While many technology companies are struggling under the weight of rapid product commoditization and the upheaval of the XaaS business model shift, there remains tremendous opportunities to deliver revenue growth from maintenance and support offers.
So, how do you do this? TSIA has identified three key levers that produce optimized support revenue outcomes and can help you grow your service business.
- Attaching New Contracts: This lever is defined as the rate at which new “for fee” support contracts are sold at the point of the technology.
- Support Contract Renewal: This lever is defined as the rate at which support contracts are renewed at the end of each contract term.
- Upsell to Premium Support: This lever is defined as the rate at which you’re further monetizing relationships with existing customers by selling them additional services.
Lever One: Attaching New Contracts
Support attach rates are important drivers of support revenue growth and are fundamental for companies to get right. Why? Because new support contracts (and the associated annuity revenues) are like the gift that keeps on giving. And when done right, they can have a very low cost of sales.
Second, you can’t renew what you didn’t attach in the first place! When you miss attaching a support contract at the point of original technology sale, not only have you not captured that support revenue up front, but you’ve reduced your chances of ever seeing any support revenue from that technology sale.
Lever Two: Support Contract Renewal
Another key indicator of services revenue performance is the support contract renewal rate metric. Dollar renewal rate measures the percentage of order dollars actually renewed compared with the total order dollars that were available to renew.
Like the proverbial breadcrumbs in the forest, this metric is important because it can provide early telltale clues about problems in your support contract business that could snowball into a serious renewal revenue problem in the future.
45% of customers are on basic support contract levels, which creates significant opportunities to upsell them to premium support levels.
Lever Three: Upsell to Premium Support
There’s little debate on the merits of optimizing support attach rates and support contract renewals. Executing these levers well can greatly impact your top-line revenues.
Beyond this, there is significant upside to be realized from further monetizing your relationship with existing customers. This brings us to our third lever of revenue growth: Upsell to premium support. TSIA defines premium support as any offering above the basic support contract level.
How big an opportunity does this represent? According to TSIA benchmark data, 45% of customers are on basic support contract levels, which creates significant opportunities to upsell them to premium support levels.
There’s a great deal of revenue to be realized by increasing the number of premium support contracts, and it’s also a smart revenue protection strategy, as customers are increasingly challenging the value proposition of basic support.