RECURRING REVENUE Five Secrets to Fly High and Fuel Growth

Looking for a growth engine to drive innovation and performance for your business? Look no further than the customers you’ve already won.

Companies that are great at growing recurring revenue knock the socks o� their competitors. Over the past year, these companies grew their revenue 20% faster and enjoyed 25% higher profit margins than their F1000 peers.

Recurring revenue is important. On average, it accounts for 30-40% of revenue and 50% of profits for technology companies1—and even more for SaaS companies. Whether you’re a traditional hardware or a software company or a SaaS company looking for rapid growth, your markets are more competitive and your customers are becoming less loyal. This makes it critical to focus on recurring revenue.

Recurring Revenue Five Secrets to Fly High and Fuel Growth

How do you aggressively grow your most profitable revenue stream?

Recurring revenue is the last business function to be automated, requiring a unique business process and technology platform. The cloud has finally made this a reality by letting you:

Turn your big data into a comprehensive picture of your customer and their entire business relationship with your company

Deliver real-time analytics and metrics that help you make great decisions

Increase coverage and revenue with disciplined sales and channel processes driven by automated workflow

Recurring Revenue Five Secrets to Fly High and Fuel Growth

The most successful companies relentlessly practice the five secrets of recurring revenue management. Pilots use precision, discipline, and science to fly planes and you can apply these same techniques to accelerate business growth through recurring revenue. This isn’t easy, and mastering each of the techniques requires discipline, focus, and hard work. Who said flying a plane was easy? Here’s how you can start:

Create a fact-based flight plan

Run your engines on renewal ready data

Accelerate with analytics that drive results

Climb high with your channel

partners

Fly out of stormy weather by using the science of renewals

21 3 4 5

Recurring Revenue Five Secrets to Fly High and Fuel Growth

Create a Fact-Based Flight Plan

SECRET 1

6-7x more profitable

Recurring revenue is a beautiful thing:

$10M per year

It compounds over time – increasing your recurring revenue by $10M per year over 5 years results in $150M total additional revenue

8%per year

It is growing at 8% per year while new revenue grows at 6% per year 3

Secret 1 Create a fact-based flight plan

1

It’s more profitable than new revenue. It costs 6–7 times more to acquire a new customer than to retain an existing one2

21 3 4 5

Yet, most companies overestimate renewal rates by at least 10-20%. In fact, technology-oriented companies increase their true renewal rates by 18% —from an average of 75% to an average of 89% 4 when they learn our five secrets.

Here’s why. Most companies base renewal rates on the amount of revenue they have renewed at the end of a period. This does not tell the whole story. In fact, it obscures your actual revenue potential. If you don’t know your destination, it’s hard to have the right flight plan!

Is it possible that you are leaving significant money on the table? If you’re like nearly every other business, the answer is yes.

To truly understand your net renewal rate and revenue opportunity, you need to know three important metrics.

How good is your data This is your decision rate, the percent of renewal contracts for which you have a firm yes or no answer.

How well you sell This is your close rate, and it is the percentage of contracts, for which you have a yes or no answer, that actually renewed.

How well you upsell and cross-sell This is your conversion rate, the percent of dollars up for renewal that you actually close

Secret 1 Create a fact-based flight plan

121 3 4 5

1. 2. 3.

Best-in-class companies improve their performance significantly with the right data, processes, and analytics for their industry.

Software companies experience the greatest average increase in recurring revenue at 26% driven by increased engagement, adoption, and awareness from consistent proactive outreach and a structured sale process.

Hardware companies experience an average of 23% improvement by uncovering assets and opportunities overlooked due to poor customer and channel data management and selling in both basic and premium service.

XaaS companies see increases of over 8% in close rates by engaging with customers on a quarterly basis, focusing on churn reduction and using customer segmentation to identify high risk accounts.

