We use cookies to enhance site navigation, analyze site usage and show personalized advertising. See our Privacy Policy. California residents - see CCPA Privacy Policy Supplemental for opt-out options.

This content is currently only available to TSIA members.

If you believe you are seeing this message in error,
please let us know.

Join the conversation!

Customer Growth and Renewal

Auto-Renewals: To B2B, or Not To Be?

The Pros and Cons of Implementing Auto-Renewal

4 min read
By Jack Johnson

Auto-renewals are proven to increase renewal rates, but do they negatively impact customer satisfaction? Can automation ever effectively replace human touch?

If you’re wondering whether auto-renew can help or hurt subscription renewal rates, you’re in the right place.

In this blog, I’ll break down the components of the auto-renew discussion, including pros, cons, and common practices in B2B, and cover the following:

Is auto-renewal a common practice in B2B today? 

Data collected in 2020 suggest that auto-renewal is a common practice for companies that self-identify as software or XaaS organizations, but less so for companies that identify as hardware companies. Additional research in 2021 found that auto-renewal terms were more prevalent in “direct to end user” relationships than in “indirect to reseller channel” relationships. So, the answer is: maybe. I know; it’s a non-answer, but that’s the reality today. 

What I can say is that auto-renewal inquiries are in my top 10 most common for the Customer Growth and Renewal Research Practice, and there is a trend toward implementing auto-renewal. So, let’s break this conversation down.

Percentage of companies that offer a badging program

The Renewal Process

The typical manual renewal process goes something like this:

  1. It starts with a pre-existing record (opportunity or object). After a discussion has occurred to tailor the quote to reflect desired services, terms, etc., the opportunity serves as the basis for the quote that is cloned and sent to the customer. 

  2. The customer funds the agreed-upon quote and the “package” (quote and purchase order) is booked, initiating a sequence to issue an invoice. 

  3. At this point, the renewal is generally considered to be established, and payment is expected within the term limits. In the case of credit-card transactions, processing and payment is almost instantaneous.

There are dozens of derivatives to this basic process. It can be manual all the way through, or it could be automated all the way through. Opportunities can go through an automated configure, price, quote (CPQ) tool, which generates the quote. The quote may be placed in a web portal, and the customer is then sent a notice to visit the site to accept the quote. Perhaps the customer provides purchase authorization and can buy the quote in the same environment.

This is the essence of renewal automation, having technology advance an opportunity through the process with little or only specific human touch needed. It does not, however, have to follow an auto-renewal practice to be automated, or at least mostly automated.

What Is Auto-Renewal?

Auto-renewal in its basic form is a term of condition—nothing more.  Auto-renewal essentially says: “Provide me in writing your notice of cancellation X days before the end of term. If you do not provide a cancellation notice, we accept that you (customer) wish to renew, and we will proceed to renew your subscription or contract.” By not canceling, the customer is silently agreeing to renew, and the supplier is also agreeing to continue to provide access to technology or services without interruption.

When most people discuss auto-renewal, they are assuming the invoice is included, but it does not have to be.

The next level of auto-renewal is invoicing. Invoicing can follow a manual process for auto-renewal, or it can be automatically generated. Under the manual model, CSMs or renewal specialists simply follow normal processes, and they make the customer aware that they have committed to the renewal when they do not cancel ahead of time. It’s a friendly leverage used to move the renewal along and hold the customer to the commitments they signed in the terms and conditions.

In the automated invoice scenario, an invoice is sent to the customer with the expectation that it will be paid. The invoice is usually generated as soon as the cancellation notice date has been crossed or on the anniversary date of the subscription. Typically, the release of the invoice indicates renewal has been achieved.

Possible Issues with Auto-Renew

Auto-renewal is not a majority practice in all markets because it comes with a few strategic and tactical considerations. In a B2C go-to-market strategy, we see numerous examples of auto-renewal. Think Netflix, Amazon Prime, Comcast, Direct TV, internet, phone, utilities, and so on. So what’s the issue when we go to a B2B market?

1. Purchase authorization is complicated in B2B.

The purchase order (PO), or equivalent funding mechanism, is fundamental to many companies. Before money can be spent, it must be approved and accounted for from specific allocated accounts or funds. 

There is a growing number of companies that practice business with the use of purchase cards or multiyear, not-to-exceed “buckets” of funds, but typically your product or service has been subscribed to based on very specific budgets. So, the first hurdle is to enable the condition where you have the right and expectation to invoice against a non-specific or generic authorization and expect to be paid.

2.  There could be changes to the opportunity.

In B2B markets, the configurations and services change constantly. What was purchased last year will probably be different now. It’s false thinking to assume the invoice is correctly capturing all the current conditions of the account. It is very likely there are changes. 

