Don't Ignore Existing CustomersBy Lawrence Walsh | Posted 2008-06-27 Email Print
Solution providers can reap big gains from renewing license and service contracts. The first step is picking up the phone.
I have a deadline to meet today. Today is the final day that I can sign a new service agreement with my home heating oil service provider, and the price tag isn’t small.
My annual heating oil bill came to about $2,700 last year. Expensive? Well, it ain’t cheap, even after I locked into what seemed like an exorbitant rate of $2.54 per gallon. I’d gladly pay that rate if it were offered to me, considering the current market price for heating oil in my neck of the woods is $4.79 per gallon – an 88 percent increase.
Now, I must admit that I’ve been reluctant to sign the new agreement since it arrived in the mail about a month ago. What my service provider is offering me is a flat monthly rate that would distribute the total cost more evenly. It’s pretty good and it works out to a discount below current market rates, but it still results in my home heating costs nearly doubling this year.
What’s interesting about this is how my service provider proactively sought to renew my business before I started shopping for competitive prices or got caught sleeping and forced to pay higher market prices. Isn’t this what IT solution providers should be doing? Surprisingly, many don’t.
According to a recently survey conducted by Channel Insider and Amazon Consulting, 35 percent of solution providers either rarely or sporadically contact their customers to renew when their licenses or support contracts are expiring. Another 28 percent contact "most customers"—but not all—of their customers at the end of their contracts.
The survey also surveyed end users, and found that most (47 percent) are tracking their own license and service agreement terms for expiration and renewal. Only 19 percent of end users say that their solution providers are contacting them about contract renewals. Surprisingly, the survey found that end users are more likely to be contacted by a vendor than a solution provider. Ideally, end users want solution providers to take a more active role in the renewal notification process.
I’ll be the first to say that solution providers should be more selective in the customers they sign. Some may argue with me on this point, but there are such things as bad customers who sap all of your support resources and drive down profitability. Nevertheless, it’s shocking to see solution providers not moving more aggressively to retain their customers.
In the Channel Insider 2008 Outlook survey, one-quarter of solution providers said they saw their existing customers as key to their expansion goals and profitability. And one in five says that new and incremental sale of new services is a critical component to their business plans. Yet, according to the Channel Insider/Amazon Consulting research, 37 percent of solution providers see little value in renewal calls for anything more than resigning the existing services agreement.
From the vendor perspective, the value of the channel in renewing existing business and expanding the product and services footprint in an end-user's account is tremendous. Nearly 70 percent of the vendors surveyed said that the channel was the best and most profitable source for renewing end-user relationships, and that the channel provided the best opportunity for expanding business with existing accounts.
Part of the problem may be the dependency solution providers have on their vendors, distributors and end users to track service contracts. Of the solution providers surveyed, 22 percent say their vendors track contract expirations and notify them about renew opportunities; 21 percent depend on the customer to trigger a renewal conversation and 11 percent lean on distributors. Only 44 percent of solution providers say they track contracts and initiate renewal discussions.
What is the value of an active contract renewal program? Nearly three-quarters of solution providers say their customers increase their spending greater than 25 percent on new products, support and services. An expiring contract is an opportunity to have a conversation with a customer about renewing the existing agreement, as well as talk about new products and services that add value to their business. Never has there been more compelling evidence to keep pumping old wells for new revenue.
Lawrence M. Walsh is the vice president and publisher of Channel Insider. He can be reached at firstname.lastname@example.org.