ARE YOU AWARE OF YOUR MBS BUSINESS LICENSE MULTIPLIER?

The primary income of MBS partners consists of licences, licence maintenance, and
(miscellaneous) services. An important characteristic of this class of services is that it is
related to the availability of employee capacity. Licences, on the other hand, are a little
less linked to available capacity.

It is interesting to take a close look at the relationship between the available service
capacity in your company and the degree to which you generate licence revenue with it.
In this context, you can consider the licence turnover as a kind of bonus on top of the
turnover derived from worked hours. This is where the term ‘multiplier’ comes in. The
concept is derived from economic science, meaning enhancing impact on one value by
increasing another. Another term for this is the snowball effect.

An example. Suppose we take an MBS partner with a workforce of 20 divided between 16

direct and 4 indirect employees. In terms of strategy, this company has 3 options to
make money, i.e.:
a) seconding all direct employees and refraining from any in-house projects;
b) doing projects itself;
c) doing as many projects as possible itself.

In scenario a) all 16 direct employees are seconded to third parties in the market. This
results in a fairly dependent position vis-à-vis the needs of third parties. A significant
discount must be allowed for long-term assignments and there is also a certain outflow.
The annual turnover amounts to € 1.9 million.

There are no projects, so the licence revenue per employee is € 0.

In scenario b) the company sells and delivers 4 MBS projects with an average licence
revenue of € 50,000 annually. The market focus is fairly diffuse, which means that the
company incurs high pre-sales expenses and a relatively low score for tenders issued. For
the same reason, the company needs to allocate a fair amount of money for marketing
purposes. The developers’ billable hours are under pressure because the company
significantly underestimated the complexity of two projects, while these contracts had
been accepted at a fixed price. Of course, this can happen when operating in unknown
territory! Moreover, one senior developer in particular proved rather less senior in actual
practice than promised in his CV, resulting in a significant amount of unpaid repair work.
All in all, the annual revenue amounts to € 200,000 from licences.

The budgeted revenue from worked hours developed a lot of holes due to the problems
described above. In the end, this amounts to € 1.2 million annually, bringing the total
annual turnover to € 1.4 million. Would secondment have been a better choice, after all?

The licence revenue per employee is € 10,000 (€ 200,000 for 20 employees).

Finally, in scenario c) the board of the company realises that, in addition to a high level
of billability for its people, it is best to opt for a maximum licence multiplier. So it focuses
all its operations on the most efficient and effective performance of just those activities
that are necessary to sell and deliver the most projects possible on an annual basis.
Where at all possible, business processes are standardised. The company focuses on two
specific industries, which are then consistently and continuously targeted with all
marketing efforts. A sophisticated implementation method is developed from which all
superfluous ballast is eliminated.
And the development efforts – and therefore the risks – are limited to a minimum
quantity of customer-focused modifications because the industry-targeted add-ons of an
independent MBS developer (known as ISV) are used.

The result: the same group of people acquires and completes as many as 10 projects. At
a (higher) average licence value of € 75,000, the licence revenue amounts to € 750,000.
This is not a problem capacity-wise, because little time is invested in pre-sales and very
little in-house development is required.

The 16 direct employees are fully billable at very attractive rates because the
development department has fewer disasters and the consultants, due to the industry
focus, become true sparring partners for their customers. The score ratio for sales
processes grows significantly because the complete industry solution is available and,
after all, seeing is believing. A sizeable bonus from licence revenues is then added to this
turnover from worked hours.

In this scenario, the licence revenue per employee is € 37,500 (€ 750,000 for 20 employees).

This approach can have an impact on various issues in the daily operations of your
company. We list some examples:

Business strategy
1. Focus on proactively targeting one or a few industries;
2. Bet on add-ons and components instead of custom work;
3. And consider buying components instead of developing it all in-house.

Pre-sales phase
1. When approaching your target groups, opt for a group-wise approach instead of a
one-on-one approach where possible;
2. Prevent custom work, rather add new wishes to the existing add-ons;
3. Implement a tightly defined sales method and standardise every step in the sales
process (the various documents for instance, but also the organisation of
workshops and contract processing).

Project phase
1. Make every effort to reduce the time frame of your implementation processes;
2. Try to prevent additional custom work instead of encouraging it;
3. Seek out cooperation for knowledge areas that are not critical to your business or
(as yet) have inadequate scale;
4. Standardise as many processes as possible and avoid exceptions where possible.

Exploitation phase
1. Optimally stimulate your customer to use the latest package version;
2. Standardise in all customer contracts;
3. Where possible, opt for a group-wise approach over a one-on-one approach when
contacting customers.

Do you need feedback and/or advice in this field that is crucial for your results? Please
don’t hesitate to contact us.

TerDege, Consultancy, Training & Interim Management

Guus Krabbenborg
Phone +31 318 46 36 93
Fax +31 318 46 36 68
Mobile +31 6 22 49 60 73
E-mail terdege@planet.nl