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Software Annuity Math

Assumptions
License 100 units
"F" 50% percent SaaS or support subscription fetches relative to perpetu
Maintenance rate 20% percent maintenance fee on perpetual license
Maintenance renewal rate 90% percent who renew either new or existing subscriptions each yea
SaaS / OSS renewal rate 90% percent who renew either new or existing subscriptions each yea
Discount rate 8% discount rate for time value of money calculations

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6


Maintenance fee 20 20 20 20 20 20
Renew rate probability 1.00 0.90 0.81 0.73 0.66 0.59
TVM discount 1.00 1.08 1.17 1.26 1.36 1.47
Value 20.00 16.67 13.89 11.57 9.65 8.04
Sum 119.92

SaaS / OSS subscription 50 50 50 50 50 50


Renew rate probability 1.00 0.90 0.81 0.73 0.66 0.59
TVM discount 1.00 1.08 1.17 1.26 1.36 1.47
Value 50.00 41.67 34.72 28.94 24.11 20.09
Sum 299.80

Copyright © Dave Kellogg, Licensed Under a Creative Commons Attribution-Noncommercial-Share Ali


tches relative to perpetual license fee

ng subscriptions each year


ng subscriptions each year
alculations

Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15


20 20 20 20 20 20 20 20 20
0.53 0.48 0.43 0.39 0.35 0.31 0.28 0.25 0.23
1.59 1.71 1.85 2.00 2.16 2.33 2.52 2.72 2.94
6.70 5.58 4.65 3.88 3.23 2.69 2.24 1.87 1.56

50 50 50 50 50 50 50 50 50
0.53 0.48 0.43 0.39 0.35 0.31 0.28 0.25 0.23
1.59 1.71 1.85 2.00 2.16 2.33 2.52 2.72 2.94
16.74 13.95 11.63 9.69 8.08 6.73 5.61 4.67 3.89

Noncommercial-Share Alike 3.0 United States License


Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Year 24
20 20 20 20 20 20 20 20 20
0.21 0.19 0.17 0.15 0.14 0.12 0.11 0.10 0.09
3.17 3.43 3.70 4.00 4.32 4.66 5.03 5.44 5.87
1.30 1.08 0.90 0.75 0.63 0.52 0.43 0.36 0.30

50 50 50 50 50 50 50 50 50
0.21 0.19 0.17 0.15 0.14 0.12 0.11 0.10 0.09
3.17 3.43 3.70 4.00 4.32 4.66 5.03 5.44 5.87
3.25 2.70 2.25 1.88 1.57 1.30 1.09 0.91 0.75
Year 25 Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 Year 32 Year 33
20 20 20 20 20 20 20 20 20
0.08 0.07 0.06 0.06 0.05 0.05 0.04 0.04 0.03
6.34 6.85 7.40 7.99 8.63 9.32 10.06 10.87 11.74
0.25 0.21 0.17 0.15 0.12 0.10 0.08 0.07 0.06

50 50 50 50 50 50 50 50 50
0.08 0.07 0.06 0.06 0.05 0.05 0.04 0.04 0.03
6.34 6.85 7.40 7.99 8.63 9.32 10.06 10.87 11.74
0.63 0.52 0.44 0.36 0.30 0.25 0.21 0.18 0.15
Year 34 Year 35 Year 36 Year 37 Year 38 Year 39 Year 40
20 20 20 20 20 20 20
0.03 0.03 0.03 0.02 0.02 0.02 0.02
12.68 13.69 14.79 15.97 17.25 18.63 20.12
0.05 0.04 0.03 0.03 0.02 0.02 0.02

50 50 50 50 50 50 50
0.03 0.03 0.03 0.02 0.02 0.02 0.02
12.68 13.69 14.79 15.97 17.25 18.63 20.12
0.12 0.10 0.08 0.07 0.06 0.05 0.04
Renewal rate Perpetual Total Value SaaS Total Value
80% 177 193
90% 220 300
95% 266 413

Perpetual and SaaS Value by Renewal

500
400 Perpetual Total
Value in Units

300 Value
SaaS Total
200 Value
100

80%
90%
95%
Renewal Rate

Renewal Rate Value


65% 75
80% 115 Open Source V
85% 140
90% 180
95% 248
250
200
Value in Units

150
100
50

65%
80%
85%

Renewal R

Copyright © Dave Kellogg, Licensed Under a Creative Commons Attribution-Noncommercial-Share Ali


21% 38%

Value by Renewal Rate

Perpetual Total
Value
SaaS Total
Value

Open Source Value as Function of Renewal Rate

65%
80%
85%
90%
95%
Renewal Rate

on-Noncommercial-Share Alike 3.0 United States License