There are many reasons why customers choose to cancel their service relationship. The most common reason for cancelation is that they 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. The least likely cause of customer cancelation is poor service quality.
For customers that cancel because they did not see the value in your services there is still hope for a win back. If these customers are still using your product re-engage them and attempt to convince them of the benefits of your service. You may learn a lot about why customers canceled in the first place (price, lack of use, etc.). Consider making modifications to the service to make it more appealing.
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you have customers that would like to cancel but are not willing to accept the risks associated with lack of service or out of date software. In these situations, there is still time to protect the relationship. Work with customers potentially at risk to help them see the value.
The second most common reason for service cancelations occurs when customers stop using your products. Once this occurs – for whatever reasons – there is little to do to win the customer back. 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.
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!
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. Here are a few signs of bad attach:
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.
I 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 annuity, then contract attach followed by a successful renewal is essential and bad attach must be managed.