Healthcare / life sciences organizations grow true renewal rates for 9% on average by using focused renewal sales teams, rather than Field Service Engineers, to drive recurring revenue and by leveraging renewal-ready data.

Industrial companies increase their true renewal rates by over 18% by successfully cross-selling and upselling with sales-oriented, rather than service-oriented, professionals focused on service, maintenance, and subscriptions.

Secret 1 Create a fact-based flight plan

121 3 4 5

Run Your Engines On Renewal-Ready Data

SECRET 2

Is data quality keeping your renewals engine at low power?

If so, you’re not alone. According to Gartner, poor data quality is a primary reason that 40% of all business initiatives fail to achieve their targeted benefits 6. Data quality is a big deal for renewals, with the average single renewal requiring data from 5-7 di�erent sources including CRM, ERP, financial, and other systems.

Dirty data costs companies a lot of money. Renewal sales people spend less than 45% of their time selling 7, largely because they are gathering, cleaning, and prepping data for calls.

Secret Run your engines on renewal-ready data

2

DIRTY DATA

CLEAN DATA

21 3 4 5

If you’re a SaaS company, your lean data is di�erent. Your key renewal data is about engagement and includes adoption, usage data, customer satisfaction survey results, involvement in community forums, level of product customization and training credits. Leading companies who are migrating their products and services to the cloud are looking at this data, as well.

Get your lean data clean.

Keeping data renewal-ready is a continuous process. One-time expensive fixes won’t work if you don’t fix the underlying problems that allowed the data to become dirty in the first place. Make data management easier by focusing on the critical data that you need to drive renewals.

Assets are your window to the customer.

Until you understand every asset that your customer owns, you’re leaving money on the table. You cannot renew, cross-sell, or upsell assets you don’t know about. Most of all, you can’t give customers the attention they deserve if you don’t know everything about your relationship with them!

Keep your big data lean.

While you have hundreds of pieces of data, you most likely need 20 for each renewal—23 if you sell through the channel. Even though many of these data elements are basic, very few companies have the right data at their renewal reps’ fingertips.

Without renewal-ready data, your flight is grounded. What’s a renewals leader to do?

Secret Run your engines on renewal-ready data

221 3 4 5

Accelerate with Analytics that Drive Results

SECRET 3

Metrics are only as good as the business decisions they help you make. The only way you can drive great recurring revenue management decisions is to leverage the three metrics in Secret #1, but only 16% of companies track these key renewal metrics.8

To hit your maximum speed with recurring revenue, keep your eye on the instrument panel and your hand on the throttle.

Know where you stand. To know if your numbers are good or bad, it’s critical to compare yourself against direct and indirect competitors, and segment those numbers by channel partner, market, and product line.

Analytics only count if they drive action. Use role-based operational reporting and dashboards to make your teams more e�cient and e�ective. Real-time decisions require real-time analytics.

Secret Accelerate with analytics that drive results

321 3 4 5

Focus on root cause. Root cause analytics are critical in understanding your opportunity and driving the right actions. Key metrics include9:

DAYS IN ADVANCEHow far in advance of contract renewal date are you contacting the customer? Did you know that every week that passes after the first renewal call should have been made reduces your renewal rate by 2.5%?

CONTRACTS RENEWED BEFORE EXPIRATIONThis number should be a constant focus for improvement. Once a contract is 30 days past expiration, renewal rates are typically cut in half.

CANCELLATION REASON CODES

Focus on the reasons why customers don’t renew. Nearly 45% of customers do not renew because they believe they weren’t even contacted! This contact management problem might need a di�erent remedy than the 18% who did not see the value in the service and the 9% who went with the competition.

45% Not contacted

18% Did not see value

9% went with competitor

28% Other reasons

By focusing on root cause metrics like days in advance, Agilent Technologies increased renewal rates by 33 percentage points.

