Bad Attach? Is There Such a Thing?

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 Support, then contract attach followed by a successful renewal is essential.

Retention is Paramount – Make it a Strategic Priority!

If there is one service performance indicator to steer by it is RETENTION. You can have plenty of satisfied customers but still not grow, but you can’t grow unless you retain the customers you have.

Less NPS / More High-Touch Understanding

We have become too dependent on electronic surveys and NPS/CSat scores to tell us that our customers are okay. These are fine indicators but do not always tell us why we lose customers. Frankly many of the customers we lose may never have shared feedback through voice of the customer campaigns.

To mitigate churn, we need to dig deeper to understand why a customer stops (or never starts) using a product or why they do not perceive value from the services they pay for.

The best way to do this – pick up the phone or visit your customers and listen to their concerns! Don’t wait for customers to cancel before engaging them.

How We Keep Customers

Not every relationship can (or should) be retained, but if you listen carefully enough you will find that you can address many top churn factors.  Onboarding, adoption, success planning and account management are all powerful tools to mitigate risk factors.

Principles and practices of customer success are taking us in the right direction with an emphasis on retaining existing relationships. We need to make certain that we avoid the temptations to rely too much on tech-touch and keep personal channels of communication open with customers – especially the ones we do not hear from on a regular basis.

The Bottom Line

Retention of both relationships and revenue are critical indicators of business health.  Understand retention levels and underlying factors that influence them. Retention is paramount – make it a strategic priority!

Resources

 

Assessment: How Effective Are Your Service Renewal Practices?

Check out ServiceXRG’s Renewal Assessment tool to reveal your Service Renewal Health Score.  You will get immediate feedback with recommendations to maximize service renewal performance.

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.

Would you like a free copy of the Service Renewal Best Practices playbook?

Use ServiceXRG’s Renewal Assessment tool and receive your copy.

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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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Service Onboarding

When new customers purchase service agreements you must make certain that they understand how to access and use the services they are entitled to.  To successfully onboard customers contact them personally by phone or e-mail (personal touch) or by automated e-mail (tech-touch) and provide them with welcome kits, service guides and even how-to videos.  Help them to get setup with service access (e.g. credentials for the Support portal).

A single initial contact is typically not enough. Monitoring service entitlement use is important to identify customers that are not benefiting from their service relationship.  When you enable customers to use the service they have access to, you increase the likelihood that they will receive benefit and renew their relationship.

Best Practices

  • Contact new customers personally by phone or e-mail (personal touch) or by automated e-mail (tech-touch) to introduce them to their service entitlements.
  • Create a welcome kit with a service guide and usage tutorials to teach customers how and when to engage services.
  • Make certain customers know how to access and use services, especially self-help resources.
  • Discourage the practice of attaching service contracts to products without reviewing service terms and conditions with customers.
  • Monitor service use. When customers do not use services engage them to encourage consumption of service entitlements.
  • Coordinate service onboarding with product onboarding activities.