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Looking for Incremental, Recurring Revenue? Optimize Renewal Sales

12 November 2009

Many companies miss the huge incremental revenue opportunity of renewal sales: a dedicated phone-and-Web-based sales team that follows up with customers every month or year to insure they renew their contracts or service.  By relegating renewals to an administrative overhead function, you could leave millions of dollars on the table.  With a quota-and-commission-driven inside sales approach, you can not only increase revenue at a high profit, but also engage customers more fully and insure they are actively using the most current version of your products or services.  This leads to happier and more loyal customers – ones that are less likely to be lured by your competition – as well.

After presenting early findings and trends in inside sales compensation this week at the San Francisco Bay Area Telebusiness Alliance meeting, I sat in on a breakout session with managers of renewal sales to discuss issues pertinent to their sales groups.  The group consisted of managers representing companies selling big ticket items: hardware, software (perpetual license as well as SaaS) and medical devices.  While some groups are selling annual service or maintenance contracts, those in SaaS businesses have a subscription-based model and are trying to make their products “stick” by selling additional months of product access. What these groups have in common is the incremental, recurring revenue potential of their territories.

Many managers reported compelling productivity gains by dedicating a sales group to renewals, refining the renewal process, and hiring commission-based renewal sales reps, including:

  • 17%-200% increase in renewal rates
  • increasing multi-year contracts
  • decreasing churn rate
  • decreasing headcount while growing revenue
  • increasing on-time renewals by 50%
  • identifying additional revenue opportunities (e.g. new product or service sales)

In some companies such as those selling Software as a Service (Saas), renewals are often considered the territory of an “installed base” or “customer sales” (aka “farmer”) rep, or rep selling to customers that have previously been sold by a “new business” rep (aka “hunter”).  There have been numerous webinars, articles and blog posts recently questioning how current or accurate the “hunter/farmer” labels are in today’s Sales 2.0 world, so I am making these role distinctions using different (more politically correct?) words. :-)

In the debate over whether or not to separate out renewals from other customer sales,  I fall on the side of creating distinct roles in companies that renew service on an annual basis when it can be justified by revenue potential, budget and resources, if only because the customer contacts are often different. Renewal purchasing is often handled directly and solely by an administrative or purchasing person, while a new product or service purchase is typically driven by a business or technical buyer.

As for when to pass a customer from new business to renewals or customer sales, companies are all over the map. In some SaaS companies, new business reps are given 60-90 days or more to sell additional months of service while others ask the new business team to turn over the customer the day after they purchase.  If your company objective is aggressive market share growth, I suppose you would want your new business reps to turn over new customers asap for nurturing while they pursue the next set of prospects to bring into the fold.  In any case, teamwork and collaboration (and compensation to support that) are essential to making your customers’ experiences good ones, as the hand-offs occur.

Whether or not field reps get commission credit for renewal sales varies from company to company.  Some companies pay a small bonus of a few hundred dollars to renewals-only reps who find new product or service opportunities and pass these to another sales group; the bonus is only paid if a sale happens.

Some other things I learned from the group of renewal sales gurus:

  • In the Bay Area, comp ranges from 60-70% guaranteed pay with 30-40% incentive or commission pay with an OTE of $75-120K
  • Companies have special incentives to motivate reps to close renewals in the quarter the renewal is due, but there are also incentives to bring in past-due renewals
  • Clean and correct data are critical to the success of a renewals sales team
  • Other administrative issues, such as co-terming renewal dates, can be a significant part of the job
  • Churning in the smallest customers can be very high. Some companies forgive churning (and don’t “debook” them in commission calculations)  in opportunities less than $6K rather than penalize and demotivate reps
  • Outsourcing renewal sales can be a viable solution, especially in certain markets (e.g. outside North America), given the pay-for-performance model offered by vendors focused entirely on renewal business such as Encover and ServiceSource
  • “Reinstatement fees”, applied to months after a renewal date has passed, motivate customers to renew on time
  • Pairing inside reps with partners can help close renewal sales in smaller accounts, if an onsite visit is required; company field sales resources are called upon if the order size is large enough
  • Dedicated “win back teams” can help address the special challenges associated with lost or non-renewing customers while increasing the productivity of other  sales teams

Do you have a sales team dedicated to renewal sales? Do you have experiences to share?