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Analysis

High flying ServiceSource increases customer retention and maintenance contract renewals
Gerry Brown By: Gerry Brown, Analyst - Digital Marketing & CRM, Bloor Research (Moved)
Published: 19th October 2012
Copyright Bloor Research © 2012
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There's a lot of talk about customer retention and customer loyalty these days. And understandably so. In difficult economic times, when new customers are scarce and competition is fierce, holding onto customers is key.

A senior executive of a well-known digital consultancy with access to many blue chip clients' customer databases recently confessed: "loyalty is for Labradors". To some extent this is true. It's a promiscuous world out there driven by transparent Internet pricing where 'the best deal wins'.

Loyalty is all very well, but customer retention is the key metric that drives business success. Fred Reichheld, inventor of the Net Promoter Score, claims a 5% reduction in customer defection increases profits by 25% to 80%. McKinsey says retaining customers is 3 to 10 times cheaper than acquiring new customers (most commentators put this figure at 6X to 8X). The value of retaining existing customers is indisputable - they are lower cost to serve, spend more, are more prepared to pay a price premium, and act as brand advocates and references to attract new customers.

Technology companies are waking up to this fact. For example, Oracle would be a loss-making company without its maintenance revenues. But the risks to securing recurring revenues are increasing. Technology no longer comes with a proprietary software lock-in clause as standard. Many ex-customer service staff from enterprise vendors have set up as local service providers to steal away highly profitable (and expensive) enterprise maintenance contracts. Indian outsourcing groups such as InfoSys and Cognizant offer seemingly cut-price outsourced service alternatives.

Traditionally many have considered the management of maintenance renewal contracts as an ad hoc annual administrative and financial function. High margin new business software licences were the primary focus, and maintenance renewals were largely taken for granted. Invoices were sent out to customers demanding maintenance contract renewals (at c. 20% of the software contract price), otherwise support was to be 'cut off'. Paying such support contracts was a grudge purchase from the customer perspective, a price to pay for an essential service that didn't deliver much perceived value.

ServiceSource recognised the need for technology-based companies to have more certainty in closing maintenance, support and subscription renewal contracts and the resulting cashflow. Investors treat missing financial targets and guidance harshly in the technology world.

ServiceSource controls and manages service revenue leakage and claims to be the market leader in recurring revenue management. Under this banner they offer a mix of business process consulting, outsourced end customer renewals account management, and a renewals software platform available on a SaaS basis. 

ServiceSource firstly conducts a SPA (Service Performance Analysis). This audit analyses the data, business processes and management policies around the renewals process. ServiceSource then produces a pay-for-performance offer to manage part or all of the maintenance renewal process. Each contract is customised. For example, a partnership may only cover a sub-set of small and medium size customers, or channel partner customers, both of which are often less well-managed than direct enterprise customers. The goal might be to increase renewals from 70% to 90% over a given timescale, for example. The company claims to increase customers' recurring revenue by an average of 15% points, but improvements of 44% have been recorded.

ServiceSource's managed services team consists of professional renewals salespeople who use state-of-the-art renewals process software to guide and manage workflows and optimise the renewals experience from the technology vendor's end customer's perspective. This takes place within the end customer's local region. For example, in ServiceSource's Liverpool office multi-lingual employees speak 20 different languages to service end customers across EMEA.

ServiceSource manages $7bn in renewals revenues on behalf of technology companies like Adobe, CA, Microsoft, Sage, Avaya, EMC, F5, Hitachi, NEC, NetApp and Riverbed. Increasingly it is diversifying into wider technology markets such as Healthcare & Life Sciences, and Industrial systems. Hence GE Healthcare, Siemens Healthcare and Johnson Controls are customers.

Research by the University of Pennsylvania shows that 96% of dissatisfied customers leave quietly. ServiceSource ensures this does not happen by engaging customers in an ongoing dialogue and managing the renewals process professionally through to fruition. ServiceSource continues to grow at c. 35% per annum, as it has been for the past 5 years. It now has the capital (the company IPO'd in March 2011) to support investment in its continued growth globally, and to expand from its base of 2,100 employees and turnover of over $200m.

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