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

by | Nov 8, 2018 | Article, Renewal, Retain, Retention, Support, User Studies, User Wants and Needs

Service organizations — and the businesses in which they operate – are relying increasingly on the subscription model to drive recurring revenue. Therefore it’s increasingly urgent that they dig deep to understand why customers don’t renew AND take strategic action overcome customer objections to renewal.

4 reasons why your customers don’t renew their service contracts

Let’s start with a simple breakdown of the reasons — gleaned from our research — why your customers don’t renew their service contracts with you. In descending order, they are:

  • Cost / Value / Budget — The customer can’t cost-justify renewing.
  • No Longer Use Product — Was it a bad fit? Did they switch to a competitor?
  • Product Reached Maturity — Are they now looking at competitive products?
  • Poor Service Quality — Enough said.

Reasons for Non-Renewal

What can you do about it? Address perceived lack of value.

Among active product users, the most common reason for service contract cancellation is that customers do not perceive that the benefits outweigh the cost of continuing the service.  Others — typically customers using mature products — see little to no risk in not renewing their service contracts. 

Let’s look to see where renewal opportunities lie within these customer populations.

Active Users / Cancelled Service Contracts

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

BUT shortcuts won’t help you.  Email and automated campaigns will not be enough. 

Call these customers. Listen to their concerns. You will learn VOLUMES about why customers canceled (price, lack of use, product issues, etc.). Their feedback is priceless; put it to use. Consider making modifications to your service (better entitlements and/or lower price, e.g.) to make it more appealing.

Active Users / At-Risk Service Contracts

Chances are good that you have active customers that would like to cancel but are not willing to accept the risks associated with lack of service or out-of-date software. The mere fact that they would like to cancel places their service contract renewal at risk.

You still have time to protect these relationships. Work with your potentially at-risk customers to help them fully use and realize the value of their service. Consider the following actions:

  • Interact with customers throughout the relationship — 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 (quarterly business reviews or more frequent, e.g.) 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 about customers who no longer use your product?

The second most common reason for service cancelations occurs when customers stop using your products or have difficulty using them in the first place. Once this occurs — for whatever reason —  you have few options to win the customer back. This only underscores the importance of customer relationship maintenance as I’ve outlined above.

The 3 keys to minimizing service contract cancellations: Onboard, Adopt, Success

The best strategies to minimize service contract cancellations cancelations due to lack of use is to develop good onboarding, adoption, and success practices. These will help ensure that your customers can use and apply your products effectively. Consider the following actions:

  • 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, and 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

Renewal begins on Day 1 of the service contract.

From the day you sell a service contract you need to continually work 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 renewal practices I’ve described above.

It’s basic business, but with the subscription model in ascendency, it matters more than ever: 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!

We’re here to help.

Reach out anytime to start the retention conversation. Use the chat button at bottom right, send an e-mail, or click on my calendar to schedule a specific time.

 

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