Measuring the Health of XaaS Subscription Renewals
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When it comes to getting customers to renew their subscription with your XaaS offer, does your current renewal engagement model consist of managed handoffs between your internal teams, or is it total chaos? In the recent TSIA SRG Cloud Benchmark Study, we aimed to find out how top companies in the technology services industry are structuring their subscription renewal process, as well as get a detailed look at which metrics they’re using to track their success.
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Measuring the Health of XaaS Subscription Renewals
- 1. Measuring the Health of XaaS Subscription Renewals
- 2. What does your renewal engagement model look like?
- 3. Chaos?
- 5. Three big questions to consider 5 What are the forces that create erosion and growth with recurring revenues?1 2 3 What metrics should we use to measure the renewal of subscription revenues? How can I assess our subscription performance relative to the industry?
- 6. What are the forces that create erosion and growth with recurring revenues? 6 Question #1
- 7. TSIA XaaS Revenue Waterfall 7 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Customer Churn Dollars Downsell Dollars Source: TSIA SRG Cloud Benchmark Study
- 8. Forces that create revenue erosion 8 Downsells Customer Churn • Small group of users that don’t engage • Customers that go to a competitor’s platform • Discounting at renewal • Reduction in number of users • Reduction in system compute time utilized • Removal of XaaS products from subscription plan • Downgrade from fee-based support/adoption services to free
- 9. TSIA XaaS Revenue Waterfall 9 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Customer Churn Dollars Downsell Dollars Churn = 7% $7m Source: TSIA SRG Cloud Benchmark Study
- 10. 10 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Customer Churn Dollars Downsell Dollars Churn = 7% $3m Downsell = 3% $7m Source: TSIA SRG Cloud Benchmark Study TSIA XaaS Revenue Waterfall
- 11. 11 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Customer Churn Dollars Downsell Dollars Churn = 7% $3m Downsell = 3% $7m Retention Rate = 90% RETAIN TSIA XaaS Revenue Waterfall Source: TSIA SRG Cloud Benchmark Study
- 12. • Purchases of additional XaaS products (i.e. suite) • Managed services wrapped around XaaS • Project-based value-added services Levers that generate revenue growth 12 Upselling Cross Selling • Upsell from free to fee-based support/adoption services • Increase in number of users • Increase in system compute time utilized • Price increases / unwinding of prior discounts
- 13. 13Source: TSIA SRG Cloud Benchmark Study 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Customer Churn Dollars Downsell Dollars Retention Rate = 90% Churn = 7% $3m Downsell = 3% $7m Upsell = 10% $10m RETAIN TSIA XaaS Revenue Waterfall Source: TSIA SRG Cloud Benchmark Study
- 14. TSIA XaaS Revenue Waterfall 14 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Customer Churn Dollars Downsell Dollars Retention Rate = 90% Churn = 7% $3m Downsell = 3% $7m Upsell = 10% $10m Xsell = 15% $15m RETAIN Source: TSIA SRG Cloud Benchmark Study
- 15. 15 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Custome r Churn Dollars Downsell Dollars Retention Rate = 90% Churn = 7% $3m Downsell = 3% $7m Upsell = 10% $10m Xsell = 15% $15m RETAIN Expansion Rate = 25% EXPAND TSIA XaaS Revenue Waterfall Source: TSIA SRG Cloud Benchmark Study
- 16. 16 115% $115m 100% $100m End of Year Revenue: Total $’s End of Year Starting ARR: Total $’s Available to Renew at Beginning of Year 90% $90m Retention Dollars Upsell Dollars Cross Sell Dollars Custome r Churn Dollars Downsell Dollars Retention Rate = 90% Expansion Rate = 25% Churn = 7% $3m Downsell = 3% $7m Upsell = 10% $10m Xsell = 15% $15m YoY Growth Rate = 15% RETAIN EXPAND TSIA XaaS Revenue Waterfall Source: TSIA SRG Cloud Benchmark Study
- 17. What is your retention rate? What is your expansion rate? What is your YOY growth rate? Assess your XaaS Revenue Waterfall Takeaway
- 18. What metrics should we use to measure the renewal of subscription revenues? 18 Question #2
- 19. 49 Metrics 19
- 22. • Geography • Customer Segmentation • Revenue mix • Sales channels 22 Company Demographics Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 23. • Geography • Customer Segmentation • Revenue mix • Sales channels • Renewal waterfall assessment • XaaS services growth • % on premium services 23 Company Demographics Business Results Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 24. • Geography • Customer Segmentation • Revenue mix • Sales channels • Renewal waterfall assessment • XaaS services growth • % on premium services • Renewal rate • Renewal cadence • Discount frequency • Discount depth • Price increases 24 Company Demographics Business Results Renewal Capabilities & KPIs Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 25. • Geography • Customer Segmentation • Revenue mix • Sales channels • Renewal waterfall assessment • XaaS services growth • % on premium services • Renewal rate • Renewal cadence • Discount frequency • Discount depth • Price increases • Coverage model • Renewal comp • Reporting relationships • Adoption activities 25 Company Demographics Business Results Renewal Capabilities & KPIs Renewal Engagement Model Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 26. • Geography • Customer Segmentation • Revenue mix • Sales channels • Market analysis • Value proposition • Consumption analytics • Renewal waterfall assessment • XaaS services growth • % on premium services • Renewal rate • Renewal cadence • Discount frequency • Discount depth • Price increases • Coverage model • Renewal comp • Reporting relationships • Adoption activities 26 Company Demographics Service Offer Development Business Results Renewal Capabilities & KPIs Renewal Engagement Model Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 27. • Geography • Customer Segmentation • Revenue mix • Sales channels • Market analysis • Value proposition • Consumption analytics • Renewal waterfall assessment • XaaS services growth • % on premium services • Renewal rate • Renewal cadence • Discount frequency • Discount depth • Price increases • Coverage model • Renewal comp • Reporting relationships • Adoption activities 27 Company Demographics Service Offer Development Business