Luke Mraz: Hey everyone, thank you for joining our technology podcast series.
I’m Luke Mraz, the director with the Alexander Group, and today we’re going to be talking about the latest trends and best practices when it comes to renewals for XaaS organizations. With me today is Elena Ryan a director out of our San Francisco office, who also supports our Tech practice.
Thank you for joining me, Elena.
Elena Ryan: Nice to be here. Luke.
Luke Mraz: All right. So today we are going to talk about renewals. Renewals are the conduit to profitable revenue growth. We see the leaky bucket syndrome, as we often call it here, where companies have a lot of new bookings, but the revenue growth they see is not where they expect it to be because they have a churn problem.
And that comes from the coverage of renewals not being as optimal as they could be. Some of the things that we see is profitable growth companies have 12% higher net revenue retention than their peers. And we’re seeing better customer data allowing companies to predict churn, which can drive churn rates below 10%.
So those are some of the best practices that we’re seeing. And today we’re going to go through what leading technology companies are doing to create that level of success. So Elena, could you maybe run us through some of the best practices that you’ve seen from your clients recently?
Elena Ryan: Yeah, absolutely. So given the market landscape today with disruptive niche vendors, more choices for buyers and specific customer needs renewals are no longer a slam dunk. In my experience, companies are becoming increasingly keen, similar to you, on the perspective that renewals really are the backbone to their profitable revenue growth equation, and it’s really impossible to realize profitable growth if that leaky bucket surpasses new revenue.
So in other words, it’s critical to protect the base to even be able to gain additional sales opportunities. Companies are also becoming increasingly creative with how they’re defining jobs and coverage across reorder renewals versus resell renewals.
And in the spirit of doing more with less, they’re designing targeted sales plays, deploying different talent and jobs, and shifting more resources to more difficult and time-consuming resell renewals. Anything, Luke, you’ve seen around CSM and renewal rep use cases and job responsibility?
Luke Mraz: Yeah, that’s a, it’s a great point, Elena. And, you know, something that’s really important that when we work with our clients, we see is to understand what is the difference between the CSM and a dedicated renewals rep. And that’s something that can often get a little bit blurred. We have renewals teams, we have CSM teams.
They’re both engaged with customers. They’re both laser focused on getting the renewal, but oftentimes it can be unclear as to who is doing what. And so some of the things that we do see, 71% of our clients in our database have a renewal rep that supports AEs in larger renewals and will independently handle smaller renewals.
Now, 92% have a CSM that are owning or supporting rules, but mostly they are in a supporting role. Some of the process steps that we will see in being led by the renewals rep would be when it comes to the qualification for small and medium business, they are often taking that on their own. They don’t need any support.
Where we do see more co-leading things around, say the renewal planning when it comes to an enterprise level account. And we need to have 30, 60, 90, 180 day out milestones. And when that’s the case, we often have an AE who’s much more involved and a CSM who is going to be co-leading it.
And in those situations, we’ve got that dedicated renewal rep who is in more support, providing information on contracting on dates and terms and things like that. But ultimately, in those more complicated solutions, it’s the AE being led with the support of a dedicated CSM.
Now, I’m curious to see, you know, Elena, one of the things that does come up, as I mentioned, is that 30, 60, 90, 180-day time frame. A lot of our clients are asking us about, you know, what is the timeline? When should we be having the renewal conversation? We don’t want to start too late because then we’re going to be at risk of churn, but we don’t want to start too soon because we just sold them the most recent round.
So what are you seeing as far as best practices when it comes to timing for the renewal sales process?
Elena Ryan: Yeah, so we find that on average, companies tend to start the renewal sales process about six months prior to official renewal date. And to make the process as, you know, seamless as possible, sales playbooks are being created and made available to the field to drive clear accountability and timing expectations.
Some best practices during the renewal process includes implementing an early warning system, which is basically an indicator to predict potential renewal risk, which therefore, allows the organization to prioritize rep engagement across the right accounts. And, at that time they can start indicating if a renewal is looking to be like a reorder versus a resell.
Leading companies are also evaluating ways to make the renewal process as self-serve as possible, which includes publishing standard pricing, providing real time accurate usage data, and, you know, allowing customers to opt in for auto renewal. Then maybe if we switch gears and talk about sales compensation for renewals, interested, Luke, to see your perspective on what you’re seeing for renewal comp for core reps and core sellers.
