Delivering Predictable Revenue Streams
Maximizing service revenue to its full potential is a reliable way to grow revenue - especially in a down economy.
By Mike Smerklo, ServiceSource
Nov. 17, 2008
With everyone's core business under pressure in our new economic environment, keeping and protecting the customer base has never been more important. Taking a strategic look at maximizing service revenue is a "life raft" in these tumultuous times to improve the predictability of revenue streams - and the bottom line.
Driving revenue from the installed base is priority one in these hard economic times and exposes companies who don't know their distinct customer sets, which product families customers are using and where maintenance renewal contracts stand. Smart software companies are finding it mission critical to better understand their existing customer base and look for ways to better serve them.
Recession is Driving Renewals
Analysts are now confirming what software executives have known for some time: business is slowing. The current financial crisis facing the world's developed economies is uniquely widespread but the fact is that downturns are normal part of the economic cycle. There have been three in the past decade or so alone.
Recessions actually drive contract renewals. In fact, our internal data show renewals are occurring at the highest rates we've ever seen.
The reason? As customers defer future product services, the value of maintenance and support go up. An IT executive who has put off a new project or upgrade can save the big cash outlay but still has to go to the CFO and request 18 to 20 percent to renew the maintenance contract.
According to our data, second quarter conversion rates spiked to 127 percent on the back of higher multi-year contract rates as companies take advantage of savings offered for long-term contracts.
But downturns don't last forever. Software vendors cannot take their eye off the ball in product development and sales. They must continue to innovate and be ready for an upturn in a few short years. Software CEOs must focus on both product development and maintenance to grow revenue and improve reliability.
The $30 Billion on the Table
Software companies have two means to increase revenue. The first way is to invest in R&D to deliver next-generation products and drive market share. The second is to increase maintenance revenue streams.
Software companies have long struggled to achieve their full maintenance revenue potential. An annual study by Gartner confirms this fact. Even though they estimate $150 billion is spent on maintenance revenues annually, that figure represents less than 80 percent of the total market.
Leaving nearly $30 billion on the table is painful - especially for an industry struggling to make its numbers in an economic downturn.
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Driving revenue from the installed base is priority one in these hard economic times and exposes companies who don't know their distinct customer sets, which product families customers are using and where maintenance renewal contracts stand. Smart software companies are finding it mission critical to better understand their existing customer base and look for ways to better serve them.
Recession is Driving Renewals
Analysts are now confirming what software executives have known for some time: business is slowing. The current financial crisis facing the world's developed economies is uniquely widespread but the fact is that downturns are normal part of the economic cycle. There have been three in the past decade or so alone.
Recessions actually drive contract renewals. In fact, our internal data show renewals are occurring at the highest rates we've ever seen.
The reason? As customers defer future product services, the value of maintenance and support go up. An IT executive who has put off a new project or upgrade can save the big cash outlay but still has to go to the CFO and request 18 to 20 percent to renew the maintenance contract.
According to our data, second quarter conversion rates spiked to 127 percent on the back of higher multi-year contract rates as companies take advantage of savings offered for long-term contracts.
But downturns don't last forever. Software vendors cannot take their eye off the ball in product development and sales. They must continue to innovate and be ready for an upturn in a few short years. Software CEOs must focus on both product development and maintenance to grow revenue and improve reliability.
The $30 Billion on the Table
Software companies have two means to increase revenue. The first way is to invest in R&D to deliver next-generation products and drive market share. The second is to increase maintenance revenue streams.
Software companies have long struggled to achieve their full maintenance revenue potential. An annual study by Gartner confirms this fact. Even though they estimate $150 billion is spent on maintenance revenues annually, that figure represents less than 80 percent of the total market.
Leaving nearly $30 billion on the table is painful - especially for an industry struggling to make its numbers in an economic downturn.
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