Why Your Customers Don’t Renew Service Contracts and What You Can Do About It

Assessment: How effective are your service contract renewal practices?

Are you leaving money on the table? Do you know why customers cancel service contracts? Use ServiceXRG’s Renewal Assessment tool reveal your Service Contract Renewal Health Score.
You will receive immediate feedback with recommendations to maximize service renewal performance, a copy of the Service Renewal Best Practices playbook and a complimentary coaching session.

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Playbook: Service Renewal Best Practices

The Service Renewal Best Practices playbook introduces the metrics, practices, and activities necessary to optimize service contract renewal performance and grow customer relationship value.

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Why Your Customers Don’t Renew

Renewal Begins Day 1

From the day you sell a service contract you need to begin working on the retention of that customer relationship.  The worst thing you can do is wait until 90 days prior to the service contract expiration to send a renewal notice.  Each of the reasons for nonrenewal can be mitigated – or at least minimized – through well defined renewal practices that begin on day 1 of the service relationship.

Keep the customers you have and find ways to prevent customers from canceling services in the first place.  Retention is paramount – make it a strategic priority!

Reasons for Non-Renewal

What You Can Do About It

Addressing Perceived Lack of Value

The most common reason for service contract cancelation is that customers do not perceive that the benefits outweigh the cost of continuing the service. Or, they do not feel that the risk is too great to cancel – this is a common perception by customers that use mature products.

Active / Cancelled

For customers that actively use your product, but have canceled services, there is still hope for a win back.  Re-engage active product users and attempt to convince them of the benefits of your service.

Electronic mail and automated campaigns will not be enough.  Call them and listen to their concerns.

You will learn a lot about why customers canceled in the first place (price, lack of use, product issues, etc.).  Consider making modifications to the service to make it more appealing (better entitlements and/or lower price).

Active / At Risk

Within your active customer base chances are good that you have customers that would like to cancel but are not willing to accept the risks associated with lack of service or out of date software.

There is still time to protect these relationships. Work with customers potentially at risk to help them use and realize the value of service. Consider the following:

  • Interact with customers throughout the relationship and don’t just wait for them to call you. Interaction can occur through a support case, a proactive call to the customer, an informative e-mail newsletter, and publication of useful self-help resources (blog, wiki, knowledge base).
  • Report progress relative to success plans, support plans, and journey maps.
  • Make sure that customers are taking advantage of the services offered through the service relationship.
  • Meet service-level commitments and make sure that customers are aware of your performance.
  • Conduct periodic health checks and account reviews (e.g. Quarterly Business Reviews or more frequent) with both technical and business unit stakeholders.
  • Leverage each customer interaction as an opportunity to reinforce the value and necessity of the service relationship.
  • Establish a service usage “statement” that highlights the type and frequency of services used. Provide customers with evidence about the benefits they receive.

What to Do About Customers that No Longer User Your Product

The second most common reason for service cancelations occurs when customers stop using your products or have difficulty using it in the first place.

Once this occurs – for whatever reason – there is little to do to win the customer back.

Onboard, Adopt, Success

The best strategies to minimize cancelations due to lack of use is to develop good onboarding, adoption, and success practices to make sure customers can use and apply your products effectively. Consider the following:

  • Develop customers’ product skills by offering easy to access and affordable (preferably free) training programs.
  • Help customers define and achieve success through success planning.
  • Define journey maps, provide coaching and guidance to help customers attain specific outcomes.
  • Do not wait for customers to call with problems, engage customers proactively through automated and personal methods.
  • Offer or extend proof of concept, architecture, and design guidance.
  • Define and monitor customer adoption (extent and frequency of use) and success (impact of use) metrics.
  • Assign success managers or teams to monitor and drive customer adoption and success rates.
  • Monitor product performance and service use.
  • Conduct periodic health checks and account reviews.
  • Offer a portfolio of value-added outcome services.