Luke Mraz: Yeah, thanks, Elena. You know, I think that’s when we think about the sales process. Obviously, compensation is what’s going to drive a lot of that behavior. So those best practices need to be reinforced by the sales compensation plan. And when we see renewal treatment for our core sellers, market practices will vary depending on the renewal strategy and type, as you mentioned earlier, right?
Some are going to be more of a resell while others are more of a reorder. And so there is no one size fits all when it comes to how to treat renewals for the core seller. We do see a variety of ways to treat it. The first being from a simple add on bonus to links for particular renewal rates.
We will often see a crediting for the renewal, but at a lower rate say, you know, 25 to 50% credit for the renewal amounts. Or we do see some that just will pay full credit that everything is created the same and we use a total revenue metric for our core sellers. 67% of the jobs in our sales compensation database do compensate their core sellers for renewals. The most common ways is to have that total productivity measure that’s 28% and 24% have a separate renewals metric.
So having a new bookings metric and then a second renewals metric that they can keep the two separate. So you can pay more and greater accelerators when it comes to new and have a more conservative approach when it comes to paying for the renewal metric.
Now, so there’s some varying practice when it comes to early and late renewals. The most common is to provide no quota change, if there is a early renewal, and some credit for if it does show up late. So usually a reduced amount to say that this is something that, you know, within the late window has been booked, we will still give you a reduced amount of credit for that renewal.
Now, obviously that’s the core seller, but there’s also other folks involved in this. So I’m curious. What do you see as far as that renewal team? What are the best practices that are seen for the folks who are laser focused on the renewals?
Elena Ryan: Yeah, so I’ve actually seen that renewal rep comp is pretty fairly simple. They’re typically either measured a 100% only on renewals or sometimes a mix of both renewals and expansion. It really depends if the renewal rep is responsible for closing, upsell and cross sell business. In terms of how the renewal metric is expressed, it can either be expressed either as a percentage or on a dollar basis. For example, customer renewal rate percent or dollar renewal rate percent versus pure renewal sales dollars.
And I’ve actually seen a trend towards companies expressing the renewal metric as a percentage and by communicating as a percentage, a quota does not need to be set. So it is a lot more simple from an administration standpoint and the percent does not need to be changed, even if there are frequent territory or account changes throughout the year.
Anything you’ve seen around channel comp Luke?
Luke Mraz: Yeah, the channel is, you know, obviously a little bit unique because they are partners and they’re going to have different plans by nature. The structure that we’re seeing there is a really a rethinking of the channel partners role into the sales process and aligning the incentives to the ones that are really creating the value.
And so, when it comes to renewals, a lot of times our clients are deferring some of the more transactional renewals to those partners, and therefore they want to minimize the amount they’re willing to pay out so they can redistribute those dollars to other things which drive more revenue growth, whether it be deal registration, deal co selling. And so what we typically are seeing a movement to here is a nominal amount of incentive for the renewal that is based on your partner tier.
So we do still see a tiering system of who are high, medium and low volume partners, but even within them, the different sales motions are being credited differently and incentivized differently. So a lot of times these renewals, particularly the ones that, as we said, are being transactional, are coming in at a much lower rate than say a deal, which we are co selling together.
And a lot of times with the channel programs, the amount that when you do this sort of reevaluation, the amount being paid into the channel partner program may not change, but it’s just where those dollars go. So we’re actually putting more incentives into some of the growth factors like co selling and less into things like the renewals. And it’s really just a better use of the funds that we are paying to our partners.
So I’m curious, Elena, kind of in summary here, when we think about the renewals and best practices. What is top of mind or the biggest takeaways you’d have our listeners focus on?
Elena Ryan: I’d really like to emphasize that managing and closing renewals is really a team effort. It’s important everyone across sales, across marketing, across CS is really on board with protecting the existing revenue really is the conduit to generating long term profitable revenue growth.
Luke Mraz: Great. Couldn’t agree with you more. So thank you everybody for joining. For more information, please visit alexandergroup.com Please tune in for our next podcast and thank you for your time.
