Managing Extensions, Expansions, and Renewals

Why is developing a strong renewal process important?

Build consistency and scale, and prevent revenue leakage – standard renewal processes ensure that customer usage and access match with their contracts. If you have a model where licenses can be added midterm and you’re not realizing and reporting on those, you’re missing revenue. You need a standard process to capture changes and update controls at scale.

Seamless renewal processes capture more revenue – recurring revenue and preventing churn is crucial in SaaS, a strong process encourages customers to renew and expand their purchase. Your goals should be to make it as easy as possible for them to renew, it should be a non-event. Acquiring a new customer is 5x-25x more expensive than keeping one. In this market, some orgs are even willing to take a slight contraction on a renewal rather than lose a customer outright.

If most of your customers are on annual or multi-year contracts, how far in advance of renewal should you start prepping?

CSMs should begin thinking about renewal at the first client interaction – it’s controversial, but we have a philosophy that says start the renewal at kickoff. It doesn’t mean every interaction with your client is done with the explicit intent of getting them to renew, but you should enter the engagement with a mindset geared toward building a healthy relationship and continually wooing the customer.

Getting a renewal requires effort throughout the contract – you want to continue to delight and surprise your customers such that they’re seeing value through the life of your relationship. If they find out about something else in the market that distracts them, you want them to be so in love with you that they put on the blinders, stay, and renew.

Begin explicit renewal activity six months in advance of contract expiration – if you’re keeping your finger on the pulse of the client relationship all along, then six months in advance of the contract expiration is the right time to begin renewal activity. Even if it’s with activities that are unbeknownst to the customer like looking at their usage data and prepping for renewal conversations.

Consider an autorenewal clause in advance of expiration – yourrenewal activities and communications might be automated, or your contracts might auto-renew so that if the customer doesn’t let you know they’re leaving from 60-90 days in advance of expiration, their contract renews.

What research should you conduct before the renewal conversations?

Research ahead of time is more important than any meetings or other activities – you need to spend the time to learn about the customer, their specific history with your product and company, and how you can best approach the renewal activities. Dig into:

The customer’s track record with you:
- Customer history – why did they originally buy? What did they originally buy?
- Usage – what is their utilization relative to what they purchased? Are they actively engaged? What is the northstar metric for adoption and usage and is that being hit? If they bought 100 licenses and only use 60, renewal is going to be an uphill battle.
- Accounts receivable – are they current with payments or not? How past due are they? They could be happiest customers but financial hardship can create potential for churn. This requires talking to accounting and finance.
- Support tickets – look at how many support tickets they have open. Too many can be problematic—but too few can be as well. If they never opened a support ticket that indicates a lack of engagement. If they have too many, look into whether it was user error, if they were never onboarded properly, or if it’s just a super user with a chip on their shoulder.
- Feature requests – if they’re requesting a lot of features, was this the right product-market fit? Did you sell to the right customer type in your ICP? Are they just really avant-garde? Or, is your product team not developing as fast as they should be?
- Engagement with your company – are they a member of your CAB? Have they done case studies or site reviews? Have they been willing to sing your praises at a customer industry conference? Are they active in the user community?
The customer’s company:
- Customer news alerts – the moment a CSM is assigned an account, they should set up news alerts for them. It will tell you about M&A, leadership changes, fundraising, etc. Integrations and connectors with CS platforms can make these alerts even more automated.

Internal prep meetings – whether the AE or CSM owns the meeting, they need to liaise and compare information. If there’s a separate renewals team, they need the necessary context to talk to the client intelligently. If whoever owns the renewal goes into the meeting unaware of the severity-1 bug they opened yesterday, that’s going to really annoy the customer.

How should you plan and prepare for your renewal?

Long before the renewal

Make sure you’re multi-threaded before the renewal – make sure that the value of the software isn’t just delivered—it’s known throughout the organization.

Ask early “is there any preventing you from being willing to renew” – a lot of CSMs are scared to ask this question before the actual renewal process kicks off, but you can ask that at month two. It catches the customer off-guard and you’ll get a raw answer with the runway to use the remediation playbook and fix whatever’s wrong.

To prepare for the renewal

Review customer data – the CS team responsible for the renewal should check in on the customer’s usage, support tickets, payment requests etc. as well as any relevant changes at the customer’s company (see research topics above).

