The rise of cloud computing has made it easier for cloud software vendors to acquire new customers. It has also made it harder to keep them.
We consistently hear from cloud vendors that they have no problem winning the sale, but if their customers have not been consistently using the software – and getting clear, measurable value from it – they don’t renew their contracts.
Cloud software providers are looking for new ways to retain customers
When I talk with cloud software executives, at some point, they always ask me for advice on how they can improve customer retention and maximize profitability. I often find that there are a lot of structural and procedural issues within the software vendor’s organization (not the client organization) that prevent this from happening.
7 things cloud IT software vendors can do to increase IT adoption & customer retention
The key here to customer retention is to make sure the clients’ users are fully adopting the system and getting the most value from it. Here are seven steps you can take to help make this happen.
1. Include renewals in sales incentive compensation plans
Several cloud software vendors tell us that their sales reps are incentivized based on the amount of the initial sale only. Consider the leveraging power of aligning incentive plans so that your sales representatives develop and maintain long-term relationships with clients.
2. Pay commissions on payments received (cashflow), not initial sale amounts
Some cloud software vendors tell us that commissions are determined by the amount listed in the initial contract documents, and the salespeople are paid when the customer signs up. However, many vendors also find that over time – especially when they get closer to the renewal date – the sales reps will give away refunds, free services, or other concessions in an attempt to retain unsatisfied customers. All of this comes at a cost for the software vendor, but without any penalty to the sales rep.
Instead, software vendors can stagger commission payments to match cash received from customers. This added flexibility allows you to make adjustments based on any late-term concessions or giveaways to the client.
3. Set targets for an increase in customer licenses and additional services sold, not just initial sale
Many customers adopt a “try before you buy” approach to cloud software purchases. They will often start with an initial purchase for a small number of users and/or limited system functionality. They will then increase their spend only if they are getting value from the system.
Cloud vendors looking to improve profitability can include account expansion and retention goals in their compensation plans.
4. Weight commissions based on customer satisfaction
Customer satisfaction is another element that influences (and may predict) customer retention. Instituting a program of regular measurement of customer satisfaction and tying compensation for sales reps, or even all employees, based on customer ratings, will further incentivize staff to focus on developing positive, long-term customer relationships.
5. Incentivize commissions based on customer profitability, not gross sale
In attempts to boost customer satisfaction and retention, some sales reps may go overboard in client entertainment, giveaways, or other such things that come at a cost. To help make sure sales reps are focused on overall profitability – while giving them the freedom they need to cultivate positive customer relationships – commissions and bonuses should be based on the overall profitability of the client relationship.
6. Obtain customer renewal criteria before the initial sale
Going into any sale, you know you need to retain customers past the initial contract period. They know they want to minimize the cost and hassle it takes to switch vendors, yet they also need to make sure they are getting a positive ROI on their IT investments.
Before you even sign the initial contract, get your customers to define in writing their renewal criteria. By getting the customer to agree on upfront on how and when they will decide if they are going to renew, you can align all of your efforts to helping the customer achieve the desired business results. This will save you time and money later while also giving you improved insight when forecasting anticipated customer renewal amounts.
7. Partner with IT adoption experts to make it happen
IT adoption is a people and organizational issue, not a technology issue. Most cloud vendors do not have the expertise or service capabilities they need to help the customer maximize and sustain user adoption. Instead, they can partner with an organizational change and IT adoption company that has specific services and expertise in this area. Doing so is one of the fastest and easiest ways to preserve revenue and retain customers.