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TSIA Research: The Science of Renewal Sales and Marketing
 

TSIA Research: The Science of Renewal Sales and Marketing

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The industry continues to evolve its practices with respect to the renewal of maintenance and support ...

The industry continues to evolve its practices with respect to the renewal of maintenance and support
contracts. As a result of TSIA’s analysis of the SRG Benchmark Study, in this publication we’ll report
on 20 renewal practices that form the foundational or “science” aspects of running a maintenance and
support business.

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    TSIA Research: The Science of Renewal Sales and Marketing TSIA Research: The Science of Renewal Sales and Marketing Document Transcript

    • 333EXECUTIVE INSIGHTThe Science of Renewal Sales and MarketingMaintenance and Support ContractsSERVICE INSIGHTSERVICE REVENUE GENERATIONOctober 2012Julia StegmanVice President Research,Service Revenue GenerationTSIATSIA-SI-12-015
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 2Contact InformationTechnology ServicesIndustry Association17065 Camino San BernardoSuite 200San Diego, CA 92127U.S.A.Tel.: 858-674-5491Fax: 858-674-6794info@tsia.comwww.tsia.comTable of ContentsEXECUTIVE SUMMARY .................................................................. 3SALES COVERAGE AND ORGANIZATIONAL STRUCTURES ........ 3SALES PROCESS AND COMPENSATION ...................................... 5PRICING AND OFFERINGS............................................................. 6RENEWAL CADENCE...................................................................... 7CUSTOMER CONSUMPTION.......................................................... 9TSIA RECOMMENDS....................................................................... 9The Science of Renewal Sales and Marketing: Maintenance and Support ContractsTSIA-SI-12-015
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 3EXECUTIVE SUMMARYThe industry continues to evolve its practices with respect to the renewal of maintenance and supportcontracts. As a result of TSIA’s analysis of the SRG Benchmark Study, in this publication we’ll reporton 20 renewal practices that form the foundational or “science” aspects of running a maintenance andsupport business.Maintenance and support is a unique business and it requires a disciplined, consistently executed setof processes. Some of these foundational practices may not sound all that exciting. However, don’tthink sizzle, think predictable revenue generation—and lots of it. Maintenance and support contractrevenues represent 38% of technology companies’ total revenues. And for software companies, theyrepresent 53% of total company revenue.We define common industry practices as practices that are deployed by 50% or more of benchmarkedcompanies. The common industry practices in this publication are in the following five categories:1. Sales coverage and organizational structures.2. Sales process and compensation.3. Pricing and offerings.4. Renewal cadence.5. Customer consumption.SALES COVERAGE AND ORGANIZATIONAL STRUCTURESThere are two common practices in the industry with respect to sales coverage for maintenance andsupport contract renewals:1. 86% of benchmarked companies utilize channel partners to some extent to help managemaintenance and support contracts, although for a low percentage of their renewal business(on average 11% of total maintenance and support revenue).2. 71% of benchmarked companies deploy a dedicated renewal team to renew maintenanceand support contracts. These renewal teams are responsible for a significant percentage ofrenewal business (on average 65% of maintenance and support revenue).
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 4Service SalesLeadership,50%TechnologySalesLeadership,19%Service DeliveryLeadership,19%Other, 12%Who Do the Service/Renewal RepresentativesReport Directly To?Table 1: Sales Coverage and Organizational StructuresSales Coverage% ofCompaniesWho Deploythe SalesChannel% of RenewalBookings Managed bySales ChannelCompensate channel partners for renewing contracts. 86% 11%Deploy dedicated renewal team (in-house +outsourced).71% 65%Source: TSIA Service Revenue Generation Benchmark Q2 2012.With respect to organizational structures, 50% of companies have their dedicated renewalrepresentatives reporting directly to a service sales leader, as depicted in Figure 1.Figure 1: Reporting Structure of Service Sales/Renewal RepresentativesSource: TSIA Service Revenue Generation Benchmark Q2 2012.There wasn’t a common practice with regard to whom the executive responsible for renewal salesreports to, but Figure 2 provides insight into the structures reported in the SRG Benchmark Study.
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 5CEO, COO,CFO, 31%RegionalGeneralManager, 23%Global SalesExecutive, 15%Global ServiceExecutive, 15%Region SalesExecutive, 8%Global GeneralManager, 8%Who Does the Executive Responsible forService Sales/Renewal Sales Report To?Figure 2: Reporting Structure of Service Sales/Renewal ExecutiveSource: TSIA Service Revenue Generation Benchmark Q2 2012.SALES PROCESS AND COMPENSATIONThe majority of benchmarked companies have a formal sales methodology in place to sell recurringservices. And there are two sales compensation practices that are now common across the industry,which are listed in the Table 2.Table 2: Sales Process and Sales CompensationSales Process and Sales Compensation% ofCompaniesSales Process: A formal sales methodology is in place for selling recurringservices.67%Sales Compensation: For companies that deploy dedicated renewal teams,renewal representatives are compensated on upselling to support levels abovethe basic level.80%Sales Compensation: For companies that deploy dedicated renewal teams,renewal representatives receive accelerators for over-achievement of salesquotas.71%Source: TSIA Service Revenue Generation Benchmark Q2 2012.
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 6The majority of benchmarked companies are incentivizing renewal representatives not only to keepthe maintenance and support business they had last year, but also to increase the amount ofcustomer spend. Specifically, they are compensating renewal representatives on upselling customersto higher levels of support. And there is a significant amount of energy being invested across theindustry to expand support service portfolios, which will provide more opportunities for upselling.For companies that have renewal teams on salary without a commission structure, we encourage youto implement sales incentives, especially accelerators, since they are a powerful lever for revenuegrowth.There are also a number of compensation practices for channel partners across the industry, with twopractices standing out as more common than others:1. Commissions are earned based on total renewal booked revenue (44% of companies).2. Partners don’t earn commissions; they mark up the price to make a margin (44% ofcompanies).PRICING AND OFFERINGSWith respect to pricing, the practice most commonly used to determine the price of the basic supportservice level is to use a percentage of the product or license price. And 84% of companies are settingthe maintenance and support contract list price based on the LIST price of the product/licenses soldand not the net or discounted price of the product.There is a contentious debate within technology companies on the topic of pricing methodologies.Specifically, with regard to whether the product discount should also be applied to the maintenanceand support contract at the time of technology sale. The argument some use for net pricing is that it’ssimpler for the sales representative and the customer, which is plausible. However, as technologyprices continue to commoditize, pricing the support services on the discounted price of thetechnology WILL accelerate the support service revenue down the product commoditizationpath.
