Wednesday, August 29, 2012

Why Renew?

If you sell SaaS solutions or service contracts, you know the importance of recurring revenue streams, and that getting a renewal now takes more than just “show up and sign”.

Each of your proposals is under more scrutiny than ever before, with procurement, finance, business groups and IT all frugally weighing in on the decision. So when it comes time, each stakeholder is going to be asked as to whether precious budget should be spent on your renewal. Of upmost importance, have you provided the team with the justification to definitively answer “Why Renew”?

To Renew or Not Renew, That is the Question

With Frugalnomics in full effect, there is not enough budget to invest in everything your customer’s organization needs to be successful, and with less headcount, fewer resources to invest the time to figure out whether your proposal is “investment worthy”.

When it comes time for your renewal, you need to lay the groundwork to make the saying “Yes” easy for your customer. To do this, you should provide clear proof that the recurring license or contract has tangible value, delivering on your pre-sale promises of cost savings, business benefits and bottom-line impact, while providing evidence of ongoing rewards.

This means collaboratively working with your customer to prove that expected pre-sale value has been achieved. This means getting agreement from your customer that key performance indicators where positively impacted, helping to generate predicted cost savings and avoidance, drive labor productivity improvements, and deliver anticipated business performance improvements.

For certain renewals, you also may want to tally the costs of failing to renew, especially for certain service and support contracts.  This often includes estimating the impact of not having the service / support contract in place, especially increases in self-support costs, repair and spares costs, support related travel expenses, mean-time-to-repair, and costly downtime. 

With “value in the eye of the beholder” and often multiple stakeholders who must approve the renewal, it is important you translate the realized value and justification into terms relevant to each of the decision makers. For IT stakeholders, this might mean quantifying your IT infrastructure total cost of ownership (TCO) savings compared to the legacy solutions. For the business groups, this may mean tallying the process and productivity improvements, and expense avoidance your solution generated. For finance and procurement, it often means summarizing how the investment has delivered significant ROI and already paid for itself with realized savings.

It is important to remember that the justification is not difficult, but will take some time, working with the customer to reach agreement on the measurements they need to tally, researching and tallying the realized value, and gaining consensus and buy-in from your customer. With most customers having less resources and time than ever, waiting to the last minute to provide the justification is not advised. The best companies put in place quarterly or semi-annual value workshops, and even integrate ROI reporting into their solutions, to help promote visibility into realized value and provide the proof needed for easy renewals.

Realized Value Tools in Action

One of our customers was struggling with hardware service contract renewals, seeing year over year declines in renewal rates. The terms of each service contract were all stored in a database, which documented renewal dates, and key profile information. Alinean worked with this customer to create a Value Realization Renewal Tool that, several months prior to renewal, leverages the profile information to automatically create and e-mail a Realized Value Analysis Report to the customer and sales representative. This 3rd party report provides multiple dimensions of value justification for each expected stakeholder, creating a significant increase in renewal rates, plus helping the sales reps save precious sales time and cycles in driving service contract renewals.

Even though most customers would admit that the solution was valuable, a SaaS customer was having a hard time getting renewal approvals and achieving target renewal rates. Working with Alinean, we created a Realized Value Renewal tool to help sales prove the achieved value and ROI post-sale. The tool collected information about key performance indicators before and after the solution was implemented, and translated the progress into tangible cost savings, process and productivity improvements and business benefits. The quantified benefits were compared with service costs in credible 3rd party reports, helping customer stakeholders “sell” the realized value to frugal executives, finance and procurement, helping to streamline the justification process and drive renewal rates to goal.

The Bottom Line

Justifying SaaS recurring fees and on-going service contracts is a requirement in order to Fight Frugalnomics, making it absolutely vital you provide solid evidence of value realization prior to asking for the renewal. 

You have to proactively put in place the analysis sales tools and methodologies to quickly and easily engage, calculate and produce credible value realization reports needed for renewal success. Success includes:
  • Tallying the realized cost savings, purchase avoidance, process improvements, productivity increases and other business benefits
  • Quantifying the on-going value of renewal
  • Communicating the value in terms relevant to each stakeholder
  • Proactively justifying the renewal on a regular basis, or months prior to renewal.

Realized value tools are a great way to automate the engagement, collaboration and analysis process, helping create proactive marketing and sales programs, so that the justification of renewals is not left to chance.

Click here for more information on financial sales tools


Brian MacIver said...

Great Blog, for Telecoms, Big Software and much of IT, renewals is a major part of business!

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Nicolas said...

Thanks Tom. Very useful to me.

Gangadhar Ramesh said...

Nice post - should factor in competition as well.