Service Revenue Generation
Service revenues continue to play a greater role in driving both top-line and bottom-line revenue growth in technology companies. For those who deploy their technology on a customer site, maintenance and support revenues represent a significant percentage of their service revenues. As a result, these companies are receiving increasing pressure from their C-level executives to grow maintenance and support revenues year over year, which adds to the expectations for sales and marketing leaders to make that growth happen.
However, before you can start down the path to growth, you should first assess the health of your existing maintenance and support revenues so that you can make the right investments, solve problem areas, and address any blind spots in your current reporting. Here is a list of 5 critical key performance indicators (KPIs) sales and marketing can use to measure the health of maintenance and support revenues.
Your first step toward measuring renewal health is to assess your investments in sales and marketing resources. After all, you could be experiencing a significant amount of revenue erosion within your recurring services revenues if you are underinvesting. These first two metrics can help you assess your level of investment in renewal sales and marketing, as well as monitor them over time.
This measures the sales costs to renew support contracts within your current customer base. It's ideal to leverage the lowest cost structure that will also deliver maximum recurring revenue. What is your level of sales investment to renew maintenance and support contracts?
This metric can play an important role in reinforcing the value proposition of the support contract to your customer, which can aid in the renewal process. In addition, marketing can introduce existing customers to additional value-added services and adoption services to generate incremental recurring service revenues. What is your level of marketing investment to retain and grow support revenue with existing customers?
At TSIA, we organize all steps of the customer engagement journey into our LAER model, which is made up of four parts:
Land: Activities leading to a prospect becoming a customer.
Adopt: Helping the customer effectively use your offer to achieve their business outcomes.
Expand: Encouraging customers to buy more of your products and services.
Renew: Convincing your customer to renew their relationship with your company.
These next three metrics are the core key performance indicators associated with the selling motions that fall under the Land, Expand, and Renew parts of this model. If you have blind spots due to lack of metric reporting, this is the best place to start putting better reporting in place.
You should always track the number of new product/license deals where a new maintenance and support contract was also sold. New support contracts are an important source of revenue that directly contribute to the growth of your total support revenue. Also, you can't renew what you don't attach, so if you miss out on selling a new product/license deal with an associated support contract, this can negatively impact your revenue growth for years to come. How often are you selling new maintenance and support contracts at point of new technology sales?
This metric can help you understand the additional customer spend you're able to secure beyond renewal by upselling to higher-priced support tiers, selling value-added services, and by selling a newer category of services called “adoption services” (which also falls under the Adoption part of the LAER model). To what degree are you upselling existing customers to further monetize your relationship with them?
You can use this final metric to keep track of all of the motions required to renew support contracts when they expire. It is the net effect of both erosion (customer attrition and downselling) and growth (upselling). How optimized is your renewal of contract dollars?
One you've assessed your ability to measure foundational and advanced KPIs as well as made the reporting investments necessary to shore up your blind spots, you can then regularly review the performance of recurring revenues and margin with your senior executives to ensure you're making the right investments for maximum growth.
To identify even more levers for growth, it's recommended to benchmark your maintenance and support revenues every 12 to 18 months, which you can do with TSIA. Our comprehensive benchmarking program can help your technology services organizations measure your performance against your industry peers, identify strengths, and uncover areas for improvement to ensure future success. Contact us to learn more about how TSIA's robust benchmarking program can benefit your business.
Post Date: December 1, 2016
Julia Stegman, is vice president of research, Service Revenue Generation, for TSIA. She has over 25 years of experience in the high-technology industry, and is responsible for driving the TSIA research agenda related to the growth of maintenance, SaaS, and managed service revenues as well as the expansion of product revenues with existing customers.
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