Renewal time is like a birthday. It comes round at the same time every year and, if you’ve been good, people give you nice things. The difference with b2b subscription renewals is that you’ve got to work for it – and justify it. Karen Prevezer, Head of Pricing at LexisNexis, recently gave us some insight into how it’s done.
Show me the value
For companies that are new to charging a subscription basis, the idea of raising the price each year may seem strange. If a customer buys a one-off product, you can’t go back a year later and explain that the price has gone up and you need more.
But Karen explains that this is a key characteristic of the subscription model: “Hopefully you are constantly investing in your product, which means that your customers have a better, more useful, more valuable product than the one they originally subscribed to. That investment should correspond to an uplift in the price. You can’t go back to your customers every time you make a change – so that’s what the renewal uplift is for.”
The key to calculating – and justifying – that uplift lies in explaining the value. You need to talk first to the product team and find out what changes they have made and the difference that makes to customers. How does it add value? How has it made their lives easier or given them some kind of business benefit?
You’ve got the numbers to prove it
Karen then recommends taking a look at your customers’ usage metrics: “If you can see that a customer is using the product, you can talk to them about the value they get from it, and how the improvements will add further to that value.”
However she also warns that this doesn’t necessarily mean that your price (or indeed the uplift) should be based on usage: “There is a danger that usage-based pricing will discourage them from using your product – but it gives you grounds for a reasonable conversation about how they get more value every year with your product. Because the proof is there in the usage numbers.”
This becomes more difficult if you offer multi-year deals. Multi-year deals positively impact retention, but there is no uplift in those interim years. Where you make improvements to your product you are unlikely to be in a position to ask for more money during the multi-year deal. It also makes the renewal conversation harder if you haven’t had a regular dialogue with the customer about the ever-increasing value you provide. The customer’s team may also change over this time period, meaning establishing relationships with a different team with different plans. Choose your targets for multi-year deals carefully.
Always be renewing
Retention is a key growth driver for your business. The renewal uplift is not a conversation to be afraid of. We think you should get used to asking in the first quarter, “If I were to ask you to renew today, what would you say?” And repeat. It is a great opportunity to talk about the value you need to provide, progress you’ve made, and show your intent to strengthen your relationship with the customer.