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Missing the mark with renewals? How resellers can recover
- 03 March, 2020 07:28
Scott Frew (iasset.com)
Most partners - whether value-added resellers, system integrators or managed service providers - hold maintenance contacts and subscriptions to renew. Such contracts are usually low in value, but collectively, they represent a large percentage of total contract volume.
While manually addressing these renewals on an individual basis isn’t economical, technology providers across the world are walking away from deals - whether $50, $500, $5000 or $50,000 - due to a lack of strategy and process.
Irrespective of operating in India, Singapore or Australia, even the UK or the US, do resellers have effective renewals strategies in place?
“In my experience across the globe, most do not have a strategy at all,” observed Scott Frew, founder and CEO of iasset.com. “They collect data against a strategy to invoice a deal, then move on to the next.
“By and large, resellers rely heavily on their upstream distributor and most distributors don’t have a strategy either, or they in turn are reliant on the vendors to feed them the renewal information.”
But according to Frew - having founded three distributors during a channel career spanning more than 35 years - the focus shouldn’t be on the renewal, rather the “valuable life of the asset sold”.
“Renewal is only a part of it,” he cautioned. “Extracting lifetime value for the customer needs an alternate strategy and an alternate platform to support that strategy. Such an investment is rare at the moment.”
In assessing the channel ecosystem, Frew acknowledged that some resellers understand the importance of keeping on top of maintenance contracts and renewal rates, but questioned the market maturity around end of life.
“Some resellers definitely do understand, usually the more software or cloud-based resellers are better at renewals but none of them are managing their installed bases for other opportunities that will extract amplified value for their customer,” he said.
“Not one reseller in all that I have met takes advantage of end of life opportunities in a financially prudent systemic way or has the forethought to run targeted up-sell or cross-sell campaigns on behalf of their customers.”
Strategically, Frew is referring to the creation of unsolicited proposals that extend the value of what was sold, driven by data already available.
“I’m talking about resellers mining their own installed base data for a very specific product or set of related products in their customers and building a targeted offer only at those customers that it is relevant for,” he explained. “Not only does this drive incremental revenue from acquired data but adds additional recurring revenue opportunities in the future.”
While a 100 per cent renewal rate for all landed transactions doesn’t exist, Frew said resellers are missing out on “easy money” due to poor sales practices and processes.
“It’s a crying shame how much revenue resellers are giving up to their competitors because they weren’t proactive,” he added.
“Every medium to large renewal is pretty much contested these days, so the reseller needs to be ahead of the game and have the renewal order locked up before expiry so there is no chance of revenue leakage.
“The renewal needs to be managed as an extension of the original sale, not an afterthought in a three-tiered quote process. It needs to be consulted and managed into a budget that is managed by the seller.”
Resellers must also contend with "low value high frequency renewals", added Frew, which are so small in gross profit terms that by the time a sales representative picks up a phone, "it costs more than the margin".
“These need to be completely automated or as much as the reseller can to reduce the cost to do business,” he outlined. “These transactions must be integrated into the original sale. Keeping in mind the vendor still wants those renewals done even though in reality they may not seem to be economically viable for the reseller to chase.”
Speaking during a wide-ranging interview with Channel Asia, Frew was quick to stress however that the channel can ill afford to confuse renewals with up-sell and cross-sell.
“Look at it this way, if the product is say within three years of initial deployment at a customer, generally, the end customer will want to keep the product under maintenance, so it is a straightforward asset protection process," he explained.
“If the product is coming up to three years, then the reseller will want to open a dialogue with their customer perhaps much earlier than expiry to make sure their budgets are in place to upgrade the product to meet their contemporary IT strategy, instead of renewing it.”
For example, Frew said storage products exist in the market that are "in fact more expensive" to renew after three years than to forklift upgrade.
“The threat to the incumbent reseller is if they don’t pitch the upgrade and instead just follow their distributor’s normal renewal process, they leave their customer open to a competitor selling a less expensive net new deal which is effectively the upgrade,” he said.
