Want to Increase Revenue? Stop Selling and Start Billing.

One of the best practices taking hold in the B2B subscription economy is the automatic renewal – issuing an invoice sixty days before renewals.  The interesting effect of automatic renewals is to increase revenue and lower costs.  Across multiple companies, Scout Research has benchmarked a four percent or more increase in renewal revenue yield by using this practice.  Here are the findings on one case example.

Historically, account managers contact customers to confirm the renewal terms and timing.  The practice stems from the on-premise product world where customers could continue to receive value whether their maintenance contracts had been paid.  As you can imagine, the practice has continued into the subscription economy, but it is not necessary.  In the subscription economy, a customer loses access if their renewal is not processed.  If a customer values the product or service, they will be sure to renew before losing access.  So the responsibility and effort belongs to the customer in these cases.  Using automatic renewals eliminates this cost inefficiency.

In the subscription economy, the old method of renewal also introduces a drag on revenue.  When an account manager contacts the customer, the subsequent interaction often creates negotiations.  Customers use these instances to negotiate away standardized price increases or to achieve deeper discounts.  Using automatic renewals eliminates the majority of these negotiations and consequently transforms the revenue drag into revenue growth.

However, automatic renewals can hurt revenues if not used appropriately.  For example, automatic renewals can erode revenue if the customer is not getting a good return on investment.  The customer may be looking at the renewal as a chance to terminate use of the product or service.  An automatic renewal in this case may force the cancellation. For customers getting above average return on investment, automatic can stunt up-sell opportunities.  The renewal represents an opportunity to increase prices to match customer value.  So targeting automatic renewals to the right customers is critical.

When automatic renewals are targeted effectively to the right customers, a company can lower costs and increase revenues without risking cancellations or stunting up-sells.  The following example illustrates the impact.  Our case example is a human resources management solution which had one million dollars of subscriptions up for renewal.  In the company’s customer base, approximately sixty percent of the renewals were predicted to be candidates for automatic renewal.  By placing those accounts into an automatic renewal process that consisted of issuing an renewal agreement sixty days prior to renewal and a follow-on reminder thirty days prior, they were able to increase the renewal yield from an eighty-six percent to ninety-four percent.  The eight percent increase in automatic renewals had an overall revenue yield increase of four point eight percent which is broken out in the infographic.

The benefit of increased revenue yield is compounded by the fact that account managers eliminated sixty percent of the contacts and preparation time.  Account managers let normal customer success management and service delivery to do their jobs in creating satisfied customers.  Instead, they invested their time where there is more revenue impact – up-selling and supporting retention efforts.  The results are that the other forty percent of customer relationships grow more quickly; and the overall renewal yields easily increase beyond the four point eight percent.

While the example provided is a B2B example, the same logic can be applied to consumer subscriptions as well.  Targeting price increases and rate plan changes at scale requires the same kind of predictive analytics to know who should get what pricing or needs what intervention.

The take away is that targeting automatic renewals to the right customers can be a revenue accelerator and create additionally account management productivity.  Without predictive analytics, automatic renewals stunt up-sells and increase churn which is why so many organizations still rely on manual procedures which hampers growth.