Squeezing customers doesn’t always result in more revenue

Dear Bob …

Some advice for your vendor readers:

If you try to recover from a down economy by wringing more revenue from your customers, it can backfire. Example:

We have a system that’s licensed two ways. One department has a separate server that’s open all the time and is licensed for named users. We have 60, and at any given time, 40 or more are logged into the system.

Another server is a general-purpose version for the rest of the organization, and it’s licensed for 39 concurrent users. There are hundreds of users all told, but I’ve never found as many as 30 connected at one time. They look for one entry, find it, and log out. Or a department will put a new entry in the system and e-mail a link to their entire roster, and the folks click on the link whenever (they cover shifts 24/7) and read it. They can also browse the entries, either by folders or with query templates. They like it both ways.

So I hear from my vendor rep that they’re doing away with concurrent users — from now on, all licenses are for named users only.

We’re in a revenue crunch too, and if they go to named users only, we’ll have to reduce our user count on the general-purpose system and replace most of its functionality with a generic Web query page, losing considerable user functionality in the process.

Or we’ll consider a different product for some of our apps that currently run on this system.

Either way, the vendor won’t get much more revenue from us, if any. And we’ll be looking more closely at competing products, which we weren’t before.

– Open to alternatives

Dear Open …

You make an excellent point, especially at a time when an increasing number of IT shops are moving to open source alternatives for various kinds of general-purpose storage-and-retrieval systems. When you have an overpriced offering to begin with, the last thing you should do is to provide a triggering event to encourage your customers to explore their alternatives. [Note to readers: The original inquiry was more specific regarding the exact platform. I made it generic at “Open’s” request. – Bob]

One root cause, I think, is very hard to overcome: Companies generally use the previous year as a baseline and set a percentage increase as their target. In normal times, this makes perfect sense. In normal times, you might have decided to bite the bullet and bear the cost, since the alternative is an aggravating and distracting conversion.

Given the current economy, what probably makes more sense is to estimate what sales would look like with no changes in sales or pricing strategies. This year, that’s probably a reduction in revenue and profit.

This baseline is the real target to beat every year. It’s just harder to estimate. Strategies and tactics that would make the reduction smaller — that beat the baseline, even if they don’t result in growth — are still an improvement.

With this target, it would have been less likely your vendor would have pushed a pricing increase on you. As you point out, trying for too much can, sometimes, be counterproductive.

– Bob