Upon purchasing any equipment or software that represents a large capital investment to a company there is often a further continued cost item that is rarely talked about during the sale. This is.
An Annual Support Contract.
An annual support contract will rarely be needed with in the first 12 months of purchase and thus is often forgotten about, as the person making the purchasing decision is often concentrating on gaining the most productivity for the lowest price point.
Why do you need an Annual support contract?
It is only after one year of use does the question of protecting the investment from potential disaster occurring come from the original vendor, they will point out that you can help slow the depreciation of the original asset, by providing a full maintenance cycle or in the case of software upgrade cycle.
From my research of 20 years in the media hardware industry a common ratio/percentage for purchase cost to annual support cost is between 10% and 15% of the original purchase cost.
I won’t analysis the reasons for the cost structure of support contracts just pass on the average costs, where hopefully the reader of this blog post can arrive to there own conclusions why each percentage point of support contract costs is worth discussing as part of the purchase costs.
Below is a table showing a nominal £100,000 purchase cost, this could easily be Dollars, Euro, Yen, etc.
Question; Would your company be able to negotiate a 5 year maintenance plan during the purchasing phase, incorporating this money into the capital expenditure or do they have to in-cure the higher operational costs year after year?