Why is managing software upgrades so tough? It doesn’t have to be that way. There are a number of options for how you monetize upgrades and depending on which approach you take, there are different operational challenges and process requirements.

Once you have your strategy or strategies in place, you have to implement the system and processes in such a way that the customer experience is not negatively impacted while still preserving revenue and preventing revenue leakage.

Typically there are three approaches to monetizing software upgrades:

  1. Requiring customers to buy the new version of your software outright
  2. Entitling customers who are current on maintenance to free upgrades
  3. Charging an upgrade fee, typically something less than purchasing licenses for new version outright

All of these approaches have some inherent challenges. You simply need to know what to consider.

The easiest approach operationally is to require customers to buy new versions. The downside is that you are potentially delaying the retirement of older versions of your software, adding to your cost of ongoing support and maintenance of older versions.

Entitling customers who have maintenance to new releases is a common practice, but how do you prevent the use of both the old and the new version simultaneously? You need to make sure your customers have access to entitlements for the new version, but prevent them from generating a new license on a new target without retiring the old version of the license.

How do you generate new entitlements? Can you manage the upgrade process without generating new zero-dollar ERP transactions? Ideally you want to ensure your customers get entitlement for the new version without creating non-revenue generating transactions in your ERP.

What about those customers that let maintenance expire and then want to upgrade? You could force them to buy the new version outright, or require them to retroactively renew expired maintenance, perhaps including some kind of penalty fee for allowing it to lapse in the first place.

If you charge an upgrade fee, you still have the same issue as maintenance-based upgrades. How do you ensure the previous version of your application is taken out of use?

Do you automatically update the software license or do you wait for customers to come to you to request licenses for the new version? You may have customers that are entitled to the upgrade, but are not yet prepared to deploy it. How do you allow them to continue to use the version of their choice while enabling them with access to the upgrade?

The answers to these questions are dependent on a number of factors, including your product offering, your selling models and your market. Regardless of what approach you take to manage upgrades, you need to have the systems and processes in place to support it.

Don’t let mismanagement of software upgrades mean lost revenue. What is your upgrade strategy?