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 7Table 3: Pricing and OfferingsPricing and OfferingsHow commonis thepractice?1. Utilize percentage of product price to determine price for basic support servicelevel.71%2. Maintenance and support price is based on the technology LIST price (vs. NETprice).84%3. Implemented a price increase within past 15 months. 71%4. Support service deliverables: Support for back releases and/or obsoleteproducts is included in support service offerings.67%Source: TSIA Service Revenue Generation Benchmark Q2 2012.With the economic downturn in 2008 and 2009, some companies chose not to implement an annualprice increase on their maintenance and support contracts, even if the pre-negotiated terms with theircustomers enabled them to. An overwhelming number of benchmarked companies, however, didimplement a price increase within the past 15 months. The average increase was 6.2%. The range ofprice increases were as follows: 53% of companies implemented a price increase of 3% or less. 27% of companies implemented a 4% to 5% price increase. 20% of companies implemented a 15% to 20% increase due to portfolio price restructuring.We found it very interesting that 67% of companies are including support for back releases or obsoleteproducts in their support service offerings. There is tension within some technology companies on thistopic. There are customer support and engineering costs associated with supporting oldertechnologies, which can negatively impact gross margin. However, you can also cut off yourmaintenance and support revenue stream prematurely by being too aggressive with end of supportdates.RENEWAL CADENCEThe old adage “plan your work and work your plan” is apropos for renewal sales and marketing.Optimizing recurring service revenue requires the consistent and effective execution of a cadence ofactivities from marketing and sales.
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 8Table 4: Renewal CadenceRenewal CadenceHow commonis thepractice?1. Cadence of renewal sales and marketing activities are documented. 81%2. Sales management has visibility to when in-house renewal reps initiate renewalprocess with each customer.89%3. Corporate and enterprise customers are contacted 90+ days prior to contractexpiration.78%4. Small and medium-sized customers are contacted 90+ days prior to contractexpiration.73%5. Dashboard is in place that tracks renewal status of customers that expire insame month or quarter (cohort analysis).80%6. Renewal quote is generated by the technology company to assist the renewal ofservice contracts.67%Source: TSIA Service Revenue Generation Benchmark Q2 2012.There are six foundational cadence practices, which begin with the documentation of an agreed-uponset of activities conducted by both sales and marketing.Customers need time to get through their internal approval process, so contacting them well ahead ofcontract expiration is critical. In fact, the majority of benchmarked companies are making the initialcontact 90 days or more in advance of contract expiration. Remember the days when 60 days wasenough? Those days are gone. A significant number of customers have implemented multiple levels ofsignoff prior to renewing maintenance and support contracts.It is important to have the tools, dashboards, and the management process to inspect what you expect.If your company experiences an increase in late renewals, its most likely an indicator that your renewalcadence is off track and your customers are not being contacted early enough to get through theirbuying process.Another key activity is the generation of the renewal quote. If your company is generating the renewalquote, then you control setting customer expectations about late fees, reinstatement fees, etc. In theTSIA publication Pacesetter Practices for Renewal Sales and Marketing, you’ll see just how importantservice policies are to renewal rate effectiveness.
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 9CUSTOMER CONSUMPTIONIt is very encouraging to see 55% of technology companies possessing the ability to monitor somelevel of customer consumption when their technology is deployed on the customer’s premises.However, benchmarked companies have told us that the data is difficult to use and needs to beoperationalized. It’s an area of technology and process investment that has been prioritized for manyof our members.Table 5: Customer ConsumptionCustomer ConsumptionHow commonis thepractice?1. Possess ability to monitor how customers are using technology installed oncustomer premises.55%2. Proactively encourage customers to utilize services they’ve purchased. 57%Source: TSIA Service Revenue Generation Benchmark Q2 2012.Consumption information will shine a bright light on the areas where customers are not deriving valuefrom your technology. This quantitative insight will help guide your service strategy to increasecustomer success, which will increase the perceived value of both your technology and your services.It’s a win-win.TSIA RECOMMENDSTo optimize recurring service revenues, we must become masters of both the art and the science ofrenewal sales and marketing. In this publication, we’ve outlined the core “science” aspects of runninga maintenance and support business.If you are in the early stages of building a renewal sales and marketing organization, these commonindustry practices can be a blueprint to help you establish a foundation of capabilities. And for thosethat have existing renewal sales and marketing organizations, it will help you assess whether you arekeeping pace with industry practices.Many of these foundational practices can be implemented within a quarter or two, so we encourageyou to get started now in expanding your foundational practices.
    • © 2012 Technology Services Industry Association | www.tsia.com | Page 10We also recommend you review these TSIA publications: Read Pacesetter Practices for Renewal Sales and Marketing to understand the practicesassociated with the industry’s highest renewal rates. Read The Art of Renewal Sales and Marketing for insights on the art of the valueproposition and the art of selling.