Over time, the implication of achieving only industry-average renewal rates will result in significant customer attrition and lost revenue. Industry-average renewal rates show that nearly one-fifth of customers are lost at renewal time. As these losses compound over time, the effects are dramatic.
Industry Average Renewal Performance
A steady erosion of the customer base over a five-year period is typical for companies that only achieve industry average support and maintenance contract renewal rates. The impact of consistently the industry average contract renewal rate (82.4%) illustrates the erosion of the customer base. This example shows that at the end of a five-year period, the percent of customers under contract erodes to 46% of the original relationships.
This example does not take in to account new contracts added or other growth activities. It is intended to highlight the impact of achieving only industry average performance. Increasing support and maintenance contract renewal rates by 5% to 10% can have a dramatic impact on the percent of customers retained and on net revenues.
Moving Beyond Industry Average Performance
Industry average performance is not good enough. To maximize support and maintenance contract revenue you need a clear picture of your current situation or a plan to understand and mitigate attrition. ServiceXRG offers the following recommendations to assess and improve your customer retention capabilities:
- Establish an up-to-date and accurate measure of your current support and maintenance contract renewal performance.
- Benchmark your current renewal performance – are you at, below or above industry average performance?
- Identify the top reasons for contract non-renewal (hint: ask your customers). See also Why Your Customers Don’t Renew Service Contracts and What You Can Do About It.
- Develop a mitigation plan to stem contract attrition.
- Forecast the impact of increasing contract renewal performance by 5%, 10% or more.
- Use the forecasted benefits from increased contract renewal performance to make the case for funding corrective actions (new or better tools, more staff, or changes to business processes).
- Continue to refine processes, tools and performance indicators to maximize retention and revenue from the current customer base.