Secret Accelerate with analytics that drive results

321 3 4 5

SaaS companies have their own unique set of root cause analytics. These include bookings, churn, and potential churn

Climb High with Your Channel Partners

SECRET 4

Over 68% of North America technology companies’ revenue is sold through the channel 10—and outside of North America, that number is over 80%. The channel is no longer just for traditional companies. For SaaS firms, 16% of revenue is from the channel, a number that is certain to grow.

Yet renewal rates are an average of 12 percentage points lower for the channel than for direct models.

Email opportunity lists to the partner monthly or quarterly

Provide a price list and/or quote template only

Most companies provide only limited tools to the channel:

45% 21%

Deliver a partner portal with full opportunity management, performance metrics, quote delivery, and sales assistance

16%

O�er a partner portal with a view of expirations and quote tools

20%

Secret Climb high with your channel partners

421 3 4 5

Give and demand visibility. Channel partners who benchmark against their peers and the company’s business objectives, and who have access to the necessary renewal data, generate more recurring revenue.

Best practice companies give channel partners access to the KPI data needed to run their renewal business, and provide detailed comparative data against other partners and by region.

Run structured quarterly reviews with partners. Channel scorecards should include objectives for key metrics such as bookings, in-quarter renewal rates, on-time renewal rates, and renewal portfolio mix. This guides channel partners to focus on the areas of the business that drive results. Consistent and structured business reviews are proven performance enhancers.

Support the occasional channel dogfight. Competition between channel partners can drive higher performance. But too much can threaten your channel relationships. Clear incumbency rules give you the best results from channel partners while maintaining channel discounting discipline.

Companies who give their channel partners a seat at the table and manage them carefully see significant increases in recurring revenue. Here is what the leaders do:

Renewal leaders provide real-time access to the asset-level customer data needed

for renewals. Juniper Networks increased renewal revenue by $30M and took channel

renewal rates to over 80% by extending access of renewal metrics to the channel.

Secret Climb high with your channel partners

421 3 4 5

Fly Out of Stormy Weather Using the Science of Renewals

SECRET 5

21 3 4 5

Unlike new sales, which have open-ended timing and rely on information acquired during the selling process, renewals are time-bound and heavily data-driven.

Making the most of existing customers takes di�erent infrastructure and processes than typically exist in most businesses.

Only 21% of companies have a dedicated renewals sales team11, a proven way to increase recurring revenue. The remainder sell renewals through their new customer sales organizations, or through customer service, finance or other parts of the organization. Without a team focused exclusively on renewals and driving a scientific process, companies cannot achieve best-in-class renewal rates.

Use cloud power for renewals. Leading technology companies are moving their products and services to the cloud as quickly as possible. The companies are successfully applying the lessons of SaaS renewals to their existing product lines, including:

Integrating usage and adoption data to predict customer behavior and warning signs

Expanding the idea of the sales cycle by ensuring that customers know what they’ve bought and how they can use it

Working in lockstep with the customer success team to engage with customers

Secret Fly out of stormy weather using the science of renewals

5

21%

21 3 4 5

Develop a culture of selling discipline and precision. The science of renewal sales consistently increases recurring revenue, reduces time to quote and increases first-time quote accuracy. The science of renewals includes:

Use tough love when you must. Companies that exercise discipline on pricing and expiration dates earn more recurring revenue. One software company required 100% compliance with entitlements. Rather than losing customers, they actually increased renewal rates by more than 35 percentage points.

Role specialization for key renewal sales functions, including data analysis, quoting, and selling, enabling team members to focus on strengths.

100% transparency for renewal sales reps about their targets and daily performance.

Structured territory reviews and stack ranking by rep and team.

Renewals-specific training curriculum. It takes over 100 hours of training within the first year to build a recurring revenue sales expert.

Secret Fly out of stormy weather using the science of renewals

5

Coming in for a Landing while your Renewals are Taking O�

CONCLUSION

Did you know that an airplane lands or takes o� roughly every 30 seconds at a busy international airport? Similarly, ