Renewals, 101
Welcome to the first of my 101 collection. A series of posts dedicated to the fundamentals of customer success. This first one, I’m dedicating to the art of the renewal conversation.
I decided to start with renewals, because it’s not a given that CSMs own this process in any given software company, but they should.
You want to be a “trusted advisor” and what’s the easiest way to nurture trust? Transparency. If you want your customers to trust you, you need to be around the table during any negotiation. You may not be leading it, but it pays to be seen to be advocating for the customer in any case.
Think about it; you’re expecting your Champion to defend the virtue and value of your products when you’re not in the room to their colleagues and most likely their boss, your exec buyer. Well, the deal goes both ways, if you want your customers to trust you, they have to know you’re doing the same for them in your business. A renewal is a great way to demonstrate this, as you work towards a mutually beneficial outcome.
So whether or not you’re managing the renewal yourself, the way the customer feels about how it happened and how it was managed will significantly impact how they feel about you. Imagine you’ve spent a whole year working on a relationship only to have it destroyed by your sales colleague who thinks a 25% price increase is entirely justified based on what your champion told you about the value they’re receiving. I’m willing to bet your customer doesn’t and they’re probably not going to be as open about value in the future. The trust between you and your champ is now likely damaged, good luck building that back up.
So, whether or not you actually deal with the renewal details, you own the fallout. If you do own the details and the negotiation, this is your lucky day. I love a renewal, it’s a great opportunity for a whole heap of reasons, so here we go 🚀
The Renewal Formula
Data + Expertise = Upside
Data
What do you know about the customer? For most people, this is a straight-up “are you using what you paid for” kind of question, but there’s more to it than that.
From a purely pragmatic standpoint, especially for customers who maybe aren’t in your top tier relationship-wise, a customer who uses more than 75% of whatever they bought is likely to buy it again.
But there is more nuance to consider when you’re prepping for a renewal;
What does their usage look like? What are the patterns that tell the story of how the customer is using your product?
What use case is your customer fulfilling? Why did they buy your product initially and are they using it to deliver the value that they wanted to achieve in the first place? Has something in their business model or way they’re working changed over the last 12 months that might change what they need from you?
How’s your relationship? Be honest - Are they opening those emails, are they responding to you at all? Don’t just think about your relationship; are they opening support tickets? Are they engaging with your newsletters or marketing?
Once you have a view of how your customer has been engaging with you over the year, you can move on to the next step;
Expertise
Now we have the data, we can add our expertise. You should now have a nice picture of the last 12 months, is the trend pointing up or down? You’re going to talk to your customer; what are you going to talk about?
Introducing the GAF scale - Imagine a line which starts at “meh” and goes all the way up to “OMG AMAZING TELL ME MORE”. This is the GAF scale (for clarity, GAF stands for Give A F£ck). Basically, how much is your customer going to be interested in what you have to tell them?
Expertise comes from weaving the data you have into a compelling story your customer wants to hear. Based on the reason the customer bought your product (their value driver), what is all your data telling you about how much they have achieved?
Now, here’s the really exciting bit about renewals. This is your opportunity to plan for next year, so don’t just focus on what they have done. Once you’ve got a story about how far they’ve come this year, start to draft a plan for what they can do next to achieve even more results. If the data isn’t as good as you’d like to be, focus more on the “based on what you’re doing here are the 3 things we can do now to improve your results” and plan for success.
Upside
Upside is a nicer word than outcome. Upside doesn’t always mean expansion or extra money. In this case, upside simply refers to the right outcome for the customer and for you at this renewal.
How you handle what this is will determine your relationship going forward, so choose wisely.
Renewal outcomes include (but are not limited to);
The flat renewal - Nothing changes, we all go on happily
The rebalance - Customer bought 5 apples and 2 oranges, but actually, they need 3 apples and 4 oranges. We rebalance during renewal and they carry on happily. It’s more than likely this rebalance will lead to a flat renewal, as we’ll play with the pricing of the apples and oranges to make it flat.
The upside - Customer obviously needs more, so they buy more
The downgrade - Either they’re not using what they paid for and want to reduce, or a change in strategy will mean they need less
The churn - For whatever reason, this isn’t working out. They’re going it alone.
Naturally, downgrade and churn aren’t actually upside, but they are both valid outcomes for a renewal conversation.
