A Practical Guide to Transition your Business into the Cloud – Pt.3
Martin Moran, Executive VP Global Selling Services, ServiceSource
Transform, compete, and succeed in the Cloud
If 40 percent of a technology company’s revenue and 50 percent of profits are derived from existing customers, shouldn’t this essential revenue stream be the primary focus of any cloud transformation initiative? Too often, companies place their resources and efforts on gaining new customers – based upon old habits from a premise-based world – rather than engaging existing customers and getting them to buy more.
As we’ve seen from Apple Computer’s success – and the disappointment from Kodak – reinventing a business takes a holistic approach. For premise-based IT vendors making the transition into the cloud, culture, data management and best practices are the foundational underpinnings of any successful recurring revenue business. As they examine their current state and plot a course for the future, companies should place equal emphasis on each discrete component.
Establishing a renewals culture does not happen overnight. Many companies in transformation often succeed at adopting new technologies and processes or launching new solutions. At the same time, most fail to transform themselves completely because the culture is unwilling to break with the past. In fact, most leading IT companies have jump-started their “SaaS renewal” sales cultures and support organizations through an infusion of new blood via merger or acquisition. Here are some of the top culture characteristics of a SaaS renewal company:
- Relentless focus on minimizing churn: A SaaS subscription culture is ongoing and never-ending, characterised by customer engagement, and delivering an exceptional experience – with a constant eye on customer attrition.
- Value selling approach:In the past, sales always focused on the “ABCs” – Always Be Closing. In a SaaS world, a salesperson is driven by the motto “a little leads to more” – sell a little, show value, and earn more business. As upgrades are offered and new features added to the SaaS offering, sales reps have an opportunity to strengthen the customer relationship and increase the value of the account.
- New vehicles for engagement: SaaS also affords providers with additional ways to enhance the cloud experience. These vehicles can include gamification, and self-service and on-demand capabilities. With a new focus on end-users comes several new ways to drive adoption and usage. Who closed the most deals today? Who had the most satisfied customer service experiences for the day?
SaaS and recurring revenue businesses both rely on accurate data to fully understand customer behavior and proactively prevent churn. Unfortunately, every company is awash in company data located in a variety of data silos across the enterprise. In fact, it takes 350 times as much data – across sometimes 5 to 7 different systems – to process a single renewal than a new sale. In addition, basic usage data from SaaS applications don’t always paint an accurate picture of when a customer is about to churn.
With an optimised data management practice, SaaS companies can improve their sales productivity by 25 percent while maximising their recurring revenues. Ultimately, managing the sheer volume and breadth of data associated with existing customers and transforming into actionable analytics becomes a Big Data effort and requires:
- Data focus: To accurately predict customer churn and maximise renewals, your data must also be accurate, renewal-ready and align with your business objectives. Many companies are tracking the wrong data or haven’t determined how to use their existing customer data.
- System integration: To support recurring revenue activities, many companies must straddle data that’s housed across CRM, ERP, entitlement and other systems. Many companies still rely upon intricate, but manual spreadsheets. Connecting the dots between these systems can be a painstaking and manual process for sales teams. A typical sales team spends less than 45 percent of their time selling because they are gathering, cleaning and prepping data for calls. Renewal data that’s integrated into a central repository will improve its integrity for analysis, while reducing the toll taken on sales resources.
- Drive data velocity: Every successful SaaS provider requires immediate and actionable insight into customer activity. Here, “data velocity” is vital and encompasses built-in business rules, automation and new ways to store and access data. Most importantly, the data needs to be translated into insightful KPIs that drive renewals business while minimising churn. Even for established SaaS vendors, accessing customer usage data is important. Often, this data is trapped in home grown systems that only provide usage updates on a monthly basis.
Maximising SaaS renewals while minimising attrition requires a focused sales discipline and methodology incorporating proactive customer contact to demonstrate value. Unfortunately, nearly 45 percent of customers do not renew because they believe they were not contacted for a renewal. Best in class SaaS companies employ the following best practices to align the organization – and beyond – around renewals to tap into the full potential of their sales team while maximising customer lifetime value.
- Time-bound methodology: In a renewals or subscription sales environment, time is the enemy. SaaS providers must work backwards from the expiration data of a renewal – early engagement at least 120-90 days before expiration is the window of opportunity. And, frequent touch points with the customer should occur prior to initiation of the renewals process.
- Real-time reporting and analytics:As discussed, SaaS environments collect valuable customer usage data. By leveraging this data, in conjunction with direct customer feedback, SaaS vendors can anticipate churn, improve cross-sell and upsell, and forecast renewals. Most importantly, analytics supporting renewal activities should be actionable to meet impending renewal deadlines.
- Empower and incent the sales teams: Provide the sales and support organizations with the essential systems and incentives they need to accomplish their respective goals.
- Lead the channel: Many companies rely upon the channel for up to 90 percent of their sales. So, IT vendors embracing the new SaaS opportunity must lead their channel partners through the cloud transformation. Like their direct sales force, SaaS vendors should provide the same tools, information, and support to their channel partners to ensure long-term success.
Conclusion: The road ahead
IT vendors transforming themselves from a premise model to a SaaS model have the opportunity for a more predictable and sustainable business. Throughout this journey into the cloud, every IT vendor faces significant risks and is examining their business for answers, hoping to take the “right” fork in the road.
Thankfully, every business can learn from history and today’s successful SaaS businesses for guidance along the way. First, companies must realign their businesses around the renewal opportunity and extract maximum value from their existing customer base – not the next big sale. To accomplish this objective, companies must create an engaged sales culture that demonstrates ongoing value to their customers. Finally, a good combination of proactive engagement, renewal-ready data, actionable analytics, and best practices will provide the foundation for profitable customer relationships – and ultimately a successful transformation into the cloud.