Most technology B2B vendors rely on a significant portion of their annual revenue to come from existing customers by “simply” securing renewals. Be it a SaaS subscription, Services and Maintenance Continuity for Perpetual Software Licenses, renewals can account for more than 50% of all revenue. Securing Renewals, however, is not as ‘simple’ as you might think. Firstly, your customer has unlimited access to multiple sources of independent information on vendors, products and their capabilities. And secondly, competitors are consistently knocking on their door to provide incentives to replace your offering. Therefore, with 50% of revenue at stake, securing renewals is of critical importance.
“Who owns the renewal?“
In this article we will explore two vendor selling models for securing renewals. Direct Sales Renewals and Indirect Sales Renewals (i.e. via channel).
In a direct sales model, the vendor owns the customer. Thus, the sole responsibility for securing a renewal purchase order lies with them. There are multiple renewal sales organization models that vendors can select from. Here we discuss three; all of which are measured and compensated in different ways, to secure renewals.
Account managers (AMs) should be the closest connection between the customer and vendor. Typically, they make the first direct sale and then seek additional opportunities within the account. Navigating between different departments, divisions and stakeholders is part of their day-to-day activities. This is all well and good if the Key Account Manager is looking after 10-20 customers pa and has detailed data records. However, AMs in a high-velocity type business might, on average, own anything between 250 and 500 accounts. So being able to navigate each of them, uncover new opportunities along with looking after renewals is more challenging than vendors would like to admit. Additionally, AMs make the majority of their commissions by expanding, up-selling and cross-selling to their customer base. Therefore, it’s highly unlikely that the monetary compensation they receive for renewals will be anywhere near that of a cross-sale, which presents additional challenges for vendors.
Renewals team are paid solely on close-winning renewals business. Theory suggests that having a dedicated team, that focuses on one prime activity should yield best results. Renewals team typically deal with a large volume of opportunities and where there’s volume, the team’s focus is on maximizing the number of renewal sales each month, each quarter, and each year. This often means the renewals sales team become very “transactional” and only focused on close-winning each renewal.
In this model, the Renewals Sales Rep and the account manager should be exchanging information regularly. Anything from an uncovered need, personnel changes and priority shifts to a new procurement system or processes, should all be recorded. Ideally, all of this should reside in the vendor’s CRM.
Customer Success (CS) teams are typically tasked with driving adoption, conducting regular health-checks and addressing support needs etc. They are typically the first to identify the risk of a customer not renewing. As such, when dealing with renewal opportunities through this “non-sales” function, you will find gaps in knowledge and training on how CS should navigate within the account, how to speak with procurement and secure an on-time renewal.
All of the above three models have their advantages and flaws. A vendor needs to consider all of these and regardless of the preferred structure, make sure that data between the different functions and teams is recorded accurately and is readily available ahead of a renewal anniversary.
The question of customer ownership in an indirect model always comes up. Here you need to carefully define and agree between the vendor and the partner, who owns the customer relationship, and therefore responsible for securing the renewal. This can often be a source of conflict. Ultimately both parties “own” the customer. As they are using your offerings, they are your customer, but your partner handles the sale and all interaction with them. Therefore, they can regard them as their customer. What you both need to agree on is who will manage and own the customer’s “renewal sale”.
One Thing is Certain when Securing Renewals, DATA is KING
Analyzing renewals data should be a top priority for every vendor. Results should be regularly viewed under a microscope and continuously monitored. Business data analysts should produce detailed reports with all relevant insights. Include renewal rates based on $ value, opportunity count and quantities. In addition, present multi-year renewal deals as their “annualized” values. This will give you a baseline to understand the health of your renewals business.
You should also monitor trends – comparing results Year-on-Year, Quarter-on-Quarter and Month-to-Month. Only by getting into more detail will you reveal the reasons behind the numbers and, if done proficiently, a well-painted picture will begin to emerge. Leaders need to know and understand as quickly as possible if one of their “renewals” business lines is underperforming. An analysis can reveal if you are under a competitive attack in a certain geography from another vendor or whether renewals discounting has become the norm. Understanding the root cause for below par renewals revenue performance allows you to build corrective action plans to fix the problems.
In some cases, a vendor might find their renewals data is inaccurate, incomplete or simply of poor quality. Here, a conversation with the sales ops team and/or CRM team is needed to immediately implement a data quality improvement plan. After that, having strict rules for capturing relevant data at point of sale from a vendor’s direct sales team can be quickly and efficiently implemented.
But how do you ensure that your partners also adhere to these data quality policies? One of the quickest and easiest ways to enforce this is to implement a detailed deal registration form at the start of the process of a new opportunity, including mandatory fields to automatically capture information in your CRM. This will dramatically increase the quality of your renewals pool data going forward.
Many distributors and resellers do not have a dedicated sales team for securing renewals. Nor do they have good systems of record in place to generate a renewal pool dataset for your offerings. Therefore, your partners need to be both educated and constantly reminded, that in order to secure future renewals revenue, the first step is to ensure all parties have visibility of the “renewal pool”. Above all, the key data points to capture are typically customer names, expiry dates, purchase order numbers, quantities, serial numbers and contact details (ideally for sponsors, internal influencers, users, and procurement).
To discover more about how market leading vendors automate and manage their renewals programs, contact Channel Mechanics today and transform your renewals tomorrow.
Renewal rates are listed as 1 of 9 Channel KPIs Every Manager Should be Tracking. However, as outlined in this article, securing renewals is not as simple as it may seem. There are many factors, some of which are mentioned above, which affect renewals success. So having the right renewal pool data, the right renewals team structure and the right tools to communicate and educate renewals teams, is crucial to achieving success.
Download the webinar: Best Practice for Maximizing Channel Renewal Revenue