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Service Revenue Generation
A popular topic for TSIA members is around implementing policies for improving revenue performance and how to deploy these policies in an effective manner. This is especially critical in SaaS or other as-a-service business models where subscription renewal is critical to revenue retention and growth.
When companies either fail to deploy effective policies or deploy policies in an ineffective manner, they leave themselves venerable for revenue leakage, high cost to renew, confusion, and generally, experience poorly optimized renewal outcomes.
Without policies, operations experience chaos and inefficiencies. Think about the simple example of speed limits on the roads we drive. Can you imagine a car driving 55 mph in a residential neighborhood, or conversely, a car driving 25 mph on an interstate highway? Imagine if every driver on the road arbitrarily decided which policy, or “law”, they followed. We would have serious problems, and in this example, certainly more injuries and even deaths as a result.
Renewal sales is not life or death, but the principles apply all the same. Allowing unstructured business behavior disrupts operations, causing unnatural exception management and poor work streams, resulting in higher cost to renew and lower revenue retention. Providing clear guidance for the “rules of the road” help customers receive the experience they expect and companies to receive the revenue they expect.
According to recent TSIA benchmark data, there is a strong correlation between gross margin achieved by companies and their policy for handling a lapse in maintenance. The data showed us that companies that impose a requirement to backdate maintenance to the expiration date, and or charge a reinstatement fee to return to contract, achieve 11 points higher gross margin than peers not participating in such policies. For software companies the gap is 14 points.
(Click image to enlarge.)
Source: TSIA On-Premise Benchmark H1 2019
Source: TSIA On-Premise Benchmark H1 2019
The implications on gross margin is significant in this case. These policies pressurize the renewal process, providing air cover for your Renewal Sales reps by motivating customers and their procurement professionals to maintain support, or suffer the cost for unplanned expenses in their business.
The guidelines help keep all players aligned with the “rules” we are playing by and removes the responsibility for influencing a constant flow of one-off decisions that impact our employee’s ability to timely attend to their “normal” business duties. There is nothing more frustrating, and more costly, to a Renewals Sales team than pursuing the straggling renewals and not having the power to bring the sale to a conclusion. Policy can help your Renewal Sales teams bring closure.
At TSIA, we actively work with our members that are struggling with announcing policies or are wanting to declare them loudly and clearly for all to see. According to them, it is a condition that arises from their desire to make their customers happy, and to not set boundaries which will cause them to possibly choose to do business elsewhere. Yet, by not declaring policies openly and clearly companies open the opportunity for confusion and misinformation between Sales teams and Renewal Sales teams, between suppliers and their partners, or between suppliers and their customers. Companies ultimately experience the exact condition they hope to avoid.
We also observe that companies focus on the restrictive nature of policy vs. the enabling power of policy. Policy allows organizations and individuals to confidently move quickly through their decisions and processes. It allows customers to clearly understand their responsibilities in the relationship. It ultimately improves the renewal experience for all participants by instilling aligned expectations and provides cover for Renewal Sales teams to enforce policy when required.
All that said, I’d like to provide you with some recommendations for implementing your own policies that can help you increase renewals.
For more help improving your renewal strategy, reach out to TSIA to learn how membership in our Service Revenue Generation research and advisory program can give you all the tools you need to succeed. I look forward to speaking with you and sharing all of the data, business frameworks, and insight we have around this topic and more.
Post Date: October 3, 2019
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.
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