Online Store - Introduction
Excerpt from "Discounting Practices in the Software Industry-
A Study of Discounting Use, Monitoring, and Control"

Discounting Practices in the Software Industry-
A Study of Discounting Use, Monitoring, and Control

(View the Table of Contents. You can also order a copy online or print an order form to mail with a check.)

Purpose

This report reviews the results of a recent survey conducted by Software Pricing Partners, Inc., which examines the depth and breadth of discounting in practice at US software companies.

Beyond investigating the scope and character of discounting in the software industry, this study asks and answers the question: "How well are software companies monitoring and managing discounting in today's economic climate?"

The intent of this report is to provide insight into overall discounting practices and identify best practices in better-performing companies that can be broadly implemented. While this survey's findings focus on software companies, the impact of discounting on a company's bottom line will be of interest to financial executives overall. Furthermore, the sources of discounting and the degree to which they are tracked and controlled should also be of interest to the purchasers of business software.

Executive Summary

Market analysts put the size of the worldwide packaged software industry at $80B in 2001 with annual growth in the 3% range. Throughout 2001 and 2002, US software companies have frequently reported difficulty making their revenue and profit targets.

Discounting product sales to corporate customers is the tool of choice for many software companies to improve their performance in the current soft economic climate. For some, discounting improved performance. For others, discounting did little more than leave badly needed revenues and profits in customers' pockets. This survey documents linkages between discount tracking and controlling and company performance. It also, shows the connection between realistic levels of standard (scheduled) discounts and lower total discounts awarded.

The objectives of the research performed were to:

• Determine the use of discounts in the software industry
  
• Determine the degree to which companies monitor discounting
  
• Determine the degree to which companies manage discounting
  
• Identify the benefits of tracking and controlling discounts
  
• Identify potential links between discounting and company performance
  
• Identify the best practices of companies that track and control discounts

Fifty-four software companies participated in this online survey, which was developed by Software Pricing Partners and hosted on the Financial Executives Research Foundation (FERF) website during the spring and summer of 2002. Responses were collected and compiled by FERF with analysis and interpretation provided by Software Pricing Partners. Responding companies ranged in size from under $10M to over $1B, with an average of 66% of that revenue derived from direct sales to end-user companies. (Appendix 1-Participant Demographics)

The following key findings surfaced regarding discounting in the software industry:

1. Discounting is widespread, and significant. All responding companies reported using discounts, and those discounts averaged nearly 40% of list price.
2. Company growth rates appear to be inversely related to the extent of discounts allowed by respondent companies, with respondents in faster growing companies reporting discounts that were nearly 20 percentage points less than discounts given by slower growth companies.
3. The advantage of monitoring discounts is widely recognized by respondents. Nearly 75% of respondents acknowledged one or more important benefits to monitoring discount activity.
4. The actual extent and character of discounts given is not generally known nor documented by respondents. Less than 50% of respondents reported that they track discounts either frequently or regularly.
5. Negotiated discounts were significantly lower in companies where discounting is tracked. Negotiated discounts by "trackers" averaged approximately 7 percentage points below what was allowed by "non-trackers."

The Discounting Practices Survey is a 24 page, 8-1/2 x 11 inch format, electronic document. A detailed Table of Contents can be viewed by clicking here.