Auto-invoicing with no human touch, or no ability to capture changes in the opportunity, leaves all the upside on the table. You are invoicing for what the customer had last year, not what they have this year. What do you do with all the new stuff? Do you give access away? Do you provide support when they need it on uncovered items?

3.  It can create congestion at expiration dates.

In the last 30 days before the anniversary, there is significant activity to get the quote/invoice correct, and this can cause unusual work congestion. 

Here’s an example scenario: You invoiced the customer 30 days in advance of the expiration because they did not cancel, and you find out you need to change the invoice because Sales or Customer Success or Renewals discovered changes are required. 

Now you must rewind the invoice and resubmit the invoice. 

If you catch this need for modification after the 30-day payment terms, and the customer has not paid the invoice, now you have Account Receivables chasing payment while Sales/Customer Success/Renewals are trying to get a modification completed. 

The bottom line is that the desired experience of a clean, efficient invoicing process may be disrupted because of changes required at the last minute. And the rush to get a correct invoice may gum up the process in the last days of the quarter.

4.  Auto-renewal does not easily allow for growth. 

While it is a good defensive practice, and data indicates there is a positive impact on gross renewal rates in specific segments of renewals, new products sold may be overlooked. Consolidation and co-terming of contracts may not be feasible, allowing for a proliferation of subscriptions. Changing term lengths may be overlooked, and auto-renewal without human oversight limits the ability to upsell during the renewal process. 

Maybe most important, the assumption that renewals are solely an invoicing exercise may give the impression that relationships and human touch are not relevant to growth in our customers. Research indicates a direct correlation to product adoption and customer satisfaction to expansion and renewal. You will not renew that which is not perceived as adding value.

How to Deploy Auto-Renew Effectively

To effectively use auto-renew, TSIA recommends a complete review of the strategic directives and the capabilities which must be present to unlock the value.

In other words, before you deploy auto-renew, consider the attributes necessary for this capability to work in your favor. If your strategic directive is to grow customer revenue efficiently and effectively, think of auto-renewal as a baseline practice or tool within the broader capabilities that facilitate growth. Build capabilities around effective expansion as well as effective defense of the customer base.

So, under what conditions can auto-renew enhance both your business and your customer’s business? 

Constancy of opportunity or subscription object

Subscriptions for low-complexity and stable technology or services have a higher probability to be accurate. It’s easier to gain pre-authorization to pay invoices. 

Continuous billing options

Subscriptions that are below $20,000 may be purchased with credit cards or payment cards, or simply need signature as authorization.

Technological support 

Technological support can reduce as much friction as possible, while giving the customer the chance to participate. The marriage of technology and policy can be very powerful in enabling customers to accept auto-renew terms, particularly if the customer can easily manage, add, delete, or change subscriptions on their own. 

Allowance for cancellation upon convenience 

This makes auto-renewal a consumption billing activity, and the supplier agrees to continue to provide access to the technology or services until such time as the customer discontinues their relationship. The customer agrees to pay for the subscription until they give notice—no renewal, no renewal end date. Think about the capabilities required to move to a true consumption-based model.

To Auto-Renew, or Not to Auto-Renew?

Implemented under the concept of a cost-efficient, go-to-market strategy, auto-renewal may be limited in its outcomes. It can help improve renewal rates when deployed as a targeted strategy in specific segments, or to balance the customer base with opt-in/opt-out or manual invoicing. 

Our findings suggest that:

  • A majority of renewals are modified at least once during the process.

  • Aspirations to completely replace human interaction fall short as efficiency is pursued. 

Usually, auto-renew is a defense strategy, rather than a growth strategy. TSIA’s 2021 Digitizing Renewals Survey established an 11.5% improvement in renewal rates for the long tail (those accounts that make up the small-dollar subscriptions and comprise the highest volume of transactions). Deployed in conjunction with proper human oversight and ability for customers to interact and modify quotations, auto-renew capabilities can help to promote growth. 

In summary, auto-renew has the potential to be effective for B2B companies, but before incorporating it into your strategy, make sure you’ve considered the risks involved and conditions for success outlined in this blog.

 December 1, 2022

Jack Johnson

About Author Jack Johnson

Jack Johnson is the vice president of customer growth and renewal research for TSIA. In this role, he works closely with member companies to deliver research and advisory programs focused on helping them grow and renew services revenue effectively. Throughout his career, he has held Renewals, Customer Success, and Operations leadership positions at technology companies providing enterprise software or hardware, or in business services companies helping technology companies growing recurring revenue.

Topics discussed in this post