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Customer Growth and Renewal
Since 2016 when Thomas Lah and J.B. Wood published Technology-as-a-Service Playbook, the technology sector has experienced a dramatic shift in how products are sold and how customers purchase products. There is no doubt that the as-a-service phenomenon has changed the business capabilities for tech companies dramatically.
Digital sales is growing, digitization of virtually every aspect of business is increasing, the deployment of customer success functions is on the rise, and the amount of business conducted on a recurring basis is increasing. This transformation has placed pressure on companies to manage their customers in a new way. No longer do we sell the “big deal” and then just renew the maintenance a year later. Now, we sell the initial subscription and nurture that customer over a long period of time to grow them to a large customer.
The journey of moving from a product-centric, capital sale of assets or licenses, to an XaaS business model is illustrated in TSIA’s “Swallowing the Fish” framework (figure 1) below. As revenue shifts to 100% recognized at the point of sale to a subscription schedule in which revenue is released over time, companies experience a dip in reported revenues. At the same time, new business capabilities are deployed to manage the recurring nature of revenue and to manage the customer relationship. The rise of customer success is largely attributed to the need to help customers adopt technology so that they maintain a relationship and drive the lifetime value of the customer.
In the pursuit of revenue and profits, risk has shifted from the customer to the supplier. No longer are technology companies realizing 100% revenue before value has been adopted, leaving the customer to drive value on their own time. Now, suppliers make a promise to deliver value over the term of the subscription and the risk falls back to the supplier to ensure the customer is using the technology, and getting the value they were promised. Revenue is at risk until recognized. The result: a potential consumption gap, OR a potential growth opportunity.
Thousands of conversations with TSIA members indicate that the Fish is absolute. Virtually no one escapes the Fish during this journey. Yet, as we click down into the details of this journey we find several paths emerging. (figure 2)
RISK: Unused capacity / value / licenses / consumption potential amplifies the real and potential risk for revenue attainment, causing the revenue trend to dip further than planned. (Red gap below)
In some cases, we hear that Sales continues to behave in a traditional manner selling the largest deal possible, presumably to extract the highest bookings and commission possible, leaving the customer with a much larger subscription than they can reasonably consume. In other cases, we hear that Sales scoped the size of the deal properly, but lack of understanding for the customers capacity to consume leaves value unrealized.
Customer Success (CS) is the organization that leads the charge to overcome these risks, helping customers to adopt the solution, and therefore reducing the risk of the customer becoming dissatisfied, or wanting to reduce their subscription, or worst case cancelling after the first year.
Growth: Value realized, expansion generated, and renewal executed successfully. Under this model, CS and renewal specialists play a critical role in revenue growth, reducing the revenue impact from status quo levels. By focusing on revenue in addition to adoption CS organizations are helping technology companies reduce the gap and accelerate the journey across the fish. (Blue field)
This dynamic is often overlooked and underappreciated by company leadership. CS plays a critical role to develop and grow the company's revenue results and is not simply a customer satisfaction capability.
TSIA research indicates that by adopting a couple of key business practices, technology companies can make a significant impact on revenue growth.
Post Date: June 17, 2021
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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The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.