Has social media improved human connections? Can we really say video killed the radio star in our golden age of podcasting? Is it ever okay to wear socks with sandals?
The world is full of age-old questions that continually spark, often heated, debates. But to tap into one of the biggest quandaries of the SaaS zeitgeist… who should own customer renewals?
Should it be sales? Customer success? Account management? Or perhaps a specialist renewals role? Understanding the nuances of this question is important as establishing the best avenue for your business could have a dramatic impact on your annual recurring revenue (ARR).
But when asking if customer success teams own renewals, it can get pretty divisive. It’s a dilemma for a good reason and one we explore in this article:
- Why we should “farm” and not “hunt”
- Accountability for renewals
- A case-by-case analysis of renewal responsibility
Farm, don’t hunt
There’s been a huge movement in the customer success space since Guy Nirpaz’s seminal book, Farm Don’t Hunt (2014) flooded our bookshelves. The central thesis to Guy’s argument is that traditionally in business, the “hunters” are the people who go out and try to secure new business opportunities – they hunt. Whereas the “farmers” are those who take care of nurturing the client relationships to secure a renewed contract or account growth through upsells or cross-sells.
Guy believes that companies should focus on building a customer-centric culture and leveraging customer success as a strategic growth driver, rather than relying solely on the pursuit of new logos.
Ultimately, data has shown that farming (retention) is far more economical and reliable from a growth perspective than hunting (acquisition).
“The cost of acquiring a new customer can be as much as five times higher than retaining an existing one.”
You’ll have probably seen this statistic do the rounds over the past few years, and for good reason – it’s true! There aren’t an infinite number of prospects out there, especially if you have a niche business model and target audience. Companies cannot function on new sales alone.
Much like our hunter-gatherer ancestors once discovered, hunting can only take you so far. Establishing a settlement to build upon your current assets is the more sustainable approach. To escape the very real threat of extinction in an overly competitive market, businesses need to focus on retaining their current customer base (through renewals) and growing it (through upsells and cross-sells).
Accountability
Whoever’s responsible for this delicate and revenue-defining moment in the customer journey needs to be held accountable. Tarek Seth, Senior Customer Success Account Manager at Microsoft, noted during a panel discussion at Customer Success Festival New York 2023:
“One thing that needs to be established, regardless of what process you decide to go to, is there needs to be a defined owner in terms of the responsibility."
Clearly defining who owns renewals is crucial because it assigns responsibility, ensuring there’s accountability for managing the renewal process effectively. Without a defined owner, there could be confusion or gaps in the process, leading to missed opportunities or customer churn.
The case for who should be responsible for renewals
In a lot of companies, the responsibility for renewals will depend on the maturity of the organization. Typically, in smaller, less mature companies, there will be fewer resources and departments may be doubling up on responsibilities and wearing many different hats.
For example, customer success may take on support jobs, or account management; digital marketing might oversee on an overwhelming breadth of channels; or sales could look after delegate sales, sponsorship, and even account management. Similarly, product managers might find themselves involved in customer research or even basic development tasks.
In tough economic times where bagging new logos are few and far between, the demand for ensuring successful renewals is paramount. Understanding who’s responsible for handling a customer’s renewals, and therefore a good portion of revenue account expansion (NRR, ARR, or MRR), puts the owner in a unique position.
One of the constant battles customer success teams face is the difficulty in tangibly tying revenue to their work. Unlike sales teams with clear metrics , customer success often struggles to quantify its impact on a company’s bottom line. Being responsible for renewal revenue proves the value of customer success in a whole new light.
But unfortunately, there isn't a black-and-white answer to the question of who should own renewals.
There are, however, a number of qualified candidates for owning the renewal process: sales, customer success, or account management. Let’s explore the different models of renewal ownership:
Situation #1: Sales own renewals
Sales could do the job, they’re certainly well-versed in the art of commercial relationships, specifically knowing how to negotiate tricky deals and high-stake enterprise clients. After all, they’re the ones who’re closing the deals in the first place!
Length of sales cycle:
A lot of times, renewal responsibility will boil down to the complexity of the sales cycle; and how long it’s taken to nurture the relationship from prospect through to customer.
If it’s taken your sales team a considerable amount of time to build the relationship and win the deal, it doesn’t make much sense to pass the baton to someone less qualified. This is especially true if your company doesn’t have the appropriate infrastructure (read: no customer success or dedicated renewals teams).
Leaving sales as the primary contact for the customer ensures continuity and leverages the trust and rapport already established.
Another point to raise is targets. Sales teams are notoriously driven by revenue targets, and having them own renewals aligns their incentives with the company’s financial goals. This can lead to more aggressive and successful renewal strategies.
Stay in your lane!
For many who work in customer success, sales are the embodiment of, well… sales. Of money, revenue. Whereas customer success teams are value-led and are preoccupied with ensuring their conversations with clients are strictly about the value of your products and services, not focused on that sweet, green bill.
Under this model, sales would own new logos, sales expansion, and renewals, leaving customer success to focus on value realization, enhanced product usage, and adoption. (In this situation, there’s no account management team.)
