TSIA members frequently ask us how to set targets for technology renewal rate performance and measure them the right way. When renewal rates are measured without context for vertical markets or renewal opportunity segmentation, performance can be misleading. This permits poorly optimized practices to exist, and therefore results in lost revenue.
In this post, I’m going to share some recommendations for driving more revenue through a segmented renewal strategy, starting with making sure that you’re setting the right targets.
Contract Renewal Rates Can Vary By Vertical
Industry norms consistently indicate that there are differences in renewal rate performance at the “vertical” level. For example, renewal rates for on-premise software, on-premise hardware, SaaS subscriptions, and industrial equipment consistently preform at different levels. If you try to apply software renewal rates to hardware renewals, or vice-versa, you’ll mis-set your targets.
This is especially challenging as the lines between the traditional segments get more and more blurry. Hardware companies, industrial equipment (IE) companies, and healthcare IT companies all have software segments to their business, and one size does not fit all when it comes to renewal targets.
The leaders of Renewals organizations across the industry accept these observations readily as truth, and calibrate the right expectations for their business models. But what is the expected renewal rate for renewals in the “tail” segment for the hardware vertical vs. the renewal rates for the enterprise segment in the hardware vertical? How about the “tail” and enterprise renewal rates in the software vertical? How do we know if we are experiencing issues in one renewal segment vs. another? The answer starts with your ability to segment the renewal opportunity, and that means having an Operations Analytics team that can analyze and report on the business effectively.
Segmenting Renewal Opportunities Enable Detailed Analysis and Optimization Plans at the Segmented Level
By segmenting your renewals into discrete renewal plays and measuring performance by segment, you can baseline performance, then implement plans to improve issues identified at a granular level. This is a much better approach than simply guessing at issues from the topline performance KPIs.
In studies conducted by TSIA, we’ve found that it’s common for our member companies to segment their renewal opportunities by account or deal size, geography, language, industry verticals (such as commercial, government, and education) or by product line. Other members indicate that they consider less utilized segmentations such as RFP (request for proposal) vs. contract, customer life cycle, age of product, or direct vs. channel.
Align Your KPIs to the Customer Segment You’re Measuring
Regardless of the segmentation strategy that’s most appropriate for your business, applying the same KPI metrics traditionally managed at the total business level to the segment level will cause you to overlook inefficiencies in your renewal process. It’s common to see higher dollar renewal rates in the enterprise segment, yet low contract renewal rates in the “tail” of the same business.
It’s common to see renewal rates lag in the channel, yet if we look at the performance of one distributor vs. another, we may find very different results. Having the ability to isolate down to the partner facilitates very directed action plans to impact both the segment and overall results. The more tightly you can segment your business units, and understand the expected performance for each, the more accurately you can set targets.
Once you’ve set the right targets, you can know what you’re doing well and where you need to improve. When only a few points of renewal rate can make the difference between making and missing the quarter, having a detailed understanding about your different segments is well worth your time.
Recommendations for Your Segmented Renewal Sales Strategy
Membership in TSIA’s Service Revenue Generation research practice can give you everything you need to improve and optimize your contract renewal strategy, from proven business frameworks, to benchmarking, to data-validated expert advice. Be sure to contact us today to learn more about how we can help your organization get to where you need to be. But for now, I’d like to leave you with some recommendations and next steps for implementing a segmented renewal strategy.
- Benchmark your overall renewal operations against your peers and the industry to build awareness for the current state of the large structural capabilities that exist within your organization.
- If you haven’t already, build operational capability to specifically analyze the renewal opportunity and to measure critical KPIs, then move the bar to the renewal segment level applying the same KPIs at the segment level. Keep in mind that Excel is a wonderful tool for routine analysis, but falls short on long term systemic scalable applications.
- Plan to be great. Establish a current state awareness of the renewal capabilities, develop gap plans for identified impendence factors at the segment, and continuously improve, measuring progress against segment KPIs.
You can also learn more about the concepts presented in this blog post and more by listening to my on-demand webinar, “Optimize Revenue Retention Through Effective Renewals Management".