We got a quote request from a reseller for one of their customers for about a 100 licenses of our software with 4 years of support.
What is the a good way of structuring this quote without showing that we are small (which we are) and are happy to sell it even at a major discount?
I was thinking of giving a 25% discount on the base product license and first year (out of 4) of the support for free, which is essentially the same 25% off of the support.
What would be your advice?
First, price isn't going to be the issue - service and reliability will be. So the structure of your quote needs to deal with that in such a way that you can alleviate concern on their part of what happens if your product doesn't work at a critical time (having no idea what your product is, I can't give a more concrete or relevant example).
I would give them a discount on the licenses, but not on the service agreement. They are ordering the licenses in bulk, so knock down the price a bit to lure them in. But the service agreement is not something they want waived. From the perspective of the client, if they don't pay for service in year 1, they won't believe they're going to get the same level of service as someone who does.
I would, instead, if you want to discount the service as well, give them a completely discounted rate (not free) and then keep that rate for the 4 years. If you want to give 25% off, then do it.
The amount of discount you're offering, though, sounds very high from the service side. On the product side, you've already built the product, so offering a discount isn't money out of your pocket, and the cost of customer acquisition for 99 of those licenses is $0.
The service agreement, though, is going to be money out of the pocket in the long run, because the price (assuming you priced your product normally) is based on the number of hours you expect to be working on support. A client with 100 users is 100 times more likely to make use of the agreement, so you'll have to pay someone to do that work. Do you really want to give that away?
Wait wait wait!! Is the reseller asking for the discount, or the customer?
If it's the reseller, then don't give any discount. I've sold millions of $ of enterprise software and never once gave a reseller a discount. They automatically ask and they tell you it's standard, but it's horseshit -- the customer has already approved the order if it's at the reseller's desk.
If the customer wanted to argue price, you would have gotten a call from accounts payable.
In enterprise life, everything is all about risk transferring.
Yes you need to big enough (persistent enough) to that they think, they transferred their risks.
Usually getting things done is mush important than how much it is done.
Because if they are Enterprise they have enough scale to getting it back either avoiding costs or getting revenue.
A manager does not get bonus if he save some 10k$ in purchases
but he can get into trouble if product fails and he can not justify his saving against business lost.
They always have budget I mean they decide on what to purchase at the beginning (year beginning),
If they don't have budget they don't purchase.
If they don't have budget but they have to purchase, they purchase.
Price is secondary criteria
If you have a competition you may need to tune your prices.
If they need quote you are in the short list or they need justification to their already made decision), So your product quality, competition and your partner's relations play important roles.
Support is as important as price, if it is not more important.
They want to be sure you will be around year later when they need you.
In enterprise life, everything is all about risk transferring.
Attack their risks then their pockets.
Disclaimer: This comments totally based on my experience and may contains cultural differences.
It sounds like a 100 license order is significantly larger than your usual order size - you don't make that clear in your question.
If that's the case, for a significant enterprise client, you may want to go a bit higher than 25% or you might go with the 25% discount and include some additional free support such as special access to your software development team or free installation and training support. If this is your first big enterprise client, getting them as a great reference would be worth every nickel of the cost of the additional free support.
Also - check with your accountant on the revenue recognition aspects of giving away the first year of support for free. You may want to give away the fourth year free instead so that you can recognize the first year of support revenue when that occurs. You might also consider just giving a straight discount on the support so that your revenue flow isn't as bumpy as it would be with one year free.
I would discount the software heavily but not the service. Maybe give them a deal on it but don't give up the money too easily. I would suggest you give them your highest level of service for your lowest service price (if you have tiers). That way, it looks like they are getting high quality service for an affordable price.
An enterprise client, as Elie and Ilker mention, are all about service and reliability. You really need to nail their concerns about that while still giving them a good deal.
When we gave discounts at my enterprise software startup, we would almost never discount the support/maintenance -- only the initial license fees.
Rationale: We want to make sure that the customer associates value with the ongoing support contract and that a process is setup in place for making that annual payment. We didn't want to risk going into year 2 and there being an issue.
I don't know what your product is. What if the end-client is deploying it into a quirky technological ecosystem, and support ends up actually taking a big bite of your time? In my own organization, we use a hosted solution, but we are envelope-pushing clients, in terms of the number of mods we need made, which were promised to us when we bought in to the system, but which really do stretch things a lot. Our requests are kind of driving the product versioning cycle now, as we push to get what we need from the software. So you have to be very careful about discounting the service in some scenarios, if you want to profit from this transaction.