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The new renewal playbook: Winning over cost-focused customers with Adil Dittmer
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To get renewals in the door, CSMs need to change their approach, says Adil Dittmer, head of customer success at Testbox. Adil brings a unique perspective on renewals as the former director of customer success at Tropic, where he helped finance, IT, and procurement teams design purchasing workflows for more than 20,000 software purchases.
In our webinar, “Beyond ROI: Reverse engineering the buyer journey for renewal success,” Adil shares how CSMs can manage renewals proactively by decoding the buyer’s mindset.
The webinar’s Q&A session covered topics including when CSMs should start renewal conversations, how to empower CSMs to handle pricing adjustments, whether offering customers early-renewal incentives is an effective tactic, and much more.
How to talk to your customers about renewal and pricing with Adil Dittmer
Q: If your goal is to establish a renewal process that begins before a customer is 90 days out from their contract end date, how do you determine when renewal conversations should actually begin?
Adil: If you break the renewal journey into categories of common steps that every company follows, you can develop a survey that asks very tactical questions like when is your budgeting season, and who needs to be involved in those decisions?
Sales teams are hardwired to do that level of discovery and figure out exactly what the customer’s buying process looks like during the initial sale. Sometimes, we don’t do as good of a job with that in the renewal.
I’ve overseen many new purchases and renewal purchases, and for a lot of companies, renewals are a simpler process than a new purchase. But for many companies, it’s exactly the same.
If you can automate sending surveys to gather proactive data and bucket customers into where they are, you can create tasks built around your customers’ calendars instead of focusing on your own.
Q: How can you empower CSMs to engage in conversations about pricing adjustments and contract terms?
Adil: It depends on the maturity of your business. More mature companies are going to have more steps and decision-makers involved in deciding what the internal standards are for those renewal discussions. In those cases, the most important thing is to empower your team to understand what they have the flexibility to do.
For example, if you work at a company where CSMs have to escalate discounts to a manager, a deal desk, or something like that, that’s going to be really difficult to scale.
Instead, establish a threshold for discounts. For instance, you can authorize CSMs to offer discounts up to a specified limit or to extend payment terms from net 30 days to net 45 days.
By understanding levers beyond pricing, you can empower your organization to scale more effectively by giving people the power to decide what they can offer.
Q: You encourage discussing benefits beyond ROI during renewal conversations. What approach should you take if the customer redirects the conversation to focus on financial benefits?
Adil: I’m so glad someone asked this question because I am not saying to never talk about ROI. I am saying don’t present ROI as your central story if the customer hasn’t asked for it. The key to all this is empathy. It’s what does the customer care about?
Some people will make their buying decision based on ROI. If they’ve told you that, you need to partner with them to understand how they are calculating ROI internally and how you can help them make that business case. Oftentimes I see CSMs calculate ROI in this one rigid way over and over again while their customers calculate ROI differently.
From a procurement perspective, there’s this idea of cost avoidance. For example, a customer could have had to pay a 4% uplift, but they didn’t. That has tangible value. There’s also cost reduction. For example, last year a customer paid $100,000, and this year they paid $90,000. That is $10,000 in cost reduction. But if you’re calculating ROI one way and your customer is calculating ROI another way, your ROI equation will not matter to them anyway.
Make sure that if you’re having that ROI conversation, it’s based on what the customer wants to talk about and the way they calculate ROI so that you don’t spend your “tug-of-war time” arguing about what the ROI is and instead focus on how they define value and whether it meets the standard where they’re going to be willing to sign off on that renewal.
Q: How should you first approach customers about their renewal?
Adil: It depends. You can be a little selfish with this one. I know I’ve talked about being empathetic, but the reality is that if you have over 100 accounts, you’re going to have to prioritize them at some point.
If you notice that a high percentage of your renewal conversations turn into back-and-forth negotiations where your initial proposal isn’t strong enough for your customer to agree to evaluate the options, pick something, and move on, then you’re adding operational overhead from an efficiency standpoint.
One way to streamline the conversation is to have your first touchpoint earlier. There’s a little bit of experimentation that has to happen to find the sweet spot where you’re not having back-and-forth conversations for the majority of your renewals.
Going back and forth with customers is a key signal that you’re either not hitting the mark on getting in front of them early enough to help them make these decisions, or you’re not speaking the same language they are in terms of how they’re making their renewal or buying decisions internally.
