Software Annuity Math

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

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Maintenance fee 20 20 20 20 20 20 20
Renew rate probability 1.00 0.90 0.81 0.73 0.66 0.59 0.53
TVM discount 1.00 1.08 1.17 1.26 1.36 1.47 1.59
Value 20.00 16.67 13.89 11.57 9.65 8.04 6.70
Sum 119.92

SaaS / OSS subscription 50 50 50 50 50 50 50

Renew rate probability 1.00 0.90 0.81 0.73 0.66 0.59 0.53
TVM discount 1.00 1.08 1.17 1.26 1.36 1.47 1.59
Value 50.00 41.67 34.72 28.94 24.11 20.09 16.74
Sum 299.80

Copyright © Dave Kellogg, Licensed Under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States Lice
e to perpetual license fee

ons each year

ons each year

Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17
20 20 20 20 20 20 20 20 20 20
0.48 0.43 0.39 0.35 0.31 0.28 0.25 0.23 0.21 0.19
1.71 1.85 2.00 2.16 2.33 2.52 2.72 2.94 3.17 3.43
5.58 4.65 3.88 3.23 2.69 2.24 1.87 1.56 1.30 1.08

50 50 50 50 50 50 50 50 50 50
0.48 0.43 0.39 0.35 0.31 0.28 0.25 0.23 0.21 0.19
1.71 1.85 2.00 2.16 2.33 2.52 2.72 2.94 3.17 3.43
13.95 11.63 9.69 8.08 6.73 5.61 4.67 3.89 3.25 2.70

re Alike 3.0 United States License

Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Year 24 Year 25 Year 26 Year 27
20 20 20 20 20 20 20 20 20 20
0.17 0.15 0.14 0.12 0.11 0.10 0.09 0.08 0.07 0.06
3.70 4.00 4.32 4.66 5.03 5.44 5.87 6.34 6.85 7.40
0.90 0.75 0.63 0.52 0.43 0.36 0.30 0.25 0.21 0.17

50 50 50 50 50 50 50 50 50 50
0.17 0.15 0.14 0.12 0.11 0.10 0.09 0.08 0.07 0.06
3.70 4.00 4.32 4.66 5.03 5.44 5.87 6.34 6.85 7.40
2.25 1.88 1.57 1.30 1.09 0.91 0.75 0.63 0.52 0.44
Year 28 Year 29 Year 30 Year 31 Year 32 Year 33 Year 34 Year 35 Year 36 Year 37
20 20 20 20 20 20 20 20 20 20
0.06 0.05 0.05 0.04 0.04 0.03 0.03 0.03 0.03 0.02
7.99 8.63 9.32 10.06 10.87 11.74 12.68 13.69 14.79 15.97
0.15 0.12 0.10 0.08 0.07 0.06 0.05 0.04 0.03 0.03

50 50 50 50 50 50 50 50 50 50
0.06 0.05 0.05 0.04 0.04 0.03 0.03 0.03 0.03 0.02
7.99 8.63 9.32 10.06 10.87 11.74 12.68 13.69 14.79 15.97
0.36 0.30 0.25 0.21 0.18 0.15 0.12 0.10 0.08 0.07
Year 38 Year 39 Year 40
20 20 20
0.02 0.02 0.02
17.25 18.63 20.12
0.02 0.02 0.02

50 50 50
0.02 0.02 0.02
17.25 18.63 20.12
0.06 0.05 0.04
 Renewal rate Perpetual Total Value SaaS Total Value
80% 177 193
90% 220 300
95% 266 413 21%

Perpetual and SaaS Value by Renewal Rate

450
400
350
Value in Units

300
250 Perpetual Total Value
200 SaaS Total Value
150
100
50
0
80% 90% 95%
Renewal Rate

Renewal Rate Value

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

150

100

50

0
65% 80% 85%
Renewal Rat

Copyright © Dave Kellogg, Licensed Under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States Lice
 38%

etual Total Value

Total Value

ce Value as Function of Renewal Rate

80% 85% 90% 95%

Renewal Rate

Alike 3.0 United States License