Your Pricing Strategy Is More Than a Plan for New Logos—Why Renewals Matter

At times it may seem that the shiny new toy is always better.  A common mistake that many firms make is ignoring their existing customer base and focusing on marketing to and acquiring new logos.  There’s still value in your existing customers, and your pricing strategy can make these customers assets for your long-term growth strategies.  As stated in the 2020 SBI Revenue Growth Workbook:

“You can’t always meet your growth goals through new accounts. Creating a renewal strategy enables you to capture more market value. Growing your base business can be essential to making your number, particularly as your business matures.”

What does this have to do with pricing? Isn’t this all about customer success? Well, any good pricing strategy acknowledges and creates a plan for both capturing and assessing renewals. Having a good strategy will ensure one thing that is almost always true; you get more renewals, more upsells, and more net revenue retention from your largest customers.  Companies can see 80% – 120% net revenue retention through renewals with best-in-breed being 95%. This is especially true for SaaS companies.

Download this tool to determine if your organization understands the key considerations necessary to craft an effective pricing strategy for renewals.

Today’s B2B World Is Continually Following the Pricing and Purchasing Patterns of the B2C World

The average consumer between the ages of 25-40 has 7 monthly subscriptions.  This includes many non-traditional subscription models like shaving and wardrobe.  Company’s like Amazon are able to upsell to consumers with good, better, and best service options like Amazon Prime.  Could you imagine 10 years ago thinking about paying $100 a year just to be able to get anything you need sent to your doorstep in 1-2 days instead of 3-5 days?  This upsell and convenience has led to loyalty and repeat purchasing. This is the same mindset your business should have with its customers. You can accomplish customer loyalty through many avenues: Customer Success, Account-Based Marketing, or even a well enabled sales force, but also through your pricing strategy.

Discounting Is the Bane of All Price Execution When Executing on Renewals

 

Unlike the B2C environment where companies set a price, your customers often expect a discount in return for their loyalty.  They are well informed on the market, other vendors, and expect you to be ready to extend discounts without a decline in service.  This is where your pricing strategy comes into play.  It is easy to discount your way to declining revenue.

Here are a Few Do’s and Don’ts for Your Pricing Strategy On Renewals:

• Do: Understand your competitive position in the market – You can be advantageous based on your perceived value to the customer. If you are seen as the best option, then you can afford to have a rigid discounting structure. Surveys are an excellent way to determine your market positioning.
• Don’t: Assume that renewal pricing is automatic – Customers often renew because they need your services, they are happy with the product, or because there are no alternative options. Though it is likely, you may not need to do much to renew. You should always make the customer aware of the renewal price, engage them in negotiations, and offer cross-sell and upsell opportunities with bundling and good, better, best options for the price.
• Do: Include your plan for renewals in your annual planning – You must know where the money is going to come from to plan your renewal strategy. That strategy can be aggressive with additional resource allocation or moderate with more of an inside sales and marketing approach.  It all starts in your annual planning.
• Don’t: Plan for lower discounting without a clear price execution strategy – Price leakage is a big deal with renewals. The more leakage allowed; the more contingencies need to be in place to counter that leakage.  If a 10% annual discount is expected on a renewal, then you must counter with an upsell or cross-sell to mitigate the leakage.
• Do: Increase list pricing – This helps counteract price leakage through discounts as well. Just as renewal customers expect a discount, you can set the president that list price is also going to rise.
• Don’t: Increase list price without a story or additional product, service, or offering – Buyers are educated. They will need to justify the rise in cost. You can do this through additional program offerings.
• Do: Track the retention and attrition rates for all price increases – Understand what customers are price sensitive and what customers are not. This will allow you to create special programs for the customers that are price sensitive while maintaining the price for those that aren’t.  Start with your customer segmentation parameters.
• Don’t: Neglect communication – Customers want to know what they are paying for. Communicate early, and often that price changes are coming, that new products or offerings are approaching.  This gives you some leverage in negotiations.

   

The biggest takeaway is not to remain stagnant.  Continue to grow revenue through existing customers by staying one step ahead of price leakage through a proper pricing strategy and annual planning.  You must test the market and understand the landscape for Renewals in your industry.  Download this tool to determine what key considerations you are ready to test.