Optimize Renewal Practices

The actions you take to secure the service renewal are fundamental to success.  Great programs and great relationships can be undermined by simple breakdowns in renewal procedures.  The costliest process breakdowns include not asking for the renewal or asking the wrong person.  Consider the following:

  • Maintain a relationship with the person(s) responsible for renewing the service contract.
  • Target multiple points of contact for renewal notification.
  • If the primary person leaves find out who will assume responsibility for the relationship.
  • Set clear expectations with the customers about budgeting for contract renewals including any uplifts or add-on fees.
  • Notify customers at least two months prior to renewal expiration.
  • Analyze the reasons customers do not renew.

Service Renewal Benchmarks

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Recognizing Innovation: IBM Cognitive Support

Service Innovation Profile: IBM Cognitive Support

Through the Service Innovation Series, ServiceXRG highlights examples of innovative approaches to achieve service excellence. In this Service Innovation profile, we feature IBM’s use of its own Watson technologies as a platform to deliver a new approach to service delivery – Cognitive Support.

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For decades service organizations have sought to find tools and methods to reduce the burden and subsequent costs associated with assisted support delivery. Service automation and self-help strategies have helped to offload some of the support burden from support staff. These approaches however have limits with industry average self-help success and deflection rates in the mid 20% range. There are clearly benefits to capture and share knowledge with customers, yet it is costly and time consuming to keep knowledge and self-help systems up-to-date with dynamic product lines and ever changing customer needs.

IBM’s approach to Cognitive Support is subtle and elegant. They have introduced an intelligence into the end-to-end support delivery process that can learn and evolve to “augment and scale human knowledge and expertise.” IBM staff do not need to retool the system every time a new product is released; the system does not rely on a formal knowledge management process to create customer-consumable content; and customers do not need to choose between self-help and assisted support. The Cognitive Support Platform is fully integrated into IBM’s existing support delivery process. It is designed to assist when it can and when it cannot it learns for future situations.

IBM has several advantages for adopting a cognitive approach. First, they own Watson, the foundation of their Cognitive Support Platform. Second, they have immense scale in support delivery and even small incremental gains can result in significant benefits. Early indications suggest that the Cognitive Support Platform will offer significant benefits to both IBM and customers. Customers get access to quality support with faster time to resolution. IBM gets more satisfied customers, significant cost efficiencies and the means to meet growing demand without breaking the bank.

Perhaps the most profound benefit for both customers and IBM is the ability to reallocate human subject matter experts to high value service delivery activities – beyond the realm of break-fix. The ability for IBM to focus more effort on helping customers apply and succeed with IBM technologies is a win for all. For all these reasons ServiceXRG finds that IBM’s cognitive support efforts are innovative and will lead to service delivery excellence.

Through the Service Innovation Series, ServiceXRG highlights examples of innovative approaches to achieve service excellence. Companies featured within the Service Innovation Series are selected by ServiceXRG and do not influence the observations and perspectives presented.

Is your company a service innovator or do you know of other companies that are? If you would like to be considered for a future Service Innovation Profile or know of a company that should be featured, please let us know. Send an e-mail to Innovation@servicexrg.com with a brief description of your ideas.

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*Membership level determines your access to ServiceXRG research and other member services. Paid memberships include access to research and playbooks. Free memberships include access to some reports and discounts to others. Please visit our membership page for a list of available membership programs.

How to Define and Measure Deflection

Deflection Defined

Deflection is the rate that automated and self-help resources satisfy service demand that would otherwise be handled by assisted service staff.  The average rate of case deflection within the technology industry is 23%. The attainable rate of deflection is highly dependent upon factors such as the maturity and complexity of a product, the skills of the users, and the quality of tools and content provided by the service provider.

It is easy to overstate the impact of self-help, community and service automation by equating its overall effectiveness with a direct impact on assisted support.  Many issues may be resolved through self-help and automated means yet not all are destined for or entitled to resolution through assisted support channels.  For a case to be deflected it must meet the following criteria:

 

  • The customer submitting the case must be entitled to assisted support.
  • An issue must be successfully resolved.
  • The customer submitting the case requires no further action from assisted support resources to validate or clarify the answer provided through self-help or automated means.

