>>Al,
>>
>>I'm looking more closely at your statement below:
>>
>>>Either the monthly should be roughly the amount to lease finance the one-off cost, or the one-off cost should be the principal amount of a lease finance at $monthly rate.
>>>
>>
>>So you say I should work out the monthly payment of a loan for a couple years of the equivalent annual cost and then charge the monthly cost at something close to that monthly payment?
>
>Yes.
>
>A business person looking to acquire an asset can either pay up front with cash on hand, or finance the purchase. Paying cash has associated opportunity costs - that cash could have been earning interest, or been invested in something else that could generate revenue. So regardless of how it's actually going to be purchased it's reasonable to figure out how much it would cost to finance the purchase over some reasonable time frame.
>
>In a perfect world the monthly amount you charge would exactly equal those calculated payments, so there would be no advantage either way. In practice, monthly payments are usually a bit higher than that:
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>- if the purchaser is squeezed on cash flow it can be helpful to pay monthly. In effect their cost of borrowing is higher than whatever you use to calculate monthly payments. Or, to look at it another way, in effect you, the vendor, are financing the purchase, and the buyer is agreeing to monthly payments. The vendor deserves some consideration for that convenience
>
>- some monthly agreements/contracts are for relatively short time periods e.g. a year or even less, or even month-to-month. In that case the vendor (you) is taking on more risk, so you should be rewarded accordingly
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>- risk of non-payment in a monthly agreement vs. getting all the money up-front
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>- maybe some extra overhead on the vendor's part in ongoing invoicing and processing of monthly payments
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>Your "one-off" scenario is not uncommon. As a vendor you have significant costs before you are able to sell even one seat, so having a high per-seat cost for the first few seats is pretty standard. Beyond that I haven't heard of tiered seat prices, what I've seen has been fixed.
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>Once overhead is covered, then you're looking at how much extra it will cost to support one user per month or year, and mark it up appropriately.
>
>Yearly maintenance fees are contentious, business people always hate them but as devs we understand the need. Various compromises can be made such as:
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>- Annual maintenance after initial purchase is completely optional
>- One year maintenance after the initial purchase is mandatory, further years are optional
>
>Dealing with support issues when a yearly support agreement is not in place, there are some options:
>
>- Brutal option #1: support not available
>- Brutal option #2: buyer must make up all missing yearly support payments since they were last supported
>- Semi-brutal option #3: buyer must purchase a year's support
>- Reasonable option #4: buyer gets charged a high $/hour for a la carte support
>- Friendly option #5: buyer purchases one or more "support incidents" at a fixed $ per incident
>
>As for the yearly support rate: for enterprise software I've seen 17 - 20%, not higher.

Thanks, that's very helpful