ServiceSource has announced key findings from its first annual Global Recurring Revenue Index. Based on analysis of $25B in recurring revenue under management globally since 2008, the study found that technology companies consistently underestimate the true recurring revenue opportunity for service, maintenance and other subscription-based offerings. The study features renewal statistics for several key industries and reveals that companies can boost true renewal rates an average of 18 per cent by proactively managing data, analytics and selling processes of their direct and channel teams.
Within the study, EMEA companies realised customer renewal improvements of up to 16 percent by leveraging renewal-ready data and analytics to expand visibility into the channel. Additionally, by employing best practices such as structured partner reviews and driving competition between partners, EMEA-based vendors are seeing increased channel engagement.
Today, recurring revenue from software and hardware maintenance and support and SaaS subscriptions account for between 30 to 40 per cent of a company’s revenues and up to 50 per cent of profits. In fact, many companies are now generating more revenue from their existing customers than from new business. According to The Technology Services Industry Association (TSIA), recurring revenue is growing at 8 percent per year while newrevenue is growing at 6 percent. Failing to capture this vital annuity stream can mean the difference between hitting or missing quarterly revenue targets. Key findings in the study include:
Best practices drive increased renewal rates: On average, companies that employed best practices and tools with renewal-ready data significantly increased renewals rates from 75 to 89 per cent. For Global 1000 technology companies, this 14 per cent delta collectively represents billions of dollars in lost revenue.
Hardware support requires reliable data: Hardware renewal is the most challenging business since equipment isalways removed from production environments, retired or relocated. As hardware becomes difficult to track over time, typical renewal rates remained stagnant at 75 per cent. By applying stringent asset management practices, hardware renewal rates improved by over 22 per cent.
Higher customer touch equates to improved cross- and up-sell: For software and SaaS companies, engaging customers on a consistent basis improves cross-sell and upsell, while bolstering overall renewal rates. Armed with accurate customer data and usage patterns, SaaS companies minimised churn and increased close rates by 8 per cent while software companies boosted recurring revenue by 26 per cent overall.
Channel insight: Some companies — especially in EMEA or JAPAC — rely upon the channel for up to 80 to 90 per cent of their renewals business. Unfortunately, as companies become disconnected and abstracted from the day-to-day channelsales operations, their ability to effectively manage and close renewals business diminishes an average of 12 percentage points lower than direct sales. With proper insight into channel operations, companies in EMEA and JAPAC increased their renewal rates by 40 per cent across all market segments.
Laser focus: Healthcare and life sciences organisations face slow growth due to hospital spending constraints and strong competition from third-party maintenance providers; however, they grew average renewal rates 9 per cent by leveraging focused renewal sales teams and clean account data.
“Companies typically take their renewals business for granted,” said Christine Heckart, Executive Vice President of Marketing, Strategy, People, and Systems at ServiceSource. “The findings from our study underscore that technology companies significantly underestimate the true performance of their renewals business and must apply the same rigor to keeping existing customers as they would to winning new business.”
“The ServiceSource Recurring Revenue Index validates the old adage that it costs five-to-ten times more to acquire a new customer than it does to keep an existing customer,” said Gwynn M.Rydelek, Director of Sales Operations of Pitney Bowes Software. “With the customer-centric approach and proactive efforts of ServiceSource, Pitney Bowes Software has been able to attain high renewal rates while establishing deeper customer relationships.”