In a SaaS subscription model, renewals are key for annual recurring revenue (ARR) growth and overall profitability.
When optimizing your company’s renewal process comes the highly-debated question: Who should own renewals and expansions?
Whilst there are certainly some commonalities that exist between companies, there are enough nuances which mean there is no one size fits all approach with regards to the best structure.
However, there is one critical element we believe that isn’t spoken of enough around the subject of who should own renewals and expansion, and that is “WHAT IS BEST FOR THE CUSTOMER?” and what sort of experience do they want?
From our research we see very strong commonalities amongst the user groups which should feed into how an organization is best set up to meet their needs.
As pioneers of “renewals led growth”, we are strong advocates for the idea that renewals and expansion should reside together.
For some companies, renewals and expansions reside within the job of sales. For others, the responsibility has shifted to customer success whilst some have a dedicated account management or renewals team of specialists just processing renewals. In some rare cases we have seen organization have a combination of all three!
Ultimately, the entire organization should be aligned to keeping a customer.
It costs up to 7 times more to attract a new customer than to retain an existing one. For this reason it makes 100% commercial sense to have renewals at the forefront of any strategy discussion.
At Renewtrak, we believe the renewal is a such a critical event in the lifecycle of the customer-vendor relationship that it should not be wasted. We have pioneered renewals-led-growth around this concept: a SaaS growth strategy that utilizes renewal event to drive expansion via automating upsell and cross sells within the existing customer base to generate and grow revenue.
In a SaaS subscription model, renewals is the largest component of a company’s revenue yet it is an area that often loses out when companies are allocating capital and resources to drive business growth.
Customer acquisition costs (CAC) are very high. On average, for every dollar that a new customer spends, SaaS companies spend two dollars to acquire that business. When you factor in the cost of SaaS marketing and sales commissions, it’s no surprise that CAC is so high.
It costs up to 7 times more to attract a new customer than to retain an existing one. For this reason, renewals are vital to SaaS business profitability and growth.
We believe the renewal is a such a critical event in the lifecycle of the customer-vendor relationship that it should not be wasted. We have pioneered renewals-led-growth around this concept: a SaaS growth strategy that utilizes renewal event to drive expansion via automating upsell and cross sells within the existing customer base to generate and grow revenue.
The bottom line is, if SaaS companies do not cost-effectively grow their existing customers through smart allocation of people and resources, their profitability will suffer.
If a company is spending as much to renew and expand existing customers as they are to acquire new customers, they are eroding their bottom line.
There are three common roles that are usually responsible for renewals and expansions in SaaS:
Each of these three roles can be vital to creating a great customer experience, driving expansion, and fostering renewals.
However, it’s highly debated which role should own renewals and expansions.
In SaaS, CAC continues to be high in part because salespeople are expensive—which they should be, as they do difficult jobs. But should sales be working on renewals?
According to TSIA data, renewal specialists are only half as expensive as account managers in terms of renewal incentive costs. Additionally, when a CSM drives renewals, the incentive cost drops even lower.
Due to high sales costs, SaaS business models are shifting to focus sales teams more on winning new customers, and less on nurturing existing customers.
Research has shown that about half of customer success teams own renewals, while 18% say that sales owns renewals. 9% of companies said that a dedicated renewals team owned their renewals.
If the renewals specialist role is in place, their role clearly revolves around renewals—but it’s worth exploring whether or not your company needs this role.
Renewal responsibilities can differ based on many factors, including company size, product type, contract size, and more.
SaaS expansions refer to the growth of existing customers by expanding their contract through upgrades, cross-sells, and/or upsells.
Expansions are extremely important to SaaS business growth. Not only do they increase contract values, data shows that customers who expand are much more likely to renew with your company.
When customers are using more of your product, they are more likely to renew.
Some might say that since sales teams acquire new customers, they also should be responsible for selling to existing customers.
On the other hand, since customer success fosters a relationship with existing customers, they are more likely to understand the customer’s current needs and upsell them with relevant upgrades.
Again, there is not a one-size-fits-all answer to the question of who owns expansions.
Depending on company size and deal size, customer success, sales, or a dedicated renewals/expansion team may take charge of expansion.
Data shows that when annual contracts are larger, sales tends to own expansions.
Though there are many possibilities for how SaaS companies can handle renewals, there are three commonly-used, effective models for distributing responsibilities.
This model is more traditional: sales owns all sales. This refers to the initial sale, any expansion deals, and the renewal. Sales collaborates closely with CSMs to understand the customer, and owns renewal and expansion opportunities. In this model, customer success assists the customer with adoption, and feeds opportunities to sales.
This strategy is more effective for companies with complex and expensive solutions but also in smaller organizations with limited staff. This allows salespeople to shine at doing what they do best. However, it requires seamless collaboration between customer success and sales. If customer success does not effectively identify expansion opportunities and tee up renewals with their customers—or if sales is not receptive or communicative towards customer success—expansion and renewal rates will suffer.
In this model, customer success owns relationships and transactions with existing customers. While they drive product adoption for the customer, they are also responsible for expansion and renewal opportunities. On the other hand, sales hones their focus on winning new logos.
When your product and pricing are more simple (and your customer success team is up for the task), it’s fairly easy to capitalize on a customer success-driven renewals strategy.
Some people fear that if CSMs are put in charge of commercial responsibilities, it will taint their relationship with the customer. However, customer success managers are an advocate, and should only offer upsells that are relevant and beneficial to the customer. Through expansions, they actually help the customer; and when your product expansions and renewals drive success, it only reinforces the CSM’s trustworthiness.