Plan a call vs. just an email – getting customer consent for a call is better than just sending over a contract without context. Send a compelling email with an agenda previewing the conversation. Renewal considerations won’t be top of mind for your customer unless they can see the information easily in front of them. Of course, if you’re a product-led growth company in a monthly recurring revenue model like a Mural or Zoom, you probably only need to get on a phone call for renewals of your top customers.

If possible, discuss the renewal in a regular touchpoint – we sometimes call these “client celebrations”. When you’re doing regular touchpoints, you can slip the renewal into those conversations. Renewal is a natural conversation during QBRs, and it can make the renewal a non-event. You can tie the renewal into something exciting like a new product or feature that’s coming out (even if it’s after the extension date). It’s okay to combine these conversations if it’s the right audience.

Find out who can sign the contract for the customer and expect legal review – don’t wait until the 11th hour and find out that you haven’t been talking with the right person at the customer company. Make sure the contract signer will be informed and ready at the time you finish negotiations, and expect delays for legal review. Even addendums to an MSA might mean the legal team will review the contract.

Present the proposal to the customer as a pre-read – give the customer a chance to look at the customer before you talk about it on the call. Especially after the great resignation, you might have to resell all over again because the initial procurer isn’t there anymore. This might involve pulling up the contract and going through the original as well as the renewal changes together.

Consider using in-app messaging – if clients aren’t responding to email, in-app messaging can provide a second line of support to get your renewal messages across.

In renewal conversations

Expect the unexpected – your customers are going to throw some curveballs. Really do your homework and know they might ask you questions about the software and the industry. You’re the domain industry expert for them. Have confidence about your space and what you’re selling.

Start with value – first, focus on the value that they’re getting out of the solution—it’s more natural to ease into the conversation by comparing where they were with where they are now. You can look at how they hit their goals and what the key business outcome was for them.

Anticipate negotiation on renewal – enter the conversations with a list of gives and gets—know the levers you can pull. CSMs have to be empowered to make decisions that make the customer feel that they are getting a good deal. The gives could be discounts, invitations to your CAB, or offering favorable payment timing.

For approval

Have a clear internal approval process for renewals – if there’s a process to get approval of renewal terms, make it clear for the renewal team. They need to know how to get a response and where the deal-review process takes place. For Quote-to-cash, outline the key milestones that have to be achieved with digital approvals.

How should CS leaders and CEOs be involved in renewals?

A strong CS leader is a must, even if they’re not getting their hands dirty – getting renewals is a challenging and dynamic process. What worked last quarter may not work again this quarter. Having a strong leader that can keep their finger on the pulse will help enable success with your renewal playbook across your organization.

CEOs should only be brought in when their approval is needed – once you reach a certain stage of growth, CEOs should not be involved in renewals anymore—it will just signal that you’re small, plus the CEO should have something better to do. Leaders should be brought in when the list of empowerments CSMs have don’t satisfy the conditions of the customer relationship.

You need to have cross-functional alignment – renewal success should be mapped to company OKRs. You also need alignment to appreciate the customer history. For example, a contract cohort can make a big difference. At older companies, looking at contracts from certain eras will tell you a lot about how they think about the product compared to your current state. You have to delicately take them through the journey to where you are today and why the price and functionality has changed.

If most of your customers subscribe monthly or quarterly, what can or should you do to move more of them to annual plans?

Start moving to annual contracts with your net-new cohort – this is all a change management process—so start a date beyond which every new client signs onto an annual contract. Then, you can start changing the information on your website and other marketing materials.

Gradually convert current customers and articulate the value of the new model – space out the notifications in a full-drip campaign through in-app messages, notifications from the CSM, and potentially even a webinar about the value that the new model offers. Make sure you verbalize the benefits to the customer of the new mode and use proactive and consistent communication.

Give yourself 12 months to fully transition – it’s a slow process. In my experience, it takes about 12 months to make major shifts to payment plans or contract lengths. You’ll start with the net-new cohort and then factor in communications with your existing install base. As each comes up for renewal, you make it official. There will likely be exceptions that you grandfather in, but there should be an 80/20 rule to get the bulk of your contracts on the new model.

