff. By the way, procurement best practices say that you should be getting a total of 72 hours of training per year (24 in procurement-specific training, 24 in commodity-specific training, and 24 in soft skills training). Sales staff get much more than that!
Good luck!
Stephen
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Is there one certification that could be viewed as better or more credible than the others?
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Hi Julie,
Whether one certification is better or has more credibility depends on your role in procurement / supply chain management. The best overall certification is the C.P.M. or CPSM. If you're responsible for IT procurement, it's the CTPS or CTPE. If your role is more on the contract management side (for example, managing vendor performance), then it's the CCCM. Finally, if you have supply chain management responsibilities, such as materials management, then the certification to get is APICS. My personal opinion--and it's only that, an opinion--is that sourcing pros should have a C.P.M. or CPSM, a CCCM, and, if appropriate, a commodity-specific certification such as the CTPS or CTPE. That may seem like overkill, but if you're really into procurement as a profession (like I am) and enjoy it (like I do), three certifications is a no-brainer.
Thx for the question!
Stephen
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Thank you for the response it was very helpful!
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Spoken like someone who has a bunch of letters after his/her name; anyone who has taken one or more of these certs can attribute that they aren't that difficult to get - the requirements to study/sit for them aren't vetted at all, and the passing scores are so low that guessing the multiple choice answers is likely to result in a TLA certification. Try it, especially if you get reimbursed.
Point being, no one takes these certifications this seriously, each are flawed and the CPM in particular has been ridiculed widely. There are many experienced folks who don't have the certs and are much more qualified than the desk jockeys who rack up letters on their business cards.
There is a wealth of info in the CPM materials, much redundant to MBA work, project management materials, and general management concepts and much can be learned. If you are experienced in Purchasing you should know most of it already, however. Ask your employer if they'll pay for it or give you a raise for passing - see what they say.
Don't forget, it's almost too late to become a CPM so you'll have to go for the new supply chain cert if you haven't registered for the CPM exam yet. It will be obsolete shortly. (Check ISM for details).
The emphasis here seems a bit extreme and more motivational - the classic overachiever v. the perceived slacker ideal.
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Rally,
Thanks for your comment! Unfortunately for me, I'm not as bright as you are--passing the certification exams wasn't as easy for me as it sounds like they were for you. But, regardless of the arguments either for or against certification, I absolutely require a C.P.M. or CPSM for my new hires.
Best,
Stephen
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While I do not have purchasing certifications, I do have 2 advanced degrees in contract management (which most don't) and a six sigma greenbelt. According to your first passage, I believe that this shows my interest in improving myself as well as a dedication to the trade. Could I become a casualty because I do not have an acronym as well?
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Hi Stephen,
Rally doesn't speak for me by saying: "anyone who has taken one or more of these certs can attribute that they aren't that difficult to get " I'm with you, despite a BA, and years of experience in my field, I found the tests very challenging and had to devote a ton of time to studying to pass all four of the C.P.M. modules(please note correct period placements-CPM stands for Certified Property Manager, cost per thousand, cost per mile, etc). As ISM will tell you, their tests have been fully vetted and scored by independent testing organizations. As someone who has both a C.P.M. and a CPSM, I'm thankful that these are difficult certifications to receive so that they differentiate me from those in the profession without them. One of the largest misconceptions of the Procurement field is that "anyone" can do it. Not everyone can get a C.P.M. (especially now with the window nearly closed) and a CPSM now requires experience AND a college degree. If you're in procurement without a CPSM, I highly recommend obtaining the certification-if only for the wealth of information you'll gain!
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Great article. Thanks for sharing this
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Well I used to say what Rally said. However, I have noticed a large number of job postings requiring a CPM or an MBA. I don't wish to get into the whole argument on is "it's worth it", "it's too easy" etc. All I know is that it can't hurt. In addition, every person with a CPM/CPSM values new hires with certification. If anything, it's a networking tool.
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Stephen,
I like your practical approach to this topic and I agree with you that there is significant value - both to me as an SCM professional and to my organization - from the knowledge that I gain through professional development and certification.
Best regards,
Kevin McHenry, CMILT, CPIM, CPSM, CSCP, C.P.M.
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Ok, ok. I'll get a certification. I am unemployed and have time, but not a lot of money, on my hands. Care to offer an opinion as to which is preferable, the C.P.M. or CPSM? I have the work experience and education to qualify for both.
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Hey Steve,
A certification is a great way to differentiate yourself from others in a tough job market. The good news is that it really won't cost you that much money to get certified. The C.P.M. is the grand-daddy of procurement certifications, recently replaced by the more up-to-date CPSM. Go for the CPSM to show that you're with the hip and cool procurement scene.
Good luck!
Stephen
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Great blog! I agree 100%.
Thanks,
Brad Pouls
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Make sure you check out my Blog!
http://bpmjst.blogspot.com/
Thanks,
Brad Pouls
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