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Identifying who should own renewals is a topic that consistently comes up when I engage with Service Revenue Generation members. The answer, and the decision criteria to come to an answer, are not always clear.
In part, the answer is clouded by pre-existing organizational structures, traditional charters for sales organizations, and even compensation concerns. Shifting business models make the decision even more complicated. Now, I will attempt to untangle the answer by providing several guiding frameworks that organize our thinking and approach.
Getting Started
Wondering where you should start? With the first step of course!
The form an organization takes follows the function it must fulfil, and the function is dictated by customer requirements and work to be completed to satisfy those customer requirements.
TSIA recommends a 7-lever framework to chart the journey and we start with Strategic Alignment. (figure 1). Too often companies feel pain: a revenue shortfall, an uptick in customer attrition, or a miss to a quarterly plan. The response is to quickly mobilize to cover the shortfall, and the easiest way to recover is to buy results with changes in compensation or reorganization. While this may feel good – I’m committing money to my bet – it may not actually solve the fundamental problem.
For this reason, another approach is required. TSIA regularly observes members taking a more strategic and systemic approach to building business capabilities that achieve long term and consistently higher business results.
It starts with utilizing great available data and linking commitment to an aligned strategy. This strategy may be committed to hyper growth, it may be committed to strong operating income, or perhaps a balanced approach of high growth with profit and margins.
Today, we see many members working through the strategic journey of moving on-premise business models to the XaaS model. This is a complicated shift that requires reassessment of business capabilities across the entire company: Product Development, Marketing, Sales, Customer Success, Finance, etc.
The strategy sets the tone for the KPI’s used to measure success, to track progress against objectives and to compensate results that meet the strategy. Practices, policies, and procedures, are deployed to enable achievement of the strategy. Roles and responsibilities are defined, created, and organized into a functional organizational structure. Then, staff is trained and educated in the required skills to succeed. Finally, compensation is layered into the organization and rationalized across the roles responsible for fulfilling the task that meet customer requirements.
Who Owns Responsibility For Retention of Recurring Revenues?
To answer this question, we start not at compensation, account ownership, or even skill sets. While all of these are important and eventually play a role in determining responsibility for retention, we start with strategic alignment. Strategic alignment is gained through an understanding of the work that must be completed under a profitable business model.
In recent years, we have seen an increase in revenue contribution from recurring sources: increases in support, value added operational and adoption services, as well as technology subscriptions. Every recurring revenue sale is also perpetually expiring. Revenue on the schedule today will expire and must eventually be renewed. Are you built to effectively handle expiring revenue or to grow revenue off the existing customer base? These are different capabilities required in a traditional capital sales model with perpetual ownership of product.
There are two key vectors that determine fit for renewals work - complexity of work, and maturity of your renewal’s engine. (The sum capabilities of people, process, and technology available). Additionally, there are very different complexity attributes if we segment the renewal opportunity. Touch, dollar size, product variability, and pace, among other factors, may be segmented to determine complexity. We frame the discussion by segmenting the work as illustrated in figure 2.
Complex work is completed by highly capable employees. Low complex work is completed digitally, or by employees able to handle low complex work. Typically, renewals are the responsibility of Sales, Services Sales, Customer Success, Renewal Specialist, Partners, or perhaps through automation and digital motions. In a recent Rapid Research Response poll, “Who should Own Renewals?,” respondents indicated that 52% utilize renewal specialists, 28% customer success managers, and 18% sales executives.
The work determines the resources, skills, and practices required. The strategy determines the organizational approach, and ultimately the compensation is deployed against the high complexity / capability vector.
As the renewal engine matures, a company has the opportunity to reassess where the work belongs. A highly efficient and mature renewal engine may move the digital strategy up the complexity stack. CSMs and Renewal specialists move up into increasingly more complex renewals, and partners move up the complexity stack as well.
A common discussion today is around the topic of having sales executives own the renewal of subscriptions and associated recurring service offers. Data indicates that having Sales and Sales professionals do not necessarily grow services revenue any better than CSMs or Renewal specialists. In some cases, they actually inhibit growth.
In the “2020 TSIA Revenue Effectiveness for XaaS Survey,” we found that revenue growth rates were 13% when the sales executive was fully compensated for renewal sales vs. 22% growth when renewal sales were managed by CSMs or Renewal specialist and Sales did not have quota for the effort.
To be clear, utilizing the principles of the complexity / maturity framework above, there are absolutely areas where a highly capable sales executive should have responsibility to renew recurring revenue, but that advantage degenerates the less complex the work becomes. Having highly capable sales employees managing low complexity renewals is simply not effective from a performance and cost perspective. CSMs and Renewal specialists are specifically built with the skills to keep a customer vs. acquire a customer.
TSIA Recommendations
Growing recurring revenue and retaining existing customers is increasingly becoming more critical for the health of technology companies. The shifting economic factors are placing business challenges on technology companies to adjust their business capabilities and to tune these capabilities toward the sales and renewal of recurring revenue.
As companies build mature capabilities, they are well served to follow the 7 levers of LAER transformation above and to avoid knee jerk decisions fronted by compensation and repaired by training. It requires a data-informed, aligned strategy as a foundational component of your strategy; then the balance of the lever capabilities.
- Know the customer requirements by segmented personas.
- Build an understanding of the 7 Levers of LAER transformation and follow the journey outlined to build a business capable of sustaining performance over a long period of time.
- Segment the retention opportunity and understand the work content for each segment.
- Deploy purpose-built renewal paths against each segment that utilize employees properly skilled to accomplish the work.
- Compensation retention results utilizing sales principles. Renewals is a specialized sales activity and must be compensated as such.