Results Renewal Capabilities & KPIs Renewal Engagement Model • Support & adoption deliverables by tier • Support pricing • Premium/standard mix • Profitability of support services Free vs Fee-based Services Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 28. • Geography • Customer Segmentation • Revenue mix • Sales channels • Market analysis • Value proposition • Consumption analytics • Renewal waterfall assessment • XaaS services growth • % on premium services • Renewal rate • Renewal cadence • Discount frequency • Discount depth • Price increases • Coverage model • Renewal comp • Reporting relationships • Adoption activities 28 Company Demographics Service Offer Development Business Results Renewal Capabilities & KPIs Renewal Engagement Model • Autorenew terms • On-line renewals • Renewal operations • Automation via technology Frictionless Renewals • Support & adoption deliverables by tier • Support pricing • Premium/standard mix • Profitability of support services Free vs Fee-based Services Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study
- 29. • Geography • Customer Segmentation • Revenue mix • Sales channels • Market analysis • Value proposition • Consumption analytics • Renewal waterfall assessment • XaaS services growth • % on premium services • Renewal rate • Renewal cadence • Discount frequency • Discount depth • Price increases • Coverage model • Renewal comp • Reporting relationships • Adoption activities 29 Company Demographics Service Offer Development Business Results Renewal Capabilities & KPIs Renewal Engagement Model • Autorenew terms • On-line renewals • Renewal operations • Automation via technology Frictionless Renewals • Support & adoption deliverables by tier • Support pricing • Premium/standard mix • Profitability of support services Free vs Fee-based Services Source: TSIA SRG Cloud Benchmark Study New SRG Cloud Benchmark study Seven Core Modules Source: TSIA SRG Cloud Benchmark Study • Renewal waterfall assessment • Coverage model • Renewal rate • Discount frequency • Discount depth • Renewal cadence Managed Services * Managed Services is an optional module.
- 30. Track key metrics in all seven categories Implement technologies to track and measure performance Measure what matters Takeaway
- 31. How can I assess our subscription performance relative to the industry? 31 Question #3
- 32. 32 120 Questions 11 9 25 14 16 Leverage SRG Cloud Benchmark Results! 28 Source: TSIA SRG Cloud Benchmark Study
- 33. 10 key insights you’ll uncover with the SRG Cloud Benchmark Study
- 34. 34 Insight #1 What metrics should we use to measure the health of our subscription revenues?
- 35. 35 Insight #2 How does our subscription renewal performance compare with other companies’?
- 36. 36 Insight #3 How are churn and downselling affecting renewal rates?
- 37. 37 Insight #4 How is upselling and cross-selling contributing to growth?
- 38. 38 Insight #5 Where is the line drawn between free and fee- based support & adoption services?
- 39. 39 Insight #6 How do my premium support & adoption offers compare with the industry?
- 40. 40 Insight #7 Which adoption services correlate to higher renewal rates?
- 41. 41 Insight #8 What role do account executives play with selling fee-based premium support & adoption services?
- 42. 42 Insight #9 Are my costs to retain customers higher or lower than the industry?
- 43. 43 Insight #10 What are the renewal practices of the pacesetter companies?
- 44. How do you compare to the industry? How do you compare to your peer group? Benchmark your XaaS business Takeaway
- 45. What’s next?
- 46. Become a TSIA member and benchmark your XaaS business Request a membership briefing
Hinweis der Redaktion
- What you think about your renewal engagement model, what does it look like?
- What you think about your renewal engagement model, what does it look like?
- What you think about your renewal engagement model, what does it look like?
- How to measure the health of your Questions that are On the minds of TSIA members and service executives. Are you delivering predictable revenue growth for your company? Is it clear to your company how to measure the health of your XaaS subscription renewals? How effective are your metrics with predicting recurring revenue growth rates? In this 30-minute webinar, Julia Stegman, TSIA’s VP Research, Service Revenue Generation, will communicate the metrics for assessing the forces that create erosion and growth with recurring revenues. You’ll learn: The four metrics that will either increase or decrease total revenue available for renewal How to leverage the TSIA Revenue Waterfall to monitor the health of your recurring revenues Which core metrics to track to see the impact of fee-based offers on recurring revenue growth
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- Downselling isn’t always as obvious
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- Have clear line of sight AND make it clear WHO is responsible for driving these metrics We have classified Upsell & Cross Sell based on the level of sales skills required to generate incremental revenue. Upsell: Leverage service employees, renewal specialists, customer success reps Cross Sell: Account Execs or Service Sales Specialist
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- The natural tendency for subscription revenues is to go from flat to declining. What do we do? Minimize Customer Churn: Small group of useres that don’t engage & customers that go to a competitor’s platform Downsell: discounting at renewal, reductionin # users, reduction in system compute time, removal of XaaS products from plan, dowb=ngrade from fee-based support to free services Maximize: Upsell: from free to fee-based support/adoption services, Increase in # of users, increase in system compute time, price incrases/unwinding prior discounts Xsell: more sales skills: purchase additional XaaS products (ie.e suite), managed services wrapped around XaaS, project-based value-added services What’s happening in terms of retention and expansion: Look at these independently
- Make this a build-out?
- Make this a build-out?
- Make this a build-out?
- Make this a build-out?
- Make this a build-out?
- Make this a build-out?
- Make this a build-out?
- Make this a build-out?
- What you think about your renewal engagement model, what does it look like?
- What you think about your renewal engagement model, what does it look like?