Why Your Customers Don’t Renew Service Contracts and What You Can Do About It
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you have customers that would like to cancel but are not willing to accept the risks associated with lack of service or out of date software.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
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.
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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