You can’t second guess what a customer is going to do. Especially with large customers, or customers spending a lot of money, often what your champion wants to recommend is not what procurement is going to be happy with. The very best thing you can do is use the data, add your expertise and suggest some upsides (or outcomes) which are going to be the most mutually beneficial. You want your champion to feel like they can take your story and use it internally to negotiate the renewal with their execs and procurement teams. You want to give them clarity about what they’re doing now, what they can do, and the art of the possible.
You want to lead this process. Your expertise is crucial. It’s likely your customer has some knowledge of your data, they have access to their usage and they know how many support tickets they’re opening. Instead of asking the customer what they want, or what they think they need, use your expertise to lead them with some proposals for the year ahead.
Never go into a renewal meeting without knowing exactly what you’re preparing to pitch.
Example: The data is clear, the customer bought too much of your product last year. What do you do?
I start to think about other teams within the customer organisation that could use our tool. I also think about some other use cases that our tool could apply to. I remember a conversation I had with a user about a new project they have coming up that would be perfect for this.
I craft my story - using all the data I have, I focus on all of the results that we’re seeing. From the data, I pick out the top three things that the customer could be doing differently to maximise their benefits. I have a good idea of the value we’re delivering, it’s aligned to what they wanted to achieve during onboarding, but I leave sufficient space in my story to add their experience and their data.
I prepare my proposal for the customer, it’s a flat renewal only. I’m only going to focus on what they can do and how much potential they have to expand their results.
Don’t negotiate with yourself, if your customer wants to downgrade based on the data, then they will. In that instance, it’s on you to facilitate the conversation. If they take your story and come back with a “we need to reduce our subscription”, well that sucks but remember, the outcome needs to be mutually beneficial. In this instance, I’d review the renewal offer and go back with an increased unit price. You’re in a much stronger position to increase the unit price for less volume now, softening the downgrade blow for your boss.
Here’s the rub - In this economy, everyone is pinching the pennies. Most if not all businesses are pivoting towards cutting costs, there is no benefit in trying to avoid his reality. By facing this head-on, you’re building trust with your customer. It’s more of a “Look, I can’t hide that you’re not really maximising your license utilisation, but you do have the opportunity to double your results by implementing our product in another team”.
If you’ve spent all year nurturing and guiding your customer to achieving value with your product and you’ve built a genuine relationship with them, there’s no point trying to hide from the hard facts of the situation. If you let the data and your relationship do the talking here, you’re going to land on a mutually beneficial outcome with a stronger relationship. Once you get to this point it’s 50/50, you might end up with a flat renewal just because it’s better value to get the lower unit price and implement across more teams given the benefits. Honestly, this has happened to me more than once.
The trick with all renewals is to remain balanced. If your customer needs to buy more of something, consider giving them a unit price discount for additional capacity, or more flexibility to sweeten the deal. The art of negotiation is always asking for something for everything you give, but in this instance don’t forget that continued trust and a strong relationship is a massive win. To summarise;
Listen, Listen, Listen. Before you start thinking about preparing renewal proposals, get your customer on the phone and ask them what they’re thinking about for next year. What are their priorities? How can you support them? Don’t look at usage and panic about downgrade without getting context from your customer about what they want to do next.
Focus on what the data is telling you. Now you can craft a good story for the coming year based on what you know about the customer and what you can explicitly see and prove in their usage. Do not just focus on what they did this year, renewals are for the year ahead.
Don’t overthink it and don’t negotiate with yourself. If the customer could ask to downgrade or churn, start with a flat renewal. Don’t panic about downgrade
If they need to buy more, be conservative. It’s better to scale small than oversell and screw up your renewal for next year
Don’t forget to ask for feedback. Present your options and ask your champion which option they think is the best for them, or if there’s anything you need to change. Remember, they’re going to be having these conversations with their boss when you’re not in the room. Have you given them everything they need to advocate on your behalf?
If you can (and if it makes sense based on your segmentation strategy) always have this conversation face-to-face so you can tell them the story and weave their value, data and experiences in as you go.
Never leave a meeting about a renewal without a follow-up or a next step. Book a time and date to talk again, and make sure you ask what the paper process is going to be. Be pragmatic, ask up front and you’re less likely to get slammed with a security review questionnaire the day before your due date
