Tien Tzuo is one of the pioneers of the SaaS (software-as-a-service) industry. He was employee No. 11 at Salesforce.com, where he became the Chief Marketing Officer. He would then co-found Zuora, which operates a leading subscription platform.
Yet while the SaaS model is powerful – and has transformed companies like Microsoft and Adobe – it does demand much planning and organization. This is why Tien crated the PADRE operation model, a workflow to help companies better manage the process. And an important part of this is renewals:
“Acquiring new subscribers is critical, but in the Subscription Economy the vast majority of customer transactions consist of changes to existing subscriptions: renewals, suspensions, add-ons, upgrades, terminations, etc.”
The bottom line is that implementing a strong system for renewals not only helps reduce churn but also allows for the opportunity for higher growth, in terms of expansion of existing accounts and upsells.
So what can you do to improve the process for your own company? Well, I reached out to another top player in the SaaS field, Zendesk. The company, which has a market cap of about $7 billion, provides customer service and engagement cloud services. During the latest quarter, revenues jumped by 38% to $154.8 million.
“The renewals process starts with one key question: who is responsible for the renewal?” said Jaimie Buss, who is the VP of Sales for Zendesk. “The answer depends on what type of product you sell. With top-down large enterprise sales, a more senior account manager will most likely need to handle the renewal, as the objective of those renewals will likely be to extend the contract to multiple years, products, and include contract restructuring and heavy negotiation. For the mid-market, renewal objectives are a bit more straightforward; that is, to extend the contract term, minimize contraction by selling other products, and reducing or removing the discount offered at the initial sale. In this case, renewals could be supported by the Success organization or a renewals specialist.”
Regardless, the key is that you need to be proactive. Waiting until a few days before the contract expires can mean losing business.
Here’s what Jaimie recommends:
- 90-61 days before the renewal: You should begin the initial engagement. First of all, you want to confirm that the primary contact is still with the organization. Next, have a discussion about pricing, discount reductions and term length options. Then once you gather all the feedback, you should evaluate the potential growth of the account and the churn risk. “Churn risks should immediately be flagged and you should have all hands on deck: sales, success and sales engineers,” says Jamie.
- 60-31 days before the renewal: This is when you get down to brass tacks. In other words, you want to confirm the contract term, pricing, billing frequency, and payment type. You will also want to confirm the paper process and timing of signatures with the customer.
- 30-0 days before the renewal: The order should be processed and signed. “Once closed, a hand-off back to success or sales should occur if the renewal is driven by a renewals specialist,” said Jamie.
During this process, there are definitely some potential issues to keep in mind. For example, if you have an “auto-renew” option in the terms and conditions, the renewal specialist or sales person needs to coordinate with the collections team. If not, there’s the risk that a customer may receive an invoice during the contract negotiation! No doubt, this could be a deal killer.
Finally, there needs to be a clear-cut incentive structure for those people who are responsible for renewals. According to Jamie, it must be focused on expansion of bookings. And even if a customer does not want to add new subscribers, there should still be incentives to increase the term length, improve the billing frequency and reduce the discounts.