Retainer vs. Subscription: How to Charge?
The word “subscription” is often associated with cloud and professional services. Providers charge a recurring fee in exchange for ongoing delivery of applications, infrastructure, and technical and professional support.
Another word beginning to take root in the channel lexicon is “retainer,” a term closely associated with lawyers, accountants and other professional services. Some people believe retainer is a more apt description of how service providers should position their recurring fees.
Which is best? Or does it matter?
This question came up in research The 2112 Group (Channelnomics’ publisher) is pursuing on managed services price integrity and pricing models with our partners NetEnrich and N-able. In describing the recurring revenues and service fees, we used the word “subscription.”
The dictionary defines subscription as “the action of making or agreeing to make an advance payment in order to receive or participate in something” and “an arrangement by which access is granted to an online service.” It seems appropriate enough.
By contrast, retainer is defined as “the act of a client by which the services of a lawyer, counselor or adviser are engaged” and “a fee paid to a lawyer or professional adviser for advice or services or for a claim on services when needed.”
Both are technically correct definitions for describing recurring fees, but I must concede that retainer does have a more professional ring to it. Neither can describe the full universe of managed and cloud services offerings, though.
Solution providers – resellers, integrators, MSPs and cloud providers – like to think of themselves as “trusted advisers,” or the people who provide the advice and guidance on which customers base their IT decisions. If a solution provider is contracted to provide active, ongoing consultation and professional support on technology implementation, adoption and optimization, it’s fair to call it a retainer. If the service is little more than monitoring or SaaS with the option for live technical support, it sounds more like a subscription.
The real issue isn’t what to call these “service fees,” but rather how the solution provider engages with the customer. No term or word is going to make the channel “more professional.” Professionalism, such as lawyers and accountants are recognized, is a reflection of their actions and value and not their discrete service offerings.
Alas, everything needs a name, so what should we call these service fees? Suggestions welcomed.
4 Responses to “Retainer vs. Subscription: How to Charge?”
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How Software as a Service is changing the licensing model
By Ian Moyse, Eurocloud UK Board Member and Cloud Industry Forum Governance Board Member
Security is complex. It’s not just the technology but its implementation too, with end user license agreements often adding to the issue. How many IT staff fully understand (or indeed read) all the legalities behind the agreements? Software licenses are written for a legal audience and they may not always be as clear as they could be to the IT audience.
Software licensing and maintenance is a feat in itself: costly, complex and administrative. No matter which of the many different licensing mechanisms and approaches you take, be it volume, site, or concurrent licensing, the path is not always straightforward
In today’s challenged times businesses are looking to simplify process and minimise cost. One area where savings can be made, license-numbers minimised and the responsibility of licensing shared with the vendor, is that of Software as a Service (SaaS).
In a nutshell, SaaS minimises the technical burden for businesses and maximises budget. It removes the need for software installation and maintenance, enabling shorter deployment time alongside the ability to deliver not just a local, but a global, solution. SaaS allows businesses to focus their technology investment on delivering competitive advantage rather than maintaining infrastructure.
Such benefits make it easy to understand why Gartner predicts 30% of all software will be SaaS-delivered by 2010. Whilst SaaS will not completely replace traditional licensing models, its presence will grow across the business environment as its role in simplifying licensing complexity and reducing the costs and overheads associated with managing traditional licenses becomes more widely understood.
So what are the differences between software and service licensing – and how can gains be made?
Software licensing is undergoing change. The days of businesses purchasing a licensed copy on CD ROM are becoming a distant memory. With the majority of today’s computers connected to the web, it has become simpler for software vendors to distribute and update software (and perhaps even keep an eye on how often their software is used).
First came the ability to download software from the internet, followed by the capability to subscribe to automatic software and signature updates. SaaS takes the model a step further.
The core licensing difference of SaaS is that it is provided as a subscription-based model (per user per month licensing contracted over a set license period ) rather than the traditional single up-front license fee with software sold for perpetual use. Many SaaS vendors are already starting to introduce interesting new models of licensing depending on their technology sector and ability to measure usage. These include features and function models, time-based subscription models usage-based transaction models transaction numbers (based on the number of events) – or, even more creatively, advertising-funded revenue models.
Another advantage is that SaaS vendors can also allow customers to administer and monitor their licensing centrally, removing the burden of managing software usage . Finally, SaaS delivers the business with an additional financial proposition. By treating the service as ongoing cost to the business, the customer is able to migrate costs from their Capital Expenditure (CAPEX) budget to Operating Expenditure (OPEX), an attractive benefit in today’s pressured environmental climate.
To me ‘retainer’ incites anxiety and implies a means to an end, i.e. funding to see a legal case through to its conclusion. ‘Subscription’ feels a less tense service commitment as the term doesn’t carry the same strained associations retainer does. And subscription is well accepted to mean ‘ongoing’ services and automated renewal is expected – this is what I’d want my client thinking. I’d stay with ‘subscription’ as the payment term, and emphasize trusted advisor in the service definition.
Ken Vanderweel
Marketing Director – Service Providers
Nimsoft
http://www.nimsoft.com
Interesting perspective, Ken. I thought about “service fee,” too. But that has the same ring in my ears as the extended warranties offered by Home Depot and Best Buy.
A tax accountant should chime in as to whether there are any tax implications regarding which phrase is used. “Retainer” seems to imply “use it as needed or lose it” on an annual basis. Subscription has more of an “ongoing service” whether tangible, or intangible, while saying nothing about whether it’s a metered amount or unlimited. I could be convinced otherwise.