Q: What strategies can be used to communicate a substantial price increase to all customers?
Adil: Someone earlier said: skate to where the objection puck is going. And it’s true. Anticipate getting pushback from a large percentage of your customers.
Provide as much enablement as possible to proactively help your CS team manage those objections. Give them talking points about why you’re making the price increase and the value behind it.
Ultimately, your customers are going to see it as a self-serving thing that you need to do. You just have to expect that there’s a higher bar that you’ll need to meet to justify the renewal to those customers.
But you should expect every customer to push back. Every happy customer is budgeting to spend no more than they spent last year with you. Every less-than-happy customer is having internal discussions about how they can do without you. If you start with that hypothesis and work backward from how you can secure the renewal, you’ll end up with more closed-won opportunities.
Q: Do you recommend offering customers an incentive for renewing early?
Adil: I’m a big fan of this tactic. It goes back to reducing that operational overhead. The majority of renewal conversations come down to the value the customer is getting for their money.
Depending on your company’s financial position and goals, incentivizing your customers to sign a renewal early or sign a long-term contract can be a great way to ensure you’re partnering with your customers ahead of time.
To position the conversation, you can say that you’ve noticed things have been tough and that a lot of your customers are struggling with their budgets for next year. Point out that your partnership with them has been going really well and if they commit to a longer partnership, you can offer them a special incentive.
It’s also important to remember that it’s not just what you offer, but when. If you present your customers with an offer four weeks before they go into their budgeting cycle, it will be much more impactful than if you wait four weeks after they’re done budgeting to share your offer.
Q: To gather information about a customer’s operations and goals, should CSMs meet with the customer’s finance and procurement team or stick to their account’s main POC?
Adil: A lot of that will depend on the size of the segment or the size of the customer. The reality is that it’s probably not scalable for you to create more points of contact in an account that care about more things. Instead, you want to enable your main point of contact to have those internal conversations.
As a CSM, there are people who you might work with, depending on the vertical you’re in, who don’t have a strong grasp of their own internal renewal process. They might make a recommendation to a manager or to someone else in their organization about what they’re going to purchase.
To ensure your POC is well-prepared, especially if they seem unsure about the steps needed for renewal or are new to the organization, give them a playbook and a list of important questions to consider.
You don’t want to get to a point where you and the customer are very satisfied, and you’re helping them in their work, and then they try to make a business case to their head of finance or head of operations to renew your product only for them to discover that there was an internal process they didn’t know they needed to follow. Have your CSMs help their main POC through those steps, rather than sign themselves up for more meetings with other stakeholders.
Q: What are some examples of pricing or payment options that balance your company’s objectives with the financial needs of your customers?
Adil: Typically, when you’re thinking about terms, you’re going to want to think about the total contract value and the annual cost of that contract. If your customer has a one-year contract, the total contract value is just the cost of that one year. But if their contract terms go beyond a year, consider how you can set up those costs in a way that scales with the expected growth of the company. For example, they could pay less upfront.
Payment terms are also going to be important too. The number of days you give a company to pay their invoice affects their cash flow.
Oftentimes companies will ask to not have an auto-renewal clause in their contract. That’s something that is very beneficial for the vendor from a scaling perspective. But the reality is, if you are trying to lock someone into renewal just by saying they contractually can’t get out of it, that’s not really a place of partnership. If you put them in a bind to agree to pay for one more year, it almost guarantees that they will go elsewhere once the contract ends.
Q: If ROI isn’t the sole focus of a renewal, should QBRs be a part of the process?
Adil: Yes. If your organization conducts QBRs and does so in the way that we all say we want to, which is to have a strategic conversation with your customers about what matters to them, then you have an opportunity. During those conversations, you can emphasize that this is still a business relationship and ask the customer about their top financial concerns and objectives.
Every organization, even nonprofits, needs to make money from a sustainability perspective. Bring that conversation into your business review in a way that shows you’re trying to understand how the customer is thinking about spending money on tech partners and software. Because that’s an important part of the partnership.
However, I caution against creating the same ROI slide for every single customer in a QBR because that’s a scalable way to oversimplify how you deliver value to each customer.
If you enjoyed this article, you might also like: How customer success can use storytelling to drive renewals. You’ll learn a simple framework and tips CSMs can use to develop compelling stories with high fidelity.