Join us as we investigate how you can successfully define who owns renwals and expansion and how your company can organize them to grow cost-effective revenue.

Protecting and Growing Your Customer Base

eWhen I got my start in the technology industry, I was introduced to the concept of “hunters” and “farmers” in sales. The hunters were the ones who went out and tried to “bag” the new customers and bring in new opportunities. The farmers were the renewal representatives and account managers who were responsible for keeping and growing existing accounts. I’ve played both roles in my sales career, and I have led teams that performed both functions.

But growing up in a small town in Nebraska, I came to this concept of hunters and farmers with a unique perspective. You see, I’ve actually hunted. And I’ve actually farmed. And because of this, I know that there’s not a whole lot you can do to make hunting more efficient. But farming, on the other hand, can be made exponentially more effective by using process, data, and technology.

The bottom line is this: when it comes to profitable XaaS, farming is more important than hunting. When profitable XaaS is the goal, your company is going to have to improve its methods of farming to grow revenue from your existing customers in a much smarter way. Generating revenue from existing customers is inherently cheaper than generating revenue from new customers. For this reason, XaaS companies need to focus on customer growth and renewals for sustainable and profitable growth.

In this blog, we will cover the following topics:

• Farming versus hunting: retention versus acquisition
• Who owns renewals

Farming versus Hunting: Retention versus Acquisition

On average, customer acquisition cost (CAC) for SaaS–meaning the money spent to acquire $1 of new revenue from a new customer–is nearly $2. This has all sorts of implications on profitability and the length of time that you’d need to keep a customer in order for a deal to be profitable, but it shows just how expensive it is to land a new customer. You need marketing campaigns, armies of specialists, and expensive sales representatives performing complex actions that result in big commission checks to bring those new customers in and onboard them effectively. Partners may also be involved, and they also expect their own commissions, discounts, and rebates.

Just like actual hunting, landing a new customer is a very difficult task that requires a great deal of skill and resources in order to be effective. While you can use data and analytics to tell you where to hunt for those new customers and make decisions on the right approaches to take, there’s only so much efficiency to be gained.

The blended customer acquisition cost for upsells and expansions is just $.61 per $1 of annual recurring revenue. That means that growth from an existing customer should cost two-thirds less than it does from a new one. There’s far more potential to achieve cost-effective growth through farming rather than hunting.

Of course, the obvious parallel is that actual farming can be made far more efficient through innovation. According to the USDA, the average yield of corn after World War II was about 40 bushels per acre. By 2022, that number was up to over 170 bushels per acre. Farming used to be incredibly labor intensive, but modern technology, such as satellite-guided tractors and advanced irrigation, have cut down labor and production costs dramatically. Farming can be made much more efficient than hunting, in business just as in real life.

But here’s the catch: If you’re using the same people, process, and technology to grow existing customers as you are to land new ones, you should not expect it to cost any less. You have a relationship with your existing customers. You know their executives and decision makers. You should have a firm understanding of the business outcomes they are hoping to achieve. Beyond that, there are five things you should be doing right now to improve your farming yield:

1. Have offers that are designed specifically for upsell.
2. Track consumption of features and capacity used versus what is paid for.
3. Leverage data and analytics to find new upsell opportunities.
4. Generate leads for sales through customer success interactions.
5. Package your expansion offers around business outcomes, not just products.

Who Owns Renewals?

When times get tough, as they are projected to continue to be through most of 2023, focus often turns to protecting the revenue you already have. This puts the attention squarely on renewals. But, once again, if you have the same people and process for your renewals that you do for landing new customers, you could be paying more than you need to for revenue that will likely come in anyway.

Recent TSIA compensation survey data shows that when a renewal specialist is in charge of the renewal, the percentage of total contract value (TCV) paid as incentive drops by half as compared to an account executive driving the renewal. It then drops even further when a customer success manager (CSM) drives the renewal, where only 1.6% of the total contract value is paid as incentive.

Additionally, TSIA has found that there’s really no material difference between contract renewal rates–regardless of who’s driving them. Most importantly, when account executives or sales representatives are the ones driving the renewal, growth rates plummet–in some cases by nearly double digits.

It’s clear that when your salespeople can hit their numbers by just selling renewals, that’s what they’ll focus on. That’s why you need to make sure you keep your hunters hunting, not chasing renewals. You don’t get to raise chickens in the coop and call yourself a hunter just because there’s meat on the table.

That said, renewals in a rough economy can be tricky. Customers may ask for discounts, extensions, change orders, and cancellations. Renewals that could be approved by directors just a year ago may now require sign off from a VP, or even a C-level executive. The more difficult or complex the renewal, the more it may require involvement from a higher-skilled person.

That may be part of the reason we have also seen a resurgence in renewal specialist roles. In the days before XaaS, when subscription and maintenance contracts were commonplace, this role was there to make sure customers paid their dues. Where renewal specialists often previously reported into sales or services groups, now they often report into customer success, filling in the skills gap on complex renewals.

The goal should be to assign the renewal to the resource that can do the job effectively for the lowest cost—while still leaving yourself room to grow the contract if there’s an opportunity to do so.

In order to farm effectively, you can’t just ask the overly simplistic question, “Who owns the renewal?” You should also be asking a series of other questions that are far more valuable, such as:

• What are the attributes of a renewal that can be executed by customer success managers (CSMs) or renewal specialists, rather than sales?
• How do I streamline the land, adopt, and expand efforts so that the renewal is easier and more straightforward?
• What do I need to do for my channel partners to renew our mutual customers effectively?
• How do I set targets for my customer success managers and renewal specialists so that they don’t take the path of least resistance to a renewal and leave growth opportunities on the table?
• What investments should we make in data, analytics, and AI to help us renew our customers on time and with less discounting?

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