Counter case:
Sales teams are generally focused on closing deals rather than nurturing ongoing customer relationships. This can lead to a transactional approach to renewals, where the focus is on securing the contract and recurring revenue rather than ensuring the customer’s long-term success. Such an aggressive approach could alienate customers if value isn't at the core of the renewal conversation.
If sales teams are responsible for both new business and renewals, they may become overstretched. This could dilute their focus, potentially leading to lower success rates in both areas.
Situation #2: Customer success managers own renewals
The second option would be for customer success to own renewals and expansion. This is where the conversation gets divisive.
Renewal is a crucial stage in the customer journey – a company’s ARR hangs in the balance. The stakes are high. The sensitivity of the situation means that some people are skeptical that customer success managers possess the necessary skill set and commercial finesse to complete the renewal.
However, customer success teams are in a unique position. They know the customer inside out. They’ve been with them since onboarding, since the welcome email. For a lot of companies, their enterprise and strategic accounts are introduced to customer success before the sale takes place. This tactic is not uncommon and is a highly strategic move to enforce the company’s dedication to the prospect’s success with its product.
When CSMs own renewals, the focus remains on what is best for the customer rather than purely on revenue growth. CSMs are dedicated to understanding and meeting the customer’s needs, ensuring that the renewal process is aligned with the customer’s long-term success, not just short-term sales targets. This customer-centric approach builds trust and loyalty, which are crucial for securing renewals.
Under this model, sales are purely focused on new logo acquisition, and customer success is in charge of value realization, enhanced product usage and adoption, plus renewals and expansion.
But do customer success teams own renewals?
This year, we surveyed hundreds of customer success professionals to see what the current customer success landscape looks like and who’s responsible for what in 2024.
These valuable insights formed the fourth edition of the State of Customer Success report, holding up a mirror to how CS is being conducted and what the current sentiments surrounding CS.
- 49.5% of customer success teams are responsible for all expansion: upselling, cross-selling, and renewals.
- Only 11.8% of customer success teams are solely responsible for renewals.
Our research shows that nearly two-thirds of global customer success teams are responsible for renewals.
Situation #3: Account managers own renewals
Emily Garza, Head of Customer Engagement at Unit21, suggests a “divide and conquer” strategy between customer success and account management, where the “CSM does all of the work leading up to that successful outcome, and the account manager comes in and does the negotiation and paperwork."
In this situation, account managers are responsible for renewals and expansion, leaving sales to focus on new logo sales, and customer success to drive value and product usage and adoption. With account management owning renewals, the position of CSMs as the customer’s “trusted advisor” remains intact, and the account manager acts as a hybrid between sales and customer success.
In fact, this is precisely what account management is designed to do – focus on revenue generation. Customer success may be in the position to provide incomparable customer insights, but they’re primarily concerned with long-term value creation. They’re typically tasked to enhance the customer experience for sustained loyalty and long-term revenue generation.
Account managers, on the other hand, are revenue-led, with the end goal of keeping high-value clients happy and dealing with the financial aspects of renewals, up-selling and cross-selling.
Grace Gupta
Situation #4: A specialist renewals role
As your organization grows, you might consider moving the transactional parts of the renewal to a specialized renewals rep.
A dedicated renewals team can manage this workload more efficiently, ensuring that every renewal is given the attention it needs. This specialization also allows for the development of streamlined processes and best practices that can be scaled as the company grows.
This allows CSMs to focus on their consultative role, ensuring the customer’s success, while the renewals managers handle negotiations, paperwork, and other logistical tasks related to renewals.
However, it should be noted that introducing a specialist renewals role can create confusion about responsibilities between sales, AMs, CSMs, and the new renewals team. Clear delineation of roles and effective communication is essential to avoid overlapping duties or gaps in customer management.
In smaller companies, dedicating resources to a specialized renewals team is not likely to be feasible from a financial perspective. The cost of hiring and maintaining a renewals team might outweigh the benefits, particularly if the volume of renewals doesn't justify the expense.
In addition to this counterargument, specialist renewals managers might become too focused on the mechanics of renewal, potentially neglecting the broader relationship dynamics that CSMs or AMs might better manage. This could potentially lead to renewals being handled in a more transactional manner, which might not resonate well with customers who expect a more holistic approach they’ve been used to with their CSM.
Grace Gupta
Have we got a final answer to this SaaS conundrum?
As we've seen, there's no one-size-fits-all answer. It's a delicate balancing act that depends on your company's size, structure, and stage of growth. Whether it's sales, customer success, account management, or a specialist renewals team, the key is to have a clear owner and a coordinated effort across departments.
Remember, renewals aren't just about maintaining revenue – they're about nurturing relationships, delivering value, and fostering long-term growth. Renewals are more give than take.
The bottom line? Whoever owns renewals needs to embody the farmer mentality. They should be cultivating customer relationships, nurturing growth, and harvesting the fruits of customer success. After all, in the world of SaaS, your existing customer base is your most fertile ground.
So, take a good look at your organization. Who's best positioned to tend to your customer crop? Who can balance the art of relationship-building with the science of commercial savvy? They're your renewal owner.
