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How to manage renewals and expansion is one of the most hotly debated topics in the Customer Success industry. Here’s how we do it at Gainsight.
The CSM team has always owned renewals and upsell; we’ve always had a net retention goal. Sometimes customers contacted their Account Executive from the original purchase (a member of the Sales team) to request additional licenses, but the vast majority of upsell was driven by the CSM, who was most familiar with the customers’ needs after the sale.
As a result, when we hired our first Renewals & Expansion (R&E) manager over the summer, we simply achieved greater specialization within the Customer Success team. He reports into Customer Success.
Why Build a Renewals & Expansion Team
We found that once we reached a certain size, it didn’t make sense for CSMs to own renewals and upsell because of:
- Skill Set: Selling requires a different skill set from the primary responsibility of CSMs: advising the customer about their strategy for deriving value from the product.
- Advisor Role: CSMs sometimes feel that having to discuss pricing with customers compromises their ability to serve as the trusted advisor to the customer.
We also didn’t think that Account Executives on the Sales team should ultimately own renewals and upsell* because of:
- Skill Set: Selling to an existing customer requires a different skill set from selling to a new customer. For example, analytical abilities are particularly valuable in R&E roles, given that more data on the customer is available. It’s important to be able to diagnose what has gone well and what hasn’t, and thoughtfully represent to the customer the delivered ROI.
- Workflow: Pursuing organic upsell and white space opportunities requires a different workflow from pursuing new business. It’s difficult for the same person to do both.
- Coordination: We wanted our CSMs’ efforts to help customers derive value to seamlessly contribute to the closing of the renewal and upsell; value delivery should directly drive financial outcomes. We risked eroding that linkage in working cross-functionally with Sales.
Possibly for these 3 reasons, before our R&E Manager came on board, our AEs weren’t generating much upsell even though they had the opportunity to do so.
*An important exception to this is our largest accounts, where sales into new divisions are similar to new business sales. For these accounts, the Account Executive on the Sales team continues to own the account post-sale.
Our R&E Manager is accountable for the renewal and upsell; he has a quota for each (as described below). That allows the CSM to focus on helping the customer derive value from the product.
Recall that a RACI framework can be helpful for dividing responsibility among different functions. (RACI stands for “Responsible,” “Accountable,” “Consulted”, and “Informed.”) We created the RACI below to delineate the roles of CSM and R&E Manager.
The Strategy Session is the kick-off meeting with the customer right after the purchase (see blog post on Success Plans). The CSM is accountable for the success of that meeting, but our R&E Manager will participate in order to get to know the customer’s objectives.
The R&E Manager participates in the EBR as well. The vision is for him to paint the picture of the ROI of the customer’s investment in Gainsight, using the Success Plan as the source of truth for the customer’s objectives.
He is accountable for all activities directly related to the renewal and upsell, but the CSM does continue to play a role. The R&E Manager learns from the CSM the history of the customer relationship, and he’ll inform the CSM of the renewal status on weekly calls leading up to the renewal. In general, the two parties are kept “Informed” of each other’s activities through Milestones, CTAs, Chatter updates, and the Success Plan on the Customer360 dashboard.
CSMs are responsible for notifying the R&E Manager when it looks like another group or department at the customer would benefit from having licenses.
We made the CSM accountable for selling one-time and managed Services, since they’re in general accountable for the value that the customer derives from the product, and Services can be critical for that. We might experiment further with this part of the RACI in the future.
Here’s how to design a compensation plan for an R&E Manager.
Step 1: Determine variable compensation. Variable pay is typically 50% of total OTE.
Step 2: Assign a percentage of the variable pay that comes from renewals; the rest comes from upsell. Your company priorities should inform the split.
Step 3: Determine the renewals quota. For any given quarter, we’ve set it equal to the company’s target for gross renewal rate, times the dollars eligible for renewal that quarter in the accounts that he owns.
You’ll have to carve out an appropriate territory. If your renewals are especially straightforward or transactional, your R&E Manager could manage up to 2-3 renewals per business day.
Step 4: Determine accelerators for renewals, e.g. related to the length of the contract.
Step 5: Determine the upsell quota. You can calculate it by taking the variable pay that you’ve assigned to upsell, and divide it by the commission rate that the Sales team is using for new business. That’s because the commission rate on upsell should be the same as the commission rate for new business.
Step 6: Determine accelerators for upsell. For example, you can increase the commission rate when the quarterly upsell quota is exceeded, and again when 150% of the quota is exceeded.
Here’s how we use Gainsight to manage our renewals process.
1. Avoid fire-fighting
Using CTAs and scorecards, the CSM tracks 8 categories of risk to identify early signals that a customer is distressed and then address those situations. That way, the CSM can set up the R&E Manager for success.
2. Start the renewals process early
The R&E Manager will receive a Call to Action 90 days ahead of the renewal. We review the strategy for and status of those renewals in a recurring meeting every Wednesday. The CSMs who work with those accounts join that meeting so that they can be kept informed.
I also have a renewals dashboard that I review every Sunday:
3. Prepare for calls
Our R&E Manager never wants to be blindsided about an issue that a customer is facing while on a call about a renewal, so he checks the Customer360 dashboard beforehand.
4. Develop a Success Plan for every customer
He will be able to refer to the customer’s progress against their Success Plan when discussing the renewal. This is a great way to demonstrate ROI.
We’ll write more about our processes for Expansion in a later post. In the meantime, take a look at our expansion percentage calculator.
If you’d like to discuss how to manage renewals and expansion at your company, feel free to reach out to Allison at email@example.com. Follow her blog posts on Twitter at @PickensAllison.
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I am curious, at what size of a company does it make sense to add a renewal and upsell team and remove renewal and upsell responsibility for CSMs?
Thanks for your question, and I apologize for the delay in responding. You should hire a Renewal & Upsell manager when the number of renewals per quarter becomes a significant portion of your CSMs time or requires a specialized skillset. The renewal is a natural time to discuss an upsell, and you’ll want someone who’s able to identify those opportunities.
Hope this is helpful.
Great post! Super insightful.
If you don’t mind, I have one question.
I assume you offer paid professional services (outside the license fee). How does the PS and CSM teams work side by side? Where do PS sit in your new org structure?