Strategies for Motivating Channel Renewals
Did you know that on average, renewal rates are 12% lower in the channel versus direct? (Source: White House Office of Consumer Affairs.)
When your channel is responsible for selling renewals, optimising renewal rates presents its own very special challenges. Specifically – how do you motivate channel partners to take action on the many lower value segment renewal deals that are so important to your aggregate recurring revenues?
The challenges of the channel
Selling renewals is a specialised practice – see the blog The Unsung Heroes of Recurring Revenue to better understand the role. When the role lives in your own company, you can hire, train, manage and support the renewal sales team for optimal performance. In contrast, your channel to market may not have a separate team dedicated to renewal sales or a dual remit (product and renewals) that has renewals as a lower priority. When renewal calls compete with net new sales calls for a sales rep time, the net new calls almost always win. Smaller renewal deals are a less lucrative way to spend their time.
If you’re trying to drive up your recurring revenues, generating performance through the channel can be a real challenge. And the more layers in your channel, the more difficult it is to control renewal performance.
If you’re serious about optimizing recurring revenue, then you have to find ways to motivate the channel to pursue all renewal opportunities – not just the big deals. At a recent ServiceSource customer forum, several attendees shared channel strategies that have worked for them.
Change the math
The most obvious way to motivate the channel is to change the commission structure for renewal sales. One simple strategy was to change the way partners figure small deals into their renewal rates. Identify what constitutes a small deal for your channel (for example, under $5K). If the renewal rate is closed business over total opportunity, let channel partners add small deals to the numerator but not the denominator.
This effectively weights the smaller deals, providing incentive to pursue them.
Reward sustained performance improvements
Another strategy is offering incentives (discounts and rebates) based on improvement over the partner’s past, baseline renewals performance.
Here’s how this might work:
- For each channel partner, determine the historical renewal rate performance. This is the baseline for that partner.
- Identify a rate that represents an incremental improvement. For example, you might identify a target as improving from 65% to 72% for on-time renewal rates.
- Offer an incentive when the partner hits that number. If performance falls off, so does the incentive.
While each partner may have a different target number using this strategy, your overall renewal performance should increase.
Renewals Business Development Objectives (BDOs)
Include wording within your standard engagement contract with your channel partner that mandates the need for regular updates from them on each value segment of the renewals opportunity. Failure to provide such updates might see that channel partner drop a tier in your partner programme/ranking or another impact such as a reduction in marketing funds.
Carry a big stick
Some companies reserve the right to talk to the end customer if the channel is not pursuing renewal opportunities. While this approach is not realistic for every business, it might help the channel partner understand that you are serious about recurring revenue performance.
And walk the walk
All of these strategies assume that you are supporting the channel partner by providing the actionable data they need to drive renewal performance. If you do renewals in-house as well as through the channel, get your own house in order. You can then share the strategies and tactics that you use with channel partners.