Measuring Deflection

ServiceXRG offers the following approach to measuring deflection.  Each of the inputs for the deflection calculation are described below.

How to Measure Deflection

Multiply the number of Self-Help Service Events by Entitled Customers for a specific period of time by the rate that these customers indicate success in finding an answer using self-help resources (Success Rate).  Multiply this by the percent of entitled customers that successfully found an answer and indicated an intent to request assisted support if required (Intent Rate).  Multiply this by the percent of entitled customers that successfully found an answer and indicated an intent to request assisted support if required and indicate that no further action is required to resolve this issue (No Further Action Rate).

Target Value
Deflection = Self-Help Service Events by Entitled Customers * Success Rate * Intent Rate * No Further Action Rate

Entitlement

For a case to be considered deflected it must be submitted by a customer entitled to receive assisted support.

A case cannot be deflected from assisted support if it is submitted by someone that is not entitled to receive support assistance. Including visitors that are not entitled to assisted support in your deflection calculation will overstate the impact of self-help on assisted support demand.

How to Measure Self-Help Service Events by Entitled Customers

Establish entitlement to assisted support.  To accomplish this, you will need to authenticate customers engage in a self-help event (e.g. support site and community visitors and those served through other automated means).  Only customers entitled to assisted support should be included in your deflection calculation.

Target Value
Self-Help Service Events by Entitled Customers = # of self-help and service automation events within a specific period of time for customers entitled to receive assisted support.

Success

For a case to be considered deflected it must be successfully resolved using self-help resources or through unassisted automated means. 

Visitors will come to a support community or portal for a variety of reasons.  They may come to view a discussion thread, read an article, browse documentation, view a video or download a file.  While the use of service resources is positive, these “service events” do not always equate to a successfully resolved customer issue. Customers indicate that on average they find useful information 70% of the time when visiting a support web site and 68% of the time when browsing support communities. Useful does not however translate in to complete and successful answers.

How to Measure Success Rate

Identify the rate that service events result in successfully resolved customer issues.  The best method for determining success is to ask customers directly.  Use on-site pop-up surveys, post transaction event surveys and questions embedded in service resources.  Unfortunately, customer response rates to these types of data collection methods can be low.  Nevertheless, customer feedback is essential to establishing the effectiveness of self-help resources and automated issue resolution tools.

Target Value
Success Rate = Rate that self-help and service automation events within a specific period of time are successfully resolved.

Intent

A deflection will occur when there is intent by a customer to seek assisted support to find an answer.

In situations where customers are “browsing” available support resources, but do not intend to seek support assistance, there is no opportunity to deflect from assisted support.  Including “browsers” (visitors with no intent to seek assisted support) in the deflection calculation will overstate the impact of deflection on assisted support.

How to Measure Intent Rate

Identify customer intent to request assisted support.  The best method for determining intent is to ask customers directly.  Use on-site pop-up surveys or post transaction event surveys to establish the reason for a community or support web site visit.  Determine if the customer intends to seek assisted support if the self-help event is unsuccessful.

Target Value
Intent Rate = Rate that entitled customers indicate that their reason for using self-help or service automation is a first step in problem resolution and intend to seek assisted support if necessary.

No Further Action

For a case to be deflected a customer must indicate that the answer found through self-help has completely resolved the issue and that no further action is required. 

Some customers may successfully receive the information they are looking for but may still request assisted support to verify the answer.  Customers that request assisted support to confirm the answer provided through self-help or automated means should not be included in the measure of deflection.

How to Measure No Further Action Rate

Determine if any further action is required to resolve a customer issue.  Use on-site pop-up surveys or post transaction event surveys to establish the if a customer sought assisted support to validate, clarify or confirm an answer received by an automated or self-help event.

Target Value
No Further Action Rate = Rate that self-help and service automation events within a specific period of time are successfully resolved and require no further action.

