Tuesday, October 26, 2010

Who Owns Renewals?

For a company with a traditional on-premise license/maintenance pricing model contemplating a shift to a subscription business, the revenue model changes in several important ways.  Rather than getting a big license fee up front and a small annuity, the initial value of the deal drops, the cost of servicing the account goes up, and the annuity increases.  Making money here depends on delighting customers and getting them to renew multiple times.  And once you've got a base of happy customers, the bulk of your revenue will come not from new sales, but rather renewals.  I've talked about this already, I know, but it's a huge conceptual shift for a company used to living on new business.

So how to make sure customers renew?  It really starts with ownership and accountability -- ownership of and accountability for revenue.  Who owns revenue?  Typically that's Sales.
The shift in the revenue model puts the VP of Sales in an interesting position.  A successful SaaS/subscription business will eventually value farmers more than hunter/gatherers, because successful farmers will represent the main source of revenue.  Most of the VPs of Sales I've ever known were principally hunters who were used to building teams of hunters.

But if they want to keep their stature in the company as the executive responsible for revenue, these folks can't just be the VP of Sales -- they have to be the VP of Revenue -- of Sales and Renewals.  They need to think just as hard about how to be absolutely sure that customers are delighted and will renew, as they do about how to win that next deal.  Or even harder.  And they need to be prepared to organize their department accordingly, with rock-solid account management teams whose job it is to ensure that the revenue keeps flowing from happy customers year-over-year.

This is a pretty big change in role, and it's not one that every VP of Sales will immediately understand, or be well-suited to.  And if they're not up to it, the responsibility may better fit with a VP of Services or client care or something.  The big problem I've seen with this approach is that the potential for conflict is greater when hunters and farmers report into two different departments, let alone two differnent teams.  Comp plans can work out some of the conflicts, but there's no substitute for having teams that can work well and closely together.

Where have you seen this responsibility land, and how did it work out in your case?  What were the challenges and advantages of the approach?

Regardless of where this lands, ownership and accountability are crucial to success.  As PM, you're at the hub of making sure the organization is ready to make your product financially successful, and it's important to drive this issue to conclusion as you're preparing your GTM plan for your SaaS/Subscription product.  If you're not confident in the ownership, the incentives, the staffing plan or the accountability, neither should you feel confident in the long-term financial prospects of your product.  Talk to your CFO, the VPs of Sales and Services -- the CEO if you have to.  Whatever it takes -- get this right.

All for now,


1 comment:

  1. One thing I should be clear about here -- this assumes a traditional enterprise selling model. Obviously there are many other differences if we're talking about a self-service purchase/renewal model.