Multi-year contracts are the best model to get enterprise customer renewal – monthly plans are nightmares. They don’t give you time to demonstrate value; you might take three months to get a customer on the system. Even with a one-year contract, you’re starting the renewal conversation at 6 months before the customer is fully seeing value. Multi-year contracts give you more runway, but you need to combine them with strong telemetry data to understand usage data. Otherwise, you’re setting yourself up for renewals where there’s a delta between the contracted user amount and the actual user amount. Any offering with significant onboarding or change management needs, or high license quantity should use multi-year contracts.

How should you handle upgrades from a trial or proof of concept?

Pre-sale trials should not be recognized in the system of record as an active customer – a trial can be part of the sales process, and provisioning users and admins in a trial environment is fine. But when that data has to follow the customer into their production environment, that can be painful to execute. Clearly defined SOPs can make it work, but it’s seldom the case where the nuance is accounted for ahead of it. This sets the customer up for an experience that’s worse than starting off fresh.

If you offer trials or POCs, start with a specific cohort and test out a program- test it out, and say that everyone who signed in March will be on the trial program and we’ll talk to them and set expectations on time, value and work ahead of time. Then compare their conversion, renewal, and expansion rates to those companies that didn’t receive a trial or POC.

Build a mutual action plan – a mutual action plan says, “If you put X work in, we’ll put Y work in, and Z will be what you get out of it.” Crafting that upfront and setting expectations that you’ll follow through on will make sure everyone is on the same page.

Should you try to upsell/cross-sell at renewal, or is it better to manage those conversations separately?

Upsells/Cross-sells can and should happen at any time – sometimes the customer will say, “I need x now,” and you should rush to get it for them. You can prime CSMs to listen for certain buzzwords that signal a need for a certain upsell so that they know when to broach that conversation.

There’s nothing wrong with having an upsell conversation during the renewal – you might have a SOP that says if there’s an organic upsell conversation within 30-45 days of the renewal, the upsell should be bundled with the renewal. But you should be looking out for upsells at all times and you shouldn’t push CSMs to wait for renewals to talk about upsells.

If your upsell occurs mid-term, you can ask for an early renewal – if the customer is mid-term and they’re going to add additional licenses, you can get them to commit and renew the contract for even longer at that point. You’re likely getting a referenceable customer and you might even offer them the upsell for a discount to get them to renew early.

What should a subscription contract look like? Who should sign it?

It’s common for a subscription contract to have two parts:

The Master Service Agreement (MSA)
The Order Form

The MSA covers overarching legal terms – it often is saved somewhere on your website and linked to the contract (the same MSA can govern many different customer contracts). The MSA has to protect and balance the three parts of the “customer success triangle”

Customer experience – are the end users protected? Is their information and data protected? Is the customer revenue and payment plans and cancellations protected? This includes information on PCI and GDPR compliance.
Company experience – Are we protected legally in terms of revenue, IP, licensing, etc.
Employee experience – are we making promises that we’re capable of reasonably producing with our employee base?

The Order Form details the specifics of what this customer is buying – this is the child of the MSA. It’s the “contract”that shows what they’re buying and how much it should cost:

Stipulates what they’re purchasing
How long what they’re purchasing will be available for
Exceptions (commitments to minimum uptime)
Regulatory compliance (SOC1, SOC2, etc.)
Payment terms (frequency, currency, portal)

When renewal comes up, you only need to send a new order form – you may link back to the original MSA and you might even have stipulated that the MSA is subject to change—but oftentimes you only need a signature on the order form. It’s on the client to take the time to read the MSA. Mature buyers will ask for the MSA verbiage in advance and they’ll redline it, then it will go from an online version into an edited document that lives in the customer record and outlines your agreement. Some customers even require that the MSA is revisited on each renewal.

Automate signing with an e-signature platform – e.g. DocHub or PandaDoc. The order form shouldn’t just be sent over as a PDF in an email. Make it easy on the customer and send it in an e-signature platform.

How should you build in annual price increases?

A 7% annual increase is best practice for SaaS – the reason for this increase is to fund continual investment. It should pay for innovation and improvement and experts to guide the customer through their journey. Set the expectations around these increases upfront.

Some customers will negotiate for a renewal cap – certain companies will try to negotiate a cap on price increases over a certain period. These are unfavorable to you as the seller.

Stairstep price increases – if your customer needs 25 licenses now but expects to need 100 by the end of the contract, get them in at the lower rate now and build those increases in price and licenses stepwise over the life of the contract.

Whose job is collections? What should CSMs do if customers aren’t paying?

