tsia research: the science of renewal sales and marketing

333EXECUTIVE INSIGHT

The Science of Renewal Sales and Marketing

Maintenance and Support Contracts

SERVICE INSIGHT

SERVICE REVENUE GENERATION

October 2012

Julia Stegman

Vice President Research,

Service Revenue Generat ion

TSIA

TSIA-SI-12-015

© 2012 Technology Services Industry Association | www.tsia.com |

Contact Information

Technology Services Industry Association

17065 Camino San Bernardo Suite 200 San Diego, CA 92127

U.S.A. Tel.: 858-674-5491 Fax: 858-674-6794

[email protected] www.tsia.com

Table of Contents

EXECUTIVE SUMMARY .................................................................. 3

SALES COVERAGE AND ORGANIZATIONAL STRUCTURES ........ 3

SALES PROCESS AND COMPENSATION ...................................... 5

PRICING AND OFFERINGS ............................................................. 6

RENEWAL CADENCE ...................................................................... 7

CUSTOMER CONSUMPTION .......................................................... 9

TSIA RECOMMENDS ....................................................................... 9

The Science of Renewal Sales and Marketing: Maintenance and Support Contracts

TSIA-SI-12-015

mailto:[email protected]

http://www.tsia.com/


EXECUTIVE SUMMARY

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.

Maintenance and support is a unique business and it requires a disciplined, consistently executed set

of processes. Some of these foundational practices may not sound all that exciting. However, don’t

think sizzle, think predictable revenue generation—and lots of it. Maintenance and support contract

revenues represent 38% of technology companies’ total revenues. And for software companies, they

represent 53% of total company revenue.

We define common industry practices as practices that are deployed by 50% or more of benchmarked

companies. 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 STRUCTURES

There are two common practices in the industry with respect to sales coverage for maintenance and

support contract renewals:

1. 86% of benchmarked companies utilize channel partners to some extent to help manage

maintenance 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 maintenance

and support contracts. These renewal teams are responsible for a significant percentage of

renewal business (on average 65% of maintenance and support revenue).


Service Sales Leadership,

50%

Technology Sales

Leadership, 19%

Service Delivery Leadership,

19%

Other, 12%

Who Do the Service/Renewal Representatives Report Directly To?

Table 1: Sales Coverage and Organizational Structures

Sales Coverage

% of Companies Who Deploy

the Sales Channel

% of Renewal Bookings Managed by

Sales Channel

Compensate 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 renewal

representatives reporting directly to a service sales leader, as depicted in Figure 1.

Figure 1: Reporting Structure of Service Sales/Renewal Representatives


There wasn’t a common practice with regard to whom the executive responsible for renewal sales

reports to, but Figure 2 provides insight into the structures reported in the SRG Benchmark Study.


CEO, COO, CFO, 31%

Regional General

Manager, 23% Global Sales

Executive, 15%

Global Service Executive, 15%

Region Sales Executive, 8%

Global General Manager, 8%

Who Does the Executive Responsible for Service Sales/Renewal Sales Report To?

Figure 2: Reporting Structure of Service Sales/Renewal Executive


SALES PROCESS AND COMPENSATION

The majority of benchmarked companies have a formal sales methodology in place to sell recurring

services. 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 Compensation

Sales Process and Sales Compensation % of

Companies

Sales Process: A formal sales methodology is in place for selling recurring services.

67%

Sales Compensation: For companies that deploy dedicated renewal teams, renewal representatives are compensated on upselling to support levels above the basic level.

80%

Sales Compensation: For companies that deploy dedicated renewal teams, renewal representatives receive accelerators for over-achievement of sales quotas.

71%



The majority of benchmarked companies are incentivizing renewal representatives not only to keep

the maintenance and support business they had last year, but also to increase the amount of

customer spend. Specifically, they are compensating renewal representatives on upselling customers

to higher levels of support. And there is a significant amount of energy being invested across the

industry 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 you

to implement sales incentives, especially accelerators, since they are a powerful lever for revenue

growth.

There are also a number of compensation practices for channel partners across the industry, with two

practices 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% of companies).

