If you only care about the first-year revenue from support or maintenance contract sales, then any attach is a good attach. If you want to maximize recurring revenue from renewable Support contracts, then contract attach followed by a successful renewal is essential.
The Relationship Between the Initial Attach and Successful Renewals
Attach Rate measures the effectiveness of new support contract sales activities (direct or through partners) by reporting the extent to which a support contract, beyond what is included with the product, has been sold as part of a new product sale. When you sell a new product, you expect to attach a support or extended warranty contract. It seems intuitive to assume that it is a good thing when you sell support with a new product.
It is likely that mixed in with those newly attached support contracts are several that are at risk from the start. What puts these support contracts at risk is the way that they were attached. When customers unknowingly buy support with a product, or reluctantly buy support to gain greater terms on the initial product purchase (e.g. a discount or promotion) they are immediately at risk of not renewing.
The good news is that you get the first year of maintenance revenue, the bad news is that you may not get the benefit of the annuity from year after year renewals. In most cases bad attach can be avoided. The first step to minimizing bad attach is to recognize if you have Support sales practices that lead to it.
Signs of Bad Attach
Customers are incented with steep product discounts if they buy support.
- Sales promotions offer attractive deals on products but require automatic attach of support.
- It is a common practice to include support without any effort to explain the benefits to customers.
- Support is compulsory.
- First year renewal price is adjusted upwards to make up for initial discounts due to pricing tied to product net price.
All these scenarios share something in common – the benefits of support were not sold and justified to the customer at the time of initial attach. When customers do not understand the benefits of support, or worse, don’t know that they have support, they are likely to question its value when the renewal notice arrives.
How to Avoid Bad Attach
- Make sure that customers understand that they are purchasing support – don’t try to hide it, they will figure it out upon renewal.
- Always convey the benefits of support at time of sale.
- Avoid discounts to support, especially if the discount is for the first year only.
- Be aware of sales promotions that will attach support even when customers do not want it – you will get the attach but not the renewal.
If you only care about the first-year revenue from support and maintenance contracts, then any attach is a good attach. If you want to maximize revenue from the Support, then contract attach followed by a successful renewal is essential.