Implementing a Deflection Metric

Using an accurate measure of deflection is imperative for establishing the true impact self-help and service automation resources have on assisted support demand.  The inputs describe above are stringent, yet necessary.  If you require any assistance in defining and implementing a proper deflection metric please contact ServiceXRG for assistance.

Featured : Measuring the Return on Knowledge Management

As knowledge management initiatives take hold and mature, it is essential to conduct a formal cost – benefit analysis to determine the proper level of investment for knowledge management and define the expected return on this investment. Continued success will come from efforts to enhance content creation processes, employ enhanced technologies and deliver tangible business value by leveraging knowledge assets. This research report introduces an approach to measure the return from knowledge management initiatives.

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Are you organized for Customer Success?

Why does the journey from new customer acquisition to the renewal and expansion of the relationship involve five or more different departments?  It certainly makes sense to have specialized teams to sell and service customers, but the way they are organized is a problem.  Organizational silos create barriers customer success by inhibiting the levels of coordination and cooperation necessary to retain and grow customer relationships.

The hand off from one department to the next creates gaps between expectations set and how they are met.  Distinct organizations may also be motivated to achieve different and possibly conflicting outcomes.  Most importantly the lack of coordination between departments inhibits the ability to fully understand customer needs and to act on them. Efforts to add success mangers, onboarding teams, or renewal and expansion sales roles are stopgap measures to address some of the inefficiencies of siloed post-sales organizations. These stopgap efforts are not enough.

The bottom line is that post-sales coordination and cooperation is the key to customer retention and relationship revenue growth and provides opportunities to achieve greater staffing efficiencies.  If you cannot achieve the necessary level of inter-department cooperation it’s time to restructure and remove these silos.

Post-Sales Organizations

Clearly delineated Sales and Service organizations play a role in selling, implementing, training and supporting customers.  Separate organizational silos provide the means to specialize skills and attain tangible performance milestones.  Specialization may yield some benefits, but overall can inhibit an organizations ability to retain and grow customer relationships.

ServiceXRG finds that a slight majority (54%) of technology companies maintain siloed service organizations (Support, Education, and Professional Services) with nearly all maintaining separate Sales and Service functions.  Service silos have been giving way to consolidation of services under a single executive yet this reorganization does not necessarily improve the alignment of service resources to common goals or improve intra-service cooperation.  Sales and Service cooperation remains largely informal with 62% of organizations reporting that Sales and Services function independently from one another.

Cooperation and Coordination Between Service and Sales

The Need for Post-Sales Cooperation and Coordination

Support, Education, Professional Services and Sales are all on the same team.  After the initial sale cooperation among these post-sales departments is essential to optimizing customer success and assuring retention and relationship growth.  The most compelling reason for post-sales coordination is the ability to achieve these outcomes at a lower cost. Consider the following benefits:

  • Every post-sales department and role will be focused on and incented to achieve a common set of outcomes such as customer retention and relationship revenue growth.
  • The number of resourced engaged in post-sales activities can be streamlined and redundancies eliminated.
  • Post-sales departmental coordination will enable the ability to draw from a common “bench” of roles and skills.
  • Success planning and customer journey mapping will be facilitated by a wide range of roles and skills including account management, design, implementation, customization, education and support.

The Future of Post-Sales Organizations

Post-sales organizational maturity is evolving and there is increasing evidence of coordination and cooperation among these groups. Yet, there is still a considerable amount of change required before post-sales organizations perform as a single customer success-focused entity.  For many companies increased coordination and cooperation among post-sales teams is a desired future state.  The table below highlights many of the characteristics of the ideal post-sales organization.

Featured : The Transformation of The Service Organization

ServiceXRG examines the current state of service organizations and the forces at work that are driving organizational transformation. This study reveals how the isolated service silos of the past need to evolve into unified entities to drive Customer Success.