PRICING AND OFFERINGS

With respect to pricing, the practice most commonly used to determine the price of the basic support

service level is to use a percentage of the product or license price. And 84% of companies are setting

the maintenance and support contract list price based on the LIST price of the product/licenses sold

and 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 maintenance

and support contract at the time of technology sale. The argument some use for net pricing is that it’s

simpler for the sales representative and the customer, which is plausible. However, as technology

prices continue to commoditize, pricing the support services on the discounted price of the

technology WILL accelerate the support service revenue down the product commoditization

path.


Table 3: Pricing and Offerings

Pricing and Offerings How common

is the practice?

1. Utilize percentage of product price to determine price for basic support service level.

71%

2. Maintenance and support price is based on the technology LIST price (vs. NET price).

84%

3. Implemented a price increase within past 15 months. 71%

4. Support service deliverables: Support for back releases and/or obsolete products is included in support service offerings.

67%


With the economic downturn in 2008 and 2009, some companies chose not to implement an annual

price increase on their maintenance and support contracts, even if the pre-negotiated terms with their

customers enabled them to. An overwhelming number of benchmarked companies, however, did

implement a price increase within the past 15 months. The average increase was 6.2%. The range of

price 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 obsolete

products in their support service offerings. There is tension within some technology companies on this

topic. There are customer support and engineering costs associated with supporting older

technologies, which can negatively impact gross margin. However, you can also cut off your

maintenance and support revenue stream prematurely by being too aggressive with end of support

dates.

RENEWAL CADENCE

The 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 of

activities from marketing and sales.


Table 4: Renewal Cadence

Renewal Cadence How common

is the practice?

1. Cadence of renewal sales and marketing activities are documented. 81%

2. Sales management has visibility to when in-house renewal reps initiate renewal process with each customer.

89%

3. Corporate and enterprise customers are contacted 90+ days prior to contract expiration.

78%

4. Small and medium-sized customers are contacted 90+ days prior to contract expiration.

73%

5. Dashboard is in place that tracks renewal status of customers that expire in same month or quarter (cohort analysis).

80%

6. Renewal quote is generated by the technology company to assist the renewal of service contracts.

67%


There are six foundational cadence practices, which begin with the documentation of an agreed-upon

set of activities conducted by both sales and marketing.

Customers need time to get through their internal approval process, so contacting them well ahead of

contract expiration is critical. In fact, the majority of benchmarked companies are making the initial

contact 90 days or more in advance of contract expiration. Remember the days when 60 days was

enough? Those days are gone. A significant number of customers have implemented multiple levels of

signoff 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 renewal

cadence is off track and your customers are not being contacted early enough to get through their

buying process.

Another key activity is the generation of the renewal quote. If your company is generating the renewal

quote, then you control setting customer expectations about late fees, reinstatement fees, etc. In the

TSIA publication Pacesetter Practices for Renewal Sales and Marketing, you’ll see just how important

service policies are to renewal rate effectiveness.


CUSTOMER CONSUMPTION

It is very encouraging to see 55% of technology companies possessing the ability to monitor some

level 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 be

operationalized. It’s an area of technology and process investment that has been prioritized for many

of our members.

Table 5: Customer Consumption

Customer Consumption How common

is the practice?

1. Possess ability to monitor how customers are using technology installed on customer premises.

55%

2. Proactively encourage customers to utilize services they’ve purchased. 57%


Consumption information will shine a bright light on the areas where customers are not deriving value

from your technology. This quantitative insight will help guide your service strategy to increase

customer success, which will increase the perceived value of both your technology and your services.

It’s a win-win.

TSIA RECOMMENDS

To optimize recurring service revenues, we must become masters of both the art and the science of

renewal sales and marketing. In this publication, we’ve outlined the core “science” aspects of running

a maintenance and support business.

If you are in the early stages of building a renewal sales and marketing organization, these common

industry practices can be a blueprint to help you establish a foundation of capabilities. And for those

that have existing renewal sales and marketing organizations, it will help you assess whether you are

keeping pace with industry practices.

Many of these foundational practices can be implemented within a quarter or two, so we encourage

you to get started now in expanding your foundational practices.


We also recommend you review these TSIA publications:

Read Pacesetter Practices for Renewal Sales and Marketing to understand the practices

associated with the industry’s highest renewal rates.

Read The Art of Renewal Sales and Marketing for insights on the art of the value

proposition and the art of selling.