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What percentage of revenue should we budget for customer support costs for our cloud software?

We are growing and need to understand what a healthy, outsourced support relationship will look like. We are using a JV model to bring on a customer support partner and need to understand how this relationship could flourish. We want to make sure the partner has the proper incentive to take care of our customers, but we also need to be aware of a relationship that is too one-sided. We are trying to set this up with simple percentages of gross revenue so both sides are transparent.

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Bruce Carpenter
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Bruce Carpenter Advisor
Co-founder and Principal, Harbour Bridge Ventures
I suggest you consider tying some performance metrics into the compensation formula that advantage your business and the relationship. Since you have indicated that the relationship is an outsourced customer support relationship metrics related to that activity would be most appropriate. Without understanding the specifics of your product or the nature of support activities the specific metrics relevant to this relationship are ones you will need to develop yourselves. However, general ones that may be appropriate would include such metrics as support cases resolved on first touch (no recall required), customer satisfaction survey metrics related to customer support activities, and customer satisfaction metrics related to "would recommend to others ratings." I am sure there are likely ones that could related to the specific nature of your offering and the support activities as well.

As to a suggested percentage of gross revenues to incorporate in your formula, that is more difficult to identify without more specifics. However, in pricing customer support and maintenance related to enterprise software products the most common formula used in the industry is an annual fee of approximately 18% to 20% of the initial license cost. Note that this is a percentage of license fee not a percentage of gross revenues. If you can supply more information about the nature of your offering, its pricing, and the support activities, it may be possible to suggest a more appropriate formula based on your revenues. I do suggest that this is a topic you take up with either your internal finance team or external finance adviser. Whatever formula you use will need to fairly compensate and motivate your outsource supplier as well as allow your own business to flourish and prosper profitably.

Good luck with your opportunity.
Ahmet Can
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Ahmet Can Advisor
SVP Human Capital and Business Development at Choice Home Warranty
Hi Bryan, Just a word of caution on outsourcing customer service. At my last SaaS company, we tried that route and ultimately used the service as a message answering service when our own employees were unavailable or after-hours. When customers get a sense that they are not speaking with someone who is well versed in your product, they can get agitated. Also, you need to closely track your CS inquiries (we used Salesforce) to measure the data on the nature of the calls and what you can do to minimize (better training, more proactive outreach). We were able to reduce attrition and CS costs by improving internal communication between sales and finance and better training. Good luck. Ahmet
Cameron Ackbury
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Cameron Ackbury Advisor
President US Operations | Investor | Seeking top tier University entry level Sales, Marketing, PR Candidates
I agree with Ahmet - why can't you support this internally. Also, have you built a financial model to see what works for your business? If not, that may be the first step.

Cameron
Bryan Wachs
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Bryan Wachs Entrepreneur
Bryan Wachs provides Flat Fee Internet Sales & Marketing services, taking the $??? out of your infrastructure
This is a path to a merger/partnership. I have been CEO and CMO of outsourcing centers of Lycos/Ybrant in India and the Philippines. They have the software, and this is a get to know us strategy before a formal deal. We have our experience and wanted to get feedback strictly on a budgetary line item. We have done this very successfully for other companies and are now interested in an equity deal vs. an simple vendor arrangement. They are willing to partner with us based on our backgrounds vs. the initial capital requirements of scaling CS. I appreciate greatly the feedback as it only adds to the value of our experience to the partnership.
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