Channel partners drive a big chunk of recurring revenue for North America-based technology companies. But, because many of these organizations fail to implement best practices for renewal processes, they're leaving an estimated $30 billion on the table annually, according to recent findings from ServiceSource International Inc.'s first annual Global Recurring Revenue Index.
ServiceSource is a San Francisco-based vendor of products and services that focus on recurring revenue management. Renewal revenue streams come from license renewals; service, support and maintenance contracts; and Software as a Service (SaaS) subscriptions.
"For most technology companies, about 30% to 40% of revenue comes from renewals -- and it's rising. That number represents 50% -- and in some cases more -- of profit at these companies," said Christine Heckart, executive vice president of marketing, strategy, people and systems at ServiceSource.
Yet, many vendors have managed to lose sight of the existing recurring revenue opportunity, particularly when it comes to giving their channel partners the tools and information needed to boost their revenue potential.
Sadly, the ServiceSource report showed that channel partners tend to underperform a vendor's direct sales team on renewal rates by as much as 12 percentage points.
The No. 1 reason why that's the case is because channel partners have less visibility, fewer analytical tools at their disposal and less overall information to drive the renewals.
"Our study shows that vendors who provide their channel partners with the right kinds of information and metrics showed a 20% improvement in renewal rates across all market segments," Heckart said.
While new sales may be an art, renewal sales are a science.
According to ServiceSource, there are very specific best practices and processes for renewal sales that, when implemented, boost reoccurring revenue sales. Improving the science of renewals over time starts with working a renewal at least 90 days in advance, reaching out to customers, and getting specific information and capturing metrics, including why customers do or do not renew.
ServiceSource has a free e-book, Recurring Revenue: Five Secrets to Fly High and Fuel Growth, which addresses best practices and strategies that help companies capture the dollars they're leaving on the table. Vendors that implemented these recurring revenue management best practices boosted renewal revenue by 26%. This involves cross-selling and up-selling, which sales teams are increasingly being incentivized to do, according to Heckart.
Heckart laid out the five best practices for vendors:
- Vendors need a plan to capture recurring revenue. While this may seem like a no-brainer, many companies' processes around recurring revenue renewal have grown organically, which means they don't have end-to-end processes or plans for managing renewals.
- Vendors need renewal-ready data. That's because a renewal sale is not only different from a new sale, but the process and logic itself is opposite that of a new sale.
For example, in the case of a new sale, the salesperson inputs information into a CRM system as he moves along the sales process.
In contrast, a renewal sale begins with renewal data. The sales person cannot do their job on that renewal until they have the necessary information on what has to be renewed; when it has to be renewed; what else is due at the same time (oftentimes, vendors will sell product bundles with the same renewal date for the various components of the bundle); and a host of other information to process the renewal, such as terms and conditions, for example.
- Vendors should standardize on the analytics and metrics by which they'll measure performance against.
- Vendors must enable their channel partners with recurring revenue management tools. Analysts estimate about 70% of North American technology company revenue is sold through the channel. If vendors focus only on their direct sales force, they're missing a bulk of the renewal revenue stream.
- Learn the science of recurring revenue renewal processes, such as role specialization for key renewal sales functions, structured territory reviews and renewals-specific training, for example.
Unfortunately, said Heckart, vendors tend to put all of the excitement, the focus and the energy around the next new product -- and it doesn't matter if it's hardware, software or SaaS companies.
"But when you peel back the balance sheet and look at where the profit comes from, more than half of it comes from recurring revenue streams on stuff that you've already sold," she said.
So, according to Heckart, vendors can't afford to leave billions of dollars on the table and they can't afford to not implement best practices around recurring revenue renewal for their own bottom line and that of their channel partners.