Mastering the renewal motion is a not-so-hidden source advantage in industries with significant recurring revenue models. They represent a fantastic opportunity to re-engage a customer, lock-in revenue, and find uplift. Unfortunately, in most companies handling renewals is a highly reactive and manual effort.
One of the most common complaints we hear is the inability to scale an effective process across the business without dramatically increasing headcount. That’s because most companies have pockets of sophistication—perhaps its intense focus on the Top 50 customers or a robust process for specific products. For the rest of the organization, if a renewal date finds the right person, great! But scaling efforts to proactively identifying renewal dates, build best practices, and develop renewal playbooks continue to elude teams.
The truth is, many of your deals are fine auto-renewing. The customer is happy, there isn’t an immediate opportunity to expand, and the relationship is profitable. The objective shouldn’t be to work all renewals, the objective should be to work the right ones. And that requires prioritization.
Turn a reactive process into a proactive strategy
The first step toward getting more out of renewals is to define a set of clear objectives for the renewal motion. Then, you can assess your upcoming renewal events for how well they fit those objectives, and surface the highest priority opportunities for sales teams to work on.
In working with our customers, we’ve solidified three effective ways to establish a best practice when it comes to renewal prioritization:
If you’re in a highly competitive industry or are facing major churn, the top priority is keeping the revenue you already have. A number of factors can serve as red flags that a customer could be at risk of dropping a product or leaving you altogether.
Indicators for risk can be simple. For example, if the deal doesn’t have an autorenewal provision, it should bump to the top to the list. You’ll also want to look at products they own and the associated prices. Are they outdated or is their pricing high relative to similar customers? It may be time to repackage their deal with a slight discount but for a longer term.
Check how their current usage or spend now compare to what was expected or committed when the deal was signed. If their current consumption is measurably different than the initial deal terms, your team can take active steps to reconcile issues sooner not later.
Finally, a good way to gauge satisfaction is to see how many support requests they’ve made and how many billing disputes they’ve had. Support requests could mean adoption issues, but it also indicates they are using your services. Disputes, on the other hand, always erode satisfaction.
2. Upside Opportunities
Renewals aren’t just about avoiding risk, they are a great time to find opportunity. Look for customers way over the consumption threshold. Or there might be a revenue uplift in their contracted terms. By finding customers who are overperforming, you can explore raising the minimum and offering a discount to lock them in for a longer term. Or perhaps lock in a higher revenue floor at a lower rate. And you can also make sure you capture all price increase revenue.
Examine the relationship for products they own that are renewing and tied to current sales or marketing campaigns. If you offer menu-based pricing, look for things they haven’t purchased but should have given their current product mix. And make sure you point your sales team toward expiring price holds and discounts so they can follow up with the customer.
These triggers enable you to send hot leads to your sales team, so they can package up a strong expansion deal. These strategic renewal actions go a long way toward maximizing customer lifetime value (LTV).
3. Commercial Relationship Clean Up
Spring (or fall) cleaning is always a good idea. If you have a business-wide initiative to tighten up your commercial relationships, renewals are a prime time to weed out the outdated and unprofitable terms.
For customers that have grown rapidly or done a lot of M&A, you may have terms in place that current leadership would never agree to. Things like termination for convenience, uncapped liability, unfavorable IP rights, and elongated payment terms can have a big impact on the risk profile of your company.
For companies that have more direct costs and tighter margins, it’s important to assess the economics of a deal as it’s coming up for renewal. Are there expensive services included at no charge? What about penalties or limits on cost pass-throughs? Is our ability to uplift prices restricted? It’s important to assess whether you really want to renew a deal under the current terms, or if you would prefer to look for ways to improve the overall economics.
To do this, create a set of criteria you can use at time of renewal to target customer accounts with unfavorable terms and prioritize them for renegotiation. This typically involves a list of terms that influence risk or profitability, and their relative favorability. By identifying these less-than-optimal relationships, you can quickly send them over to the deal desk or other proper team to negotiate better overall deal economics.
Focus your team on these three considerations, and you’ll help them prioritize their renewal effectiveness efforts and drive the greatest impact in the next 90 days.
Learn more about our solutions for renewal effectiveness here.