I recently had a conversation with a friend who heads the Sales team in West Coast for a major SaaS firm. After the usual round of discussion on family, work, and politics, he mentioned a potential key account churn during a renewal cycle. He seemed really upset about the loss of revenue that was bound to happen.
Apparently, during the renewal, the Customer Success (CS) team, out of enthusiasm to hit their annual quota, attempted an oversell to one of the accounts during the renewal. The company mentioned here has an organizational structure in which the Sales team is focussed on acquiring new logos and Customer Success team is responsible for any renewal post the 6 months from the sales closure. This, unfortunately, resulted in a huge backlash from the client. They always believed the CS team to be advisors, focusing on improving the solution adoption and streamline change management. Now they felt that all advice received was simply a build-up to sell more, and not what was really valuable to them.
Why does it matter?
For any competitive firm in the subscription economy, be it a Netflix or a Salesforce, renewal is a critical aspect. The industry benchmark is that 70-80% of yearly revenue should be from existing customers for the business to be deemed healthy. It’s stipulated that acquiring a new customer is almost 5X costlier than retaining an existing customer. Hence renewals are critical to secure a steady source of revenue flow with recurring business and win more business with upsells and cross-sells. This is why for marquee customers senior leadership often gets involved in the renewal process. On the flip side though, renewals are also a good pit-stop to evaluate engagements and contracts that are bad of your business. A firm should strategize to have the right mix of churn and renewal.
Renewal is a sales competency!
Taking responsibility for renewals from the sales team and passing it to the CS team is a strategic error that a SaaS company should avoid. Deals today are complex, requiring consultation and collaboration, plus merit the intervention of an experienced negotiator. A renewal definitely needs the involvement of an Account Executive (AE) to get the best contract – a contract that expands on Customer Lifecycle while proving beneficial to business. Also, the experiential knowledge an AE possesses makes it easier for them to identify bad deals and skip them early on. While the AEs should definitely collaborate with CS team during renewal, too much involvement by the CS team will be seen by the client as an attempt by the firm to get more business out of them, rather than add more value to them. Therefore, user adoption and feature adoption are preferred metrics of success for the CS team and not renewal revenue.
What could have been different?
Restructure the org dynamics, wherein the AE is responsible for renewals and the success of the CS team is based on user & feature adoption.
They will definitely team-up throughout the journey; however, items to focus on are clearly demarcated.
AEs focus on building a strong rapport with all the stakeholders within the client’s organization.
CS Manager’s understanding of the client is combined with the shrewdness of an AE to nail down the best renewal contract and collaborate with CS to ensure the customer is successful.
Create an Approval Matrix, wherein the Sales Leadership Team has visibility into the renewal contract before being presented to the client
Your customers are your best advocates. A customer who is in love with your solution, will definitely not hold back from expressing their opinions. Thus, clients turning into evangelists will result in new lead generation and faster sales closures. It’s vital for sales teams to build and maintain strong relationships with all the stakeholders of the existing accounts. Also, with a synergy between Customer Success and Sales Teams, you will absolutely strike gold with the bookings from existing accounts. Forget ‘Close and Refresh’, time for ‘Close and Expand’!
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