As a result, Frew said a loss of opportunity exists when the reseller does not have a platform to manage customer data to deliver strategic asset management, and default to a renewal.
“Then you have up-sell which is where the reseller wants to sell say a module of the same vendors product,” he stated. “The reseller needs to identify all the customers with that particular product set and send a targeted quote to either the customer or the reseller’s account manager to deliver the proposal and close the deal.
“Then you have cross-sale opportunities where certain vendors have collaborated on reference architecture. The reseller wants to be able to find those customers that may have part of the architecture and sell them the rest of the reference set. Resellers are not even considering this sales opportunity. Equally, their customer is not seeing all opportunities to maximise the return on their initial investment.”
With more than three decades of channel expertise, Frew speaks with authority having founded two market leading distributors in Australia, namely LAN Systems and Distribution Central, in addition to helping co-found a "small network distributor" during the 1980s.
Founded in 1990, LAN Systems evolved into one of the largest network-focused distributors across Asia Pacific, before being acquired by Datatec in 2000, and then rebranded to Westcon-Comstor.
Through Distribution Central, founded in 2004, Frew created the sixth largest distributor by revenue in the region, housing over 160 staff with revenues exceeding $520 million, before being acquired by Arrow ECS in 2016.
“Renewals is a manual process for most resellers, they are mostly spreadsheet quoting,” said Frew, insisting that the challenge some resellers are now facing centres around distributors trying to mould ERP (enterprise resource planning) systems to drive the renewal process.
“ERP systems were never built to carry all the information needed for the resellers to be able to efficiently run product lifecycle management such as this. An easy way to find out is ask the distributor how their system manages co-termination."
Motivated by a desire to drive profitable growth - while increasing customer engagement and retention rates - resellers remain challenged to eliminate time-consuming internal processes that escalate costs and drain resources. Such change requires a shift in focus however, and a reassessment of in-house processes and systems.
“Let’s look at this more holistically as a process improvement process for the reseller,” Frew deep-dived. “They will firstly need a modern ERP system to run the financial part of their business, it doesn’t have to be the big boys, it can be Xero or MYOB for example.
“If the reseller is larger, they will also want to deploy a modern ITSM [IT service management] or support system to handle post-sales support. But what’s important is that they need to know why they are collecting data.”
According to Frew, this is when iasset.com - or the provider’s Lite version for smaller resellers - will come into play.
“Now the reseller has the ability to run automated cycles on the same accurate data between all their internal systems,” he said. “In doing so, they have a data driven customer lifecycle strategy.”
Next up, the process centres around creating a net new quote through iasset.com, usually imported from a distributor or vendor excel quote or via direct API if the distributor is running iasset.com "with some pre-defined business rules", added Frew.
“That quote is accepted by the customer and invoiced from ERP, which then tells the iasset.com platform all the details of the transaction and the lifecycle for that product starts,” he added. “The iasset.com platform then tells the ITSM all the detail it needs for the support desk to support it.”
In nine months time - based off a 12-month renewal - the renewal process will begin and prompt the appropriate person to validate it or follow up with the distributor for a quote. Once the reseller quote is validated, the platform will by default send the quote out at multiple intervals, usually starting at 60 days.
As explained by Frew, once the reseller tunes their system to specific requirements, the next stage is to fully automate deals under $5,000, as an example, to ensure there is no human intervention for the small run rate business.
Then the platform can allocate deals between $5,000 to $50,000 to an inside sales rep to ensure they are followed up and perhaps, deals over $50,000 will be allocated to a senior account manager to close.
“Automating these processes releases a significant amount of the manual labour (and spreadsheets) from the sales force who should really be out there servicing their customer and converting new prospects, instead of dealing with renewal quoting,” Frew added.
“Perhaps more importantly, the reseller has control of their business and can react better to changing their preferred distributor or even if they fall out with a particular vendor, being able to cross grade the customers to their new preference rather than just walking away from the business completely.
“In short, they control the success of their customers’ IT strategy, they stay in proactive consultation, with a reason to talk to them, not react to their customers purchasing team.”