KPIs (Key Performance Indicators) are essential for measuring the success of not only your business, but the overall health and efficiency of your operations and sales processes. A pitfall we have seen in the Service Revenue Generation industry is that companies tend to be too myopic in what measurements and areas they focus on for their KPIs. Most Service Revenue Generation organizations mainly focus on Renewal Rate to measure the health of the business. While renewal rate is a critical KPI, it should not be the only KPI used. Likewise, digging deeper into how renewal rate is calculated will also shed a good deal of light on the state of your Service Revenue Generation business.
It is imperative that organizations with a focus on Service Revenue Generation keep in mind that not all KPIs should be company-wide. It is just as important to create and measure KPIs for each team associated with the Service Revenue Generation motion, from the quote creation process through the entire sales cycle, ultimately making sure that the results are tied into the overall goal(s) of the company.
Finally, KPIs and metrics must be measurable, manageable, and achievable. KPIs are typically used to showcase success or highlight areas that need improvement. If the KPIs and metrics used are not being consistently measured and managed, then management can’t hold the teams accountable for the results.
Let’s start off with looking at the levers that drive the business. Some key areas of focus include:
- Renewal Rate
- On-Time Delivery of a Quote
- Time to Revenue
- Channel Performance
- Process Efficiency through Operational Metrics
Renewal Rate is the most important KPI for a Service Revenue Generation organization as it quantifies the overall strength of the renewal practice. In order to get a clear and accurate picture of your renewal progress, organizations can’t rely solely on the most commonly used calculation for a renewal rate, i.e., the amount of revenue available to renew vs. the amount of revenue renewed. Revenue, although very important, only tells a portion of the story. For instance, an organization has an opportunity pipeline of $1,000,000 in a given year. When measuring renewal rate they exceed their total opportunity of $1,000,000 by 10%, ending the year with $1,100,000. This is a great story and, by all accounts, this organization has been highly successful. However, upon further review, we learn that several services had annual price increases for support, which allowed the company to over achieve their goal, but did not accurately account for a true renewal number.
While organizations must look at both revenue available vs. revenue achieved, it is just as important that they look at what services, licenses, machines, or assets are available for renewal vs. what services, license, machines, or assets were actually renewed. If only a portion of the items available for renewal are actually renewed, then is your renewal rate actually good even if you hit the revenue number? Or is your team leaving money on the table? Likewise, is your team looking for ways to upsell/cross sell, or are they relying on annual price increases to make up any potential loss or systems being decommissioned or services being sunset?
On-time renewal is another critical lever when looking at renewal rates. On-time renewals speak directly to cash flow and cash on hand. This component is also a key to finding holes or gaps in an organization’s renewal process. If your annual renewal rate is high, but your on-time renewal rate is low, then your process is either inefficient or insufficient, and should prompt a review of your renewal process. Key areas to evaluate include:
- How long prior to the renewal date are your quotes delivered?
- How many times are revisions or re-quotes needed?
- What is the process to follow up on quotes?
- How easy is it for your channel and/or customers to purchase the renewal?
Another key element to track is Loss Reason Code. Analyzing this metric will provide insight to market conditions and factors that drive erosion of your renewals or renewal program. To simplify the capturing of this data, and subsequent analysis, organizations should create and use predefined data sets and not permit open text fields. Utilizing this data to examine and understand the trends that affect your business or industry will allow your organization to plan and to pivot faster in order to address the changing market needs.
In this brief we have looked at the fundamental factors that help organizations view and track the critical elements (KPIs and metrics) that foster a healthy service revenue generation engine. These critical pieces become the drivers that help organizations continuously evaluate their processes and services to create stronger, more profitable renewal engines.
To learn more about how MMI can help you create internal metrics, KPIs, and renewal flows that will bring you closer to your goal of maximized service revenue generation, visit our consulting services page or contact us below.
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