Reaching out to customers at renewal time can be an anxiety-inducing endeavor for SaaS and subscription business teams.
It’s a crucial moment in your relationship when you ask whether they’d like to continue doing business with you. Then, you cross your fingers and wait for their response.
If they say yes, you rejoice and breathe a sigh of relief, knowing you’ve managed to retain them. You might even use this as an opportunity to grow the account further.
But if they say no? You stand to suffer not just a customer churn, but also a hit to your monthly recurring revenue (MRR).
Renewals can make up anywhere between 73% to 150% of a SaaS business’s annual recurring revenue, according to SaaStr’s Jason Lemkin.
That is definitely no small percentage!
You need to be smart about your approach to subscription billing renewals if you want to maintain—and even raise—your business’s customer retention and MRR.
Not sure where to start when it comes to stepping up your game? Check out these five strategies to help swing contract renewal negotiations your way.
1. Choose the right team to own the subscription billing renewal process.
Whose responsibility should it be to speak to customers about subscription renewals in the first place?
SaaS businesses are divided on the issue. But the general practice is to have either your sales team or your customer success team take charge of the process.
There are pros and cons to both approaches.
If you go with sales...
- Pro: Your sales team is obviously more experienced at selling, which can result in higher renewal rates.
- Con: However, customers may not enjoy speaking with salespeople, especially if they perceive they’re going to be squeezed for more money.
- Pro: Your customer success team may be better equipped with data on how customers use and experience your product, which helps them make relevant upselling and cross-selling recommendations during renewal.
- Con: That said, they may not be as well-trained or experienced as your sales team in strategic selling.
Given the advantages both teams can bring to renewal negotiations, it’s a good idea to work on fostering an open flow of communication between them.
For example, commercial cleaning management platform Swept opted to have its sales team manage renewals. At the same time, it invested in real-time collaboration software Salesforce Chatter to facilitate communication between its sales and customer success teams.
As a result, “[w]hen there’s an opportunity to upsell, I simply notify the Sales team via Chatter and they can take it from there without having to reach out further to review the account,” shared Lyly, Customer Success Manager at Swept.
2. Cultivate relationships with your subscription customers ahead of renewals.
Would you rather do business with a friend you touch base with regularly or with someone you speak with only once a year about money?
You’d prefer to work with your friend, I bet.
Your business needs to play the long game and work on fostering real relationships with your customers. Not only will this improve their overall experience with your business, but it also increases their loyalty and likelihood of renewal.
The issue then becomes one of finding a mutually beneficial renewal arrangement, rather than having to convince the customer of the advantages of renewal in the first place.
Nurturing customer relationships also includes befriending key stakeholders in the organization who have a say in whether renewal should happen.
Steli Etfi, CEO of sales CRM tool Close, shares three types of stakeholders you want to have on your side before renewal rolls around.
- The administrator, who’ll be the one using your product. You’ll want to teach this person how to succeed with your product so they’ll enthusiastically recommend renewing it.
- The boss, who makes the final decision on renewal but might not use the product themselves. If this is the case, they’ll defer to the administrator’s opinion on whether to renew, which is why you’ll want to get into the administrator’s good books.
- Everyone else who might be involved in the renewal, such as legal and technical teams. Because you might not know who can influence the deal, Etfi’s suggestion is to try and win over as many people as you can, no matter their rank in the organization.
3. Recommend upsells and cross-sells during negotiations—if it makes sense.
A sure-fire way to increase your MRR earned from renewing customers is to sell them more. If your subscription billing goes up, obviously so does your revenue.
You could sell additional products or plans (i.e., cross-sells) or encourage subscription customers to bump up their existing features or usage (i.e., upsells).
Of course, you don’t want to sell just for the sake of boosting your bottom line. The cross-sells and upsells you suggest should be in line with your customers’ needs at the time of renewal. You need to offer a way they can truly achieve more value. Otherwise, your customers will see your recommendations as nothing more than an attempt to extract more money from them, which no one appreciates.
So when is it appropriate to recommend upsells and cross-sells to a customer, even outside of renewal negotiations?
Here’s what Gözde Görce, Enterprise Customer Success Manager at direct mail and address verification automation platform Lob, had to say:
- If a new department in the organization is interested in your product, this is an opportunity to cross-sell and add a new plan to that customer’s subscription.
- If a department that’s already using your product expands the size of its team, this is an opportunity to upsell, such as upgrading your customer’s plan to accommodate more seats.
“Farming” your customers leads to a win-win situation as they continue to benefit from your products as they grow, while you enjoy a boost in the MRR they contribute to your business.
4. Clearly show the value you provide your customers.
Ultimately, a customer will renew if it finds your product to be good value for money—whether in terms of the leads you’ve helped it get, the amount of time you’ve helped it save, or something else.
While your customer will likely have a rough idea of the value it’s getting from your product, don’t leave it to draw the final conclusion on this issue on its own.
Instead, find the specific value your product has created for your customer and share these findings during the negotiation. Make the decision a no-brainer.
Your customer may just be floored at the amount of value you’ve provided and find it easy to say “Yes!” when you ask for its decision on renewal.
According to a study by customer value management platform DecisionLink and market researcher Dimensional Research:
- only 24% of SaaS businesses surveyed conduct value analysis during the subscription billing renewal process, while
- 59% believe their solution “speaks for itself and we don’t need to establish value in renewals.”
I don’t know about you, but this looks like the perfect opportunity to refine your renewal processes to proactively show how you add value to your customers’ businesses, compared to what your rivals are doing (or not doing).
5. Offer an incentive for switching to a longer-term subscription billing contract.
Once your customers are convinced of your product’s value, they may also be willing to sign up for a longer-term contract. This, of course, is great news for your subscription business.
Customers on shorter-term, month-to-month contracts have more opportunities to consider whether they want to renew their subscription—once a month versus only once a year, for example.
As a result, they’re more likely to cancel compared to a customer that has committed to you for at least a year. This increases the volatility of your churn rate and MRR.
But if your customers need an extra incentive to subscribe to longer-term contracts—even if they’re signing up with you for the first time—then consider dangling a discount.
For example, automation platform Zapier offers a 33% discount on its monthly pricing for annual contracts, while email platform ConvertKit gives customers 12 months for the price of 10 if they sign up for annual billing.
You could even take things one step further and commit customers to discounted multi-year contracts. However, the challenge is to ensure the discount you offer doesn’t eat into your potential profits—especially when you eventually raise your prices in the future.
So take the time to do your subscription billing sums!
“The big point here is that you cannot randomly throw out nice, round discount percentages to lock prospects into multi-year contracts, because it looks good on paper,” writes Ben Murray, founder of TheSaaSCFO.com.
“You must consider your current churn rate, discounts, and what contract lengths you would like to offer.”
SaaS subscription billing renewals done right
When preparing for renewal negotiations, it’s important to remember your customer is not an adversary you need to browbeat into renewal.
While each customer can give you something you want—namely its business—you also have something that it needs—your product.
Your job is to smooth the path to subscription billing renewal so your customer doesn’t go looking for other options when its contract with you expires.
This starts with cultivating your relationships with your customers so they enjoy working with you—right from day one. Then, when renewal time approaches, equip your chosen renewal team with the ability to show customers the value they’ve received from your product so far, and the potential value they can get from upgrading or subscribing to related products.
Don’t forget to throw in an attractive renewal price too, especially for longer contracts.
After all, if you take care of your subscription customers—and show them you’re doing so—then your retention and MRR will take care of themselves.