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Leaders must understand the behavior dynamics when introducing NRR. We typically see a customer success manager or renewals specialist with a base vs. variable compensation plan of 70/30 on the aggressive side and 80/20 or 85/15 on the more conservative side. Of the variable component, we typically see a mix of renewal goals and growth goals, with renewals the first priority and growth the second priority.
What happens at the end of a quarter when the pressure is on, and you must hit the number? Which number? Conflict can arise for the customer success manager or renewal specialist and they will most likely move to the deal that benefits them the most, not the company.
Too often, I hear about teams hunting big deals while they are not tending to the core renewal responsibilities, leaving portions of the ARR opportunity unattended and ultimately lost. While I support the NRR growth approach, there is an art to calibrating the focus on growth or teams may suffer poor performance on the renewal side.
In essence: use NRR, but use it wisely.
The counterbalance to revenue growth is execution excellence. Is the “engine” built to a scale that can handle the opportunity at risk, and is it tuned to maximum sustained performance? GRR sort of gets at this measure, but there is even a purer view of operations excellence: Resolution / Execution Rate. Resolution rate measures the ability to resolve the book of business on time or in quarter, either as a won deal or a lost deal.
This approach is the way of life for Whitney Daily, global head of the Renewal Center at SAP and her teams. It is exemplified in their tagline, “#quest4ZERO. ZERO Churn. ZERO Loss. ZERO Slips.”
With this motto, SAP has baked in an exemplary discipline into their renewals process and it has become company culture. Everyday, each person on the team thinks about how to get the deals over the line on time and in quarter. Every aspect of the renewal engine is inspected for optimization. Sweeping a deal under the rug and writing it off is not OK. Renewing at a huge discount just to get it done is not OK. People, processes, and technology work together to achieve the ultimate goal of resolution.
By implementing a zero-tolerance policy, SAP is building a sustained operational approach that naturally leads to excellent GRR execution and even NRR performance.
Renewal opportunities have a very prescribed segmented path. When a deal behaves differently than the system was built to handle (i.e. a small deal gets very big or complicated), prebuilt processes take over to move the work to the optimized path. The renewal center mission is equally focused on customer interaction and sentiment.
As such, creating a superb renewal experience is central, and their laser focus on the renewal outcome is a key contributor to that mission. Real-time expectation management and expert communication is what drives their execution rate.
The results are fantastic. 99.7 resolution / execution rate with 38% of renewals converted to multi-year. All pacesetter performance standards.
Create outstanding revenue performance by thinking about Growth and Execution at the same time. Each holds the other in creative balance to build a sustainable revenue engine. It’s an engine that is built to renew business but also to grow revenue when deployed in balance.
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December 2, 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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