Question

Suppose a company did $3,000,000 in annual maintenance in 2013 and expects 85% of those to renew for 2014. Suppose that product sales for 2013 were $3,000,000 (which included free maintenance in 2013) and 60% of those were expected to pay an annual maintenance of 20% of the purchase price in 2014. What will be the annual maintenance collected in 2014?

Answer 1

In year 2013 annual maintenance done = $ 3,000,000

Out of this 85% is expected to renew in 2014 =
`0.85*3000000` = $2,550,000

Now Sales in 2013 = $3,000,000

60% of these sales =
`0.60*3000000` = $1,800,000

Now out of this 60%, 20% annual maintenance was expected to be paid

In 2014 =
`0.20*1800000` = $360000

So, Total annual maintenance in 2014 =
`2550000+360000`

= $2,910,000