We’re all in sales, we’re all in CS, and we’re all in collections – if the company doesn’t get paid, we (the employees) don’t get paid. It’s not CS’s job to be a collections and dunning expert or to reach out and capture past-due payments—but they are stewards of collections and should have a can-do attitude.

Anyone who’s liaising with the client needs to be aware if there are any payment issues – define and curate the right payment SOPs to fit the skillsets of your CS team to make them help. There should be a collections manager in the finance and accounting team who owns payment collection outright. There also has to be regular reporting (an automated feed into C360 or health scorecard) on payment status so that every team has visibility.

When the problem persists, pause access or services – particularly if you’re doing a professional services engagement, you should stop expending resources until the customer is current with payments. But your org needs to be in lockstep on this and everyone needs to be aware of the decision and able to chime in. If you do pause access, don’t wipe their data right away.

What are some challenging renewal situations that arise, and how can you handle them?

Situation	What to do
Multiple customer stakeholders need to sign off	Take a multithreaded approach from the beginning – make sure you get all parties together on the phone and set shared goals and expectations (particularly if they’re new). Make sure you know who will be signing the contract. Start renewal convos 6 months in advance – it should begin this early because you’re doing discovery as if it’s a new sale.
A champion has left the customer’s company	Hopefully, they let you know in advance – the best scenario is when a customer resigns with you before they tell your company. Become multithreaded – if you have multiple relationships, you won’t be worried about your single loudest champion leaving the customer company. Get three intros to different departments and levels from the champion – ask the person leaving who the real decision maker is and important facts about them. Who do you need to know, what matters to them, what guidelines are they bound by, and what metrics are they held accountable for? Look for superusers as replacements – if you don’t have other champions, you need to beg borrow and steal another champion. You might look at the usage data, find a super-user, and reach out to them to build a relationship.
Renewals get stuck/blocked by procurement	Procurement teams will throw everything out the window – if procurement is in the mix, they don’t care about the value—they’ll go out and do market industry research and look at the bottom line. We’ve had clients say that the contract needs to be on their paper, so you give us the pricing and the client will write the contract and send it to you. It can really take a long time and they’re going to be a pain.
A customer has low usage or satisfaction	Get them on the phone and find out why – if you can’t do this, then it’s further information that this account is at risk. Make sure you have a mechanism to forecast account risk from a revenue retention perspective. Ask yourself if the customer is the right fit – are you better off cutting your losses because they’re not a good target customer for you? You can kick the can down the road if you give them a discount or free usage, but you’re just putting off the churn to show the revenue. Fix the underlying reason why usage/satisfaction is low – figure it out and then devise a plan. Sometimes they need a new feature—or they’re not using it properly, or they’re not aware of the full scope of your offering. Usually, there’s an angle you can work. Find it and craft a solution accordingly. When all else fails, we’ve literally had a CSM show up with donuts at a client’s office.
A customer has grown a lot and there’s a big true-up	Have early renewals or adjustments where you account for growth – there should never be a surprise where a customer grew their usage and you didn’t know it; you should be charging them a proration. If they add 50 users in month six, you need to charge them. If you don’t and you arrive at renewal, then asking them to pay for those is going to be a tougher conversation.
A customer is in financial distress	Do what you can for them and treat them with respect – during COVID, it was important to be a good partner and treat customers with kindness. You never know when they might come back to you, whether it’s when the company is in better straits, or at a different company. Figure out why they’re in financial distress and see if there’s a path forward – if it’s a temporary issue, you could extend payment due dates and work with finance and accounting for empowerments that can help you work with the customer—even if it’s keeping the account at a contraction.

What are the most important pieces to get right?

Get the mechanics right – the devil is in the details with renewals. There can be issues between information in the contract and the system, or pricing change that isn’t reflected. These finite details can cause revenue leakage. Do the work upfront to save time and money on the back end.

Start preparing for renewal early on – you want to start thinking about renewal from the day that the customer signs on. You should at least be focused on capturing information and research about the customer.

What are the common pitfalls?

Lack of preparation for renewal conversations – take the time and do the research about your customers. Think about the people behind the seats and licenses that you’re selling. Know your system and support tickets and the companies that you’re selling into. You want to make them look like a hero internally and support their success.

Forgetting that your customers are people – at the end of the day, people come to your software to solve a problem that might mean they get their work done faster and can get to pick up their kids sooner. If you can help them do that, you’ll likely get their renewal.