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Customer retention: the rising importance of renewals in the SaaS era

By Starr Hill-Bennett

Renewals equate to customer retention, which has always been crucial to the long-term success of software as a service (SaaS) solution providers. In the era of perpetual selling, renewals and maintenance were much more straightforward because the commitment to “owning” the software made customers more reluctant to abandon an investment and make necessary IT infrastructure changes. However, the complexity of adopting new solutions disappeared with the industry-wide move to software as a service (SaaS).

The importance of renewals in the subscription economy has evolved and grown significantly with the move to SaaS. SaaS accelerated access to technological advancements, changed buyer preferences and shifted how SaaS providers like Siemens Digital Industries Software and its partners operate and compete.

The critical shift brought on by SaaS

Let’s examine several key factors driving the software industry’s evolution, highlighting how and why renewals are more critical than ever. 

  • Market maturity and competition: As the SaaS market has matured, customers are not the only ones benefitting from SaaS’s ease of entry. Competition has intensified because startup and niche software providers can focus on product functionality and how they go to market. They rely on hyperscalers, like Amazon Web Services (AWS) or Microsoft Azure, to provide the needed IT infrastructure and systems integrators for implementation. The result of this increased competition is more challenging and expensive customer acquisition; on average, companies spend $1.78 to acquire $1 of new ARR, making the focus on customer retention and renewals a more profitable and sustainable growth strategy. 
  • Customer expectations and experience: Customers today expect more from SaaS companies in terms of product quality, customer service and overall experience. They are more willing to switch providers if their expectations are not met, and with cloud-hosted services, it is simpler and less costly for a customer to switch to a new solution quickly. This has pressured SaaS companies to attract customers and continually engage and meet their expectations, making renewals critical to a business’s survival. 
  • Shift toward customer success: Our industry has shifted from merely selling software to ensuring customer success. SaaS companies now have customer success teams whose primary goal is to ensure customers achieve their desired outcomes and realize tangible business value, thereby increasing the likelihood of renewal. This approach reflects a long-term strategy focused on building relationships, delivering business outcomes and maximizing customer lifetime value. 
  • Economic pressures and cost sensitivity: Economic uncertainties and pressures have made businesses more cost-sensitive. Organizations are closely examining their software subscriptions to ensure they are receiving a return on their investment. SaaS companies like Siemens and our partners must demonstrate continuous value to secure renewals, especially in a tight economy where budget reductions are common. 

These are just a few of the changes in our marketplace that, along with the evolution of SaaS, have made renewals an essential focus. Siemens and its partners are investing in strategies and technologies that enhance customer engagement, satisfaction and success because we understand that sustainable growth increasingly relies on expanding and retaining our existing customer bases through renewals. 

Threats to renewals

Focusing on renewals cannot wait until a subscription or contract is ending. A proactive customer success approach is vital throughout the life of the customer relationship. Customer Success teams are crucial in delivering a great experience and meeting customer expectations. Customer Success Managers identify and address potential roadblocks to adoption, ensuring customers realize the full value of their purchased solution and are motivated to continue their partnership. Effective Customer Success teams exponentially increase customers’ likelihood of renewing, often leading to larger total contract values.

Because of the critical importance of renewals, this summer, we plan to provide our partners with a full enablement curriculum centered on renewals. This learning track will help partners understand the changes driven by the move to SaaS and the LAER customer engagement model and highlight the critical actions needed to ensure our customers’ success.

In the meantime, we encourage you to leverage the ever-expanding SaaS-focused enablement available in Siemens Partner Academy.

About the author

Starr Hil-Bennett

Starr Hill-Bennett is a Senior Partner Executive at Siemens Digital Industries Software focused on enablement and readiness initiatives for new and existing partner individuals. She and her team spearheaded the role-based partner onboarding program and work to continually improve and stay abreast of market trends, business climate, and required skills to prepare partners for success.

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This article first appeared on the Siemens Digital Industries Software blog at https://blogs.sw.siemens.com/partners/rising-importance-of-renewals/