For some companies, it’s most effective to have a dedicated team to focus on transactions for existing customers, which includes expansion and renewals. In this model, sales handles new logos, customers success drives customer value, and a dedicated team owns expansions and renewals. This team includes roles like renewals specialists, account managers, etc, and may have many different names.
This approach may work if your sales and customer success team are both too focused on their primary duties to handle renewals and expansions. Having a dedicated renewals specialist or account manager does have the benefit of focus, as customer success and sales both have primary focuses outside of renewals and expansion.
However, this approach can be confusing if there are three people involved with the customer: the account executive, CSM, and renewals specialist. If the account executive is hands-off after the sale, the customer is only left to deal with two people.
Now that you understand the roles and models associated with SaaS renewals and expansions, it’s time to choose the right route for your company.
This depends heavily on your company size, what your business does, your typical deal size, and the strengths of your team.
When deciding on a renewals model, you must ask the following questions:
1. What is the company size?
Measured by FTE, a smaller size company (less than 200 people) have the benefit of agility however the resource constraints lead to more multitasking by sales. Until such time as the sales team begins to feel overwhelmed and productivity is negatively affected, sales should be able to maintain responsibility so long as they have the right tools to assist them.
A larger company whilst having increased resources which allows for a more segmented and specialized approach can encounter issues with regards to legacy systems and processes. It is critical if you fall into this bracket to leverage the eco systems.
2. What is the ACV and how complex are the products/services?
With larger and complex annual contracts, either maintain your sales team involvement or if you have commercially astute CS operatives who have authority to negotiate include them. If your company has a larger weighting of its renewal book to the more complex structures it may be time to undertake a review of your commercial model and look to simplify your GTM with more streamlined product and pricing. Your organization and your customers will benefit.
Less complex commercial constructs or Auto Renew GTMs should be managed by CSM or Renewal Specialists.
3. How competitive is our market?
Experienced in negotiations and sales strategies, sales teams can more easily and effectively navigate in competitive situations. If you’re operating in a competitive market, it’s more likely that you’ll see greater success with sales teams owning expansions and renewals. CSMs should be highly-collaborative with sales teams, identifying new expansion and renewal opportunities, but sales teams should handle negotiations.
4. Is the sales team overwhelmed?
Depending on your answer, the way forward is fairly obvious. If your sales team is overwhelmed with closing new logos and owning renewals and expansions—whether they have a low success rate, it takes them a long time, or they are struggling with bandwidth—it’s a telltale sign that renewals and expansions should be passed off. You could delegate this to customer success or, depending on your team’s overall bandwidth, create a new renewals-dedicated team.
5. Is the customer success team experienced?
If your customer success team is more experienced, they are likely better-equipped to take on renewal and expansion responsibilities. When they are great at proving value and facilitating adoption for the customer, they are more likely to be successful when it comes to renewals and expansions.
Through these key considerations, you can answer the questions, “who owns renewals?” and “who owns expansions?” for your SaaS company. For better or worse, there is no answer that will work across the board, at every company.
There are many benefits and disadvantages for each strategy. Below we will outline the pros and cons of each but they aren’t meant to be an exhaustive list. Rather, an effort to point out that with each department there is no perfect solution.
Sales/ Account Executives:
Pros:
Cons:
Customer Success Managers (CSMs):
Pros:
Part of the broader life cycle management of the customer, from on-boarding, helping achieve their desired outcome through understanding their needs to ultimately securing the renewal and expansion.
Cons:
Without the right incentive structure, attracting the right CS reps who are commercially astute can be challenging thus leading to inferior business commercial outcomes.
Renewals specialists:
Pros:
Cons:
It generally separates the renewal and expansion process as Renewal specialists don’t have the expertise to manage expansion sales and have an appreciation for what the customer needs. This tends to lead to less expansion of existing customers.
It is important to group your customers based on a set of common characteristics. A combination of both Firmographic (company size, industry or revenue) and Behaviour (in app behavior and product usage patterns) segmentation criteria we believe works most efficiently.
Once this has been done segments of customers can be allocated to the department best equipped to manage them. This way, communication plans aren’t so generic and the customer feels like they are receiving more personalized correspondence.
Our research shows that the end customers have an increasing desire for the following:
In a tech world where products in some sectors are increasingly homogenous, the renewal an expansion experience you provide your end customers are becoming an important determinant in buying decisions.
If you are thinking about creating renewal efficiencies through people and process, ensure you’re using the right technology as well.
No matter who owns renewals at your company, Renewtrak enables your teams to save time through automation.
As renewal experts, we will also guide you on how to achieve renewals-led growth, and advise on the best renewal strategy for your company.
Our platform enables renewals-led growth and saves up to 40% of employee time by:
Learn more about how Renewtrak can help your team streamline the renewal process, generate revenue through expansion, and achieve renewals-led growth.
Whilst the structure you implement and the tools you choose to compliment your strategy go a long way in determining your success making sure your entire organization is aligned to driving customer value remains critical.
There is no perfect solution, however we hope this guide provides some guidance on how to best set up for success depending on where you sit and to take note of what the end customers are now seeing as a critical part of their overall experience.
Renewtrak are proponents of a technology driven approach to managing the client relationship post onboarding and that businesses can fundamentally transform the way they operate through choosing the right platform.
It is never too early and never too late to make the change. Get free access to our Renewals Automation platform sandbox today or schedule a demo to see if this is the right fit for your business.