Customer demand for accessing technology-as-a-service, in lieu of purchasing the technology outright, continues to grow at impressive levels.This creates an exciting revenue growth opportunity for technology companies. On average, subscription revenues grew 27% in the first quarter of 2018 relative to first quarter of 2017, according to TSIA’s Cloud 40 Index.
A result of this revenue growth is a growing number of existing subscription customers. Technology companies spend ridiculous amounts of money landing net new customers, but that’s not the end of the story—it is hopefully the beginning of a long relationship with these subscription customers. However, contrary to popular belief, renewals don’t just happen on their own. It requires investment in an effective renewal process and renewal coverage model.
5 Things to Consider Before Having Channel Partners Renew Subscriptions
Many technology companies who have been successful with landing new customers now find themselves struggling with applying the right amount of resources to retain and grow subscription revenues with existing customers.
With respect to the renewal coverage model, it varies by customer segment:
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Most technology companies have more smaller subscription renewals to contend with than large and medium subscription renewals.
Generally, large and medium-sized subscription renewals are well covered by either account executives or renewal specialists. The renewal of subscription plans is a sales process where the customer is separated from their money. Customers have many alternatives for spending their money, so renewal is not a given.
The big question is, do we leverage channel partners or invest deeper in automation to expand our renewal coverage models?
Smaller subscription renewals are problematic for most technology companies. Tech companies just can’t get internal commitments to fund large enough renewal teams to effectively cover all of the smaller subscription plans. The big question is, do we leverage channel partners or invest deeper in automation to expand our renewal coverage models?
The technology industry has learned many lessons about channel partner renewal programs from the traditional on-premise models, where channel partners renewed maintenance and support contracts on behalf of technology companies.
So, I’ll offer 5 considerations before you take the leap to having channel partners renew a segment of your subscription plan renewals:
1. Don’t Just Outsource the Problem
We take a big hairy problem and decide “let’s just outsource it” and hope someone else can figure it out. We know this doesn’t work.
Your company knows your technology better than anyone does. You have to be directly involved with customers to understand what it will take for them to be successful. Define the life cycle of the customer on your technology platform and be able to articulate the capabilities required to unlock maximum value for customers.
2. Identify Required Core Competencies to Unlock Customer Value
Identify all the required core competencies holistically and don’t duplicate each other’s capabilities. I predict this will be a hallmark of successful versus unsuccessful alliances between channel partners and technology providers. There is so much that needs to be done to help customers be successful. Collaboration between technology companies and channel partners will win in the end.
The traditional on-premise models were about providing support services to customers and renewing support contracts. But the subscription models also require the deployment of adoption services to proactively unlock more value for customers. And, subscription models require not only retention of revenue, but an expansion of subscription revenues. That’s the path to profitability.
So, put your company’s stake in the ground with defining your role. For example, I think it makes much more sense for the technology company to invest in customer consumption analytics. Build it once, enable partners with this information, and monetize the analytics for the long term. One of the learnings from the traditional on-premise models is that a significant amount of service revenue was enjoyed by channel partners—many OEMs missed the boat on the revenue growth that came from services. Not something to be repeated.
And, collaborate with your best channel partners to ensure they understand how to add value. Discuss the business model parameters that will work for them:
- Take advantage of their close proximity to customers (i.e. how are we going to cover customers in Asia this time around?)
- Encourage partners to deepen their industry vertical expertise so they can unlock value for customers with strong credibility
- Leverage partners for custom, labor-intensive services with customers
3. Evaluate the Economics
In the traditional on-premise models, channel partners received an average of 25% of the maintenance and support revenue as compensation for delivering support services to customers and for renewing the support contract. The upper end of this compensation range from hardware companies was as high as 60% to 80% of the maintenance revenue. Yikes!
Looking forward, let’s say channel partners manage the support, adoption, and renewal of $200 million of your overall subscription business. If you compensate them at a rate of 25% of the subscription revenue, that’s $50 million EVERY YEAR. That could fund a lot of automation projects to create a self-serve renewal, adoption, and expansion model in lieu of a channel partner renewal program.
In the traditional on-premise models, channel partners received an average of 25% of the maintenance and support revenue as compensation for delivering support services to customers and for renewing the support contract.
4. Set New Precedents
Since technology-as-a-service is a new business model, it presents tremendous opportunities for breaking old habits and setting new precedents.
Build a channel partner renewal program that has accountability built into it. I submit that the biggest lesson we learned from traditional on-premise models is we need to be very clear on how partners earn their compensation. For example, tie their compensation to renewal rate performance and customer health scores. Today, too many technology companies can’t pull these levers and that is a helpless and frustrating place to be.
As the provider of the technology-as-a-service, channel partners should hold you accountable for customer consumption intelligence. It is inefficient for channel partners to be sleuthing around with their existing customers to try to figure out how each customer is doing—the age old guessing game of “Who can I sell to next?” Technology companies should provide the telemetry that directs partners to deliver effective adoption services to the customers that need their help, and hopefully more access to technology too.
5. By Invitation Only
Your Sales team will likely want their favorite channel partners to be included in your new renewal program for subscription plans.
We learned from the traditional on-premise models that not all channel partners are equally equipped to provide support services and run the renewal play. It puts customers at risk to have channel partners play a role they aren’t effective at playing. This is a lose/lose/lose situation for the customer, for the channel partner, and for your company.
What should we do differently with renewal programs for subscription plans?
- Set specific criteria for channel partners to be eligible to participate in your new renewal program
- Invite channel partners with the right capabilities, especially a demonstrated commitment to the capabilities required for retaining and growing existing customers
- Deploy a Renewal Certification program and Adoption Certification program
- Make it an exclusive club partners have to earn their way into, and require them to continue to perform at specific levels to stay in
Get the Insights You Need to Become LAER Effective at TSW
At TSW, you’ll learn more about the topics presented in this post, what it takes to become LAER Effective, and ultimately LAER Efficient.
The themes for the session track I’ll be heading up at TSW include:
- Jumpstarting your team to take on the renewal charter for subscription plans
- Evolving role of the renewal specialist
- The role of channel partners with renewing subscriptions
- Converging service product management into a single Portfolio Management team
- Harmonizing offers across service lines into a Customer Success portfolio
Register today and get ready to join us October 15-17 in Las Vegas at the ARIA Resort & Casino for 3 days of learning, networking, and discovery. I hope to see you there!
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