If your renewals rate is lagging, yet you've already tackled any bottlenecks in the renewals business and you've automated many of your renewals processes, it may be time to shake up your incentives and sales strategies.
In SaaS, non-renewing customers are represented in the churn rate – the percentage of subscribers that discontinue their contract in a given time period. How much churn is acceptable, and how much represents trouble? An acceptable churn rate is 5-7% annually, which translates to 0.42-0.58% monthly churn. This means companies with acceptable churn only lose approximately 1 out of every 200 customers (or dollars) each month.
While we all know it's cheaper and easier to convince existing customers to buy from you again than it is to attract brand new customers, at the same time, did you know that an increase in customer retention by just 5 percent can lead to an increase in profit by anywhere between 25 to 95 percent according to research done by Harvard Business School?
The right incentives – clearly presented – can make a big difference in churn. If a renewal discount or penalty fee is too complicated to quickly understand or is hidden in small print toward the bottom of an email, it will delay the sales process.
Beyond Price Discounts: Creative Strategies to Convince Reluctant Customers to Renew
Pricing incentives are commonplace because they work. There are plenty of strategies as to deciding what percent of a discount to offer, and how. But we're not going to focus on those here. Let's take a look at some other creative ways to empower your renewals team to close more deals.
Make Reinstatement and Penalty Fees Unattractively Expensive
This one is a bit of a risk, and you have to begin early enough to give customers sufficient time so they don't feel "bullied" into making a quick decision. However, reinstatement and penalty fees are a good way to encourage customers to renew sooner rather than later.
Not sure whether your renewals business will have more success with a free trial of a complementary service, or a pricing discount? Try an A/B test. Offer one type of incentive to one group of customers, and a second incentive to a second group. Collect data on the resulting renewals to learn which incentive was more successful.
Use a Campaign
This strategy is most effective when a renewals team has access to data that identifies when customers use the product or service, when they log in to your website, what their open and click response is to your email message, and other similar data. Using this information, you can craft a series of renewals messages that specifically target ideal renewal customers in the medium and at a time when they are most likely to respond. The campaign may be a series of emails that begins 90 days in advance of the contract end date and offers several different positive or negative incentives, suggestions for cross-sell or upsell, creates a sense of urgency, and answers common questions or concerns.
Suggest a Tech Refresh
During the course of a product lifecycle, customers may become dissatisfied with a product's or service's efficiency, or their operational needs may have changed since making the net new purchase, or they may have become aware of a compelling competitive product. A tech refresh that is compelling, easy to switch, and quick to demonstrate ROI may be the key to repairing a poor customer relationship and recapturing the contract.
Use the Right Words
Certain persuasive words encourage customers to buy more than others, in particular: free, new, and instantly. When customers hear these words (and the promises they imply are backed up), they'll enjoy their purchases more than they would have otherwise.
Give Customers a Surprise Gift
Inc. Magazine explains that "the secret to delivering great customer service is to give your customers a surprise – something they didn't expect. It's those unexpected experiences that leave customers with a story they are eager to tell."
A surprise for customers who are coming up on renewal should be relevant to your product and meaningful, like:
- Free features
- One month free
- A percentage discount for a year
Give Customers a Choice: What Incentive Do They Want?
What will be more meaningful to your customer: a percentage discount or a new, complementary product/service to try for free? Empower your customers with choices and the result is a significantly enhanced customer experience, and recurring revenue from a long-term customer relationship.
Regardless of which incentive strategies your renewals business uses, the key to success is to analyze results and track performance. Over time, determine which incentives connect most with your customers and result in the greatest number of renewals (in the least amount of time). A thoughtful, strategic incentive program can result in a huge impact on the bottom line for your renewals business.
Get more strategies to quickly and easily optimize your renewals business. Download our eBook, "Shockingly Easy and Successful Renewal Quoting."