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Optimizing Service Outcomes with Channel Partners

The Critical Role of Channel Partners

Technology vendors rely on partners to expand their geographic reach and extend access to the expertise necessary to enable the use of their products. While many vendors form channel relationships to sell products, more than two-thirds (69.7%) of technology vendors use channels to sell, deliver and renew support and maintenance services.

Vendors that have active channel programs rely heavily on their partners for critical service sales and delivery functions. The majority (84.4%) of partners that sell service contracts are involved with the delivery of these services and nearly three quarters (73.4%) are responsible for renewing contracts. The success or failure of channel partners to deliver services can has a profound effect on a vendor’s ability to achieve strategic service objectives and financial performance (contract renewal, customer retention and revenue expansion).

Technology vendors that rely on partners to perform critical service functions must have a well-defined and executed channel strategy. A successful channel strategy for services requires several elements: a clear vision for the role that partners will play, an established program and criteria for attracting and retaining the right partners, the commitment and capabilities to support partner success, and the means to monitor the effectiveness of the channel program and the performance of individual partners. This article outlines the steps necessary to optimize services through channel partners and introduces several research studies for channel management best practices.

Success is a Shared Responsibility

Technology vendors must view partners as extensions of their organization and recognize that channel success depends on the level of support they provide. The vendor must make it a priority to assure that a partner has the skills, tools, and resources necessary to perform agreed-upon service functions. Nonetheless, success is not the exclusive burden of the vendor — the partner must have a stake in the relationship. While vendors can transfer knowledge and provide access to tools, the partner must make necessary investments to achieve a mutually agreed-upon level of performance. Successful channel relationships depend on the commitment of both parties and their combined skills and resources to meet the needs of the marketplace.

Communication is Key

Vendor channel programs typically provide a flow of information to partners in the form of training and access to knowledge, collateral and even to designated contacts.

However, while partners value these resources, they do not take the place of an ongoing dialogue with the vendors with whom they do business. More than anything, channel partners indicate that they want more frequent and proactive communication with suppliers. They express a strong desire to be kept in the loop with new developments and to feel that they are plugged into the processes that vendors use to discover, create, and disseminate information vital to selling and delivering services.

Pay for Performance

Using channels to sell and deliver services must be a win-win proposition for all parties involved.  The vendor gains greater reach into new markets or extends its capacity to serve customers, while the partner earns an acceptable margin for the products and services it sells. The level of compensation partners receive must be commensurate with the level and quality of effort they bring to the relationship.

Success Starts with the Strategy

The term “partner” implies a symbiotic relationship where each party benefits from the efforts and actions of the other. A partnership also implies mutual expectations among those parties in the relationship. A channel strategy is therefore a formal declaration of how parties will work together to achieve a mutually agreeable outcome.

Featured : Service Channels Best Practices & Benchmarks

This report explores channel practices and performance to present strategies for improving the use and effectiveness of channel partners for the sale, renewal and delivery of support and maintenance services. This report explores perspectives of both technology vendors and channel partners, including value-added resellers, systems integrators, distributors, and retailers.

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Where Customers Look for Support Information

Vendor web sites have become a secondary resource to general web searches when customers need help. Historically customers have rated the quality and effectiveness of information found on non-vendor web sites very low, but this trend has shifted with more customers indicting that the information they find through general web searches to be relevant to their needs and effective.

When customers find information on other – non-vendor sites, it diminishes a company’s ability to leverage the service interaction as a means to strengthen its relationship with customers. Without a concerted effort to expand and improve the quality, relevance and findability of the right services content through the support web site vendors risk losing the advantage they once had in retaining control of the on-line service experience.

Where Customers Go for Technical Support Information

Self-help Resources Most Frequently Used

Featured : Customer Perception and Expectations of Self-Help and Social-Support

Vendor web sites have become a secondary resource to general web searches when customers need help. Historically customers have rated the quality and effectiveness of information found on non-vendor web sites very low, but this trend has shifted with more customers indicting that the information they find through general web searches to be relevant to their needs and effective.

This study examines the expectations and perceptions of individuals that use self-help resources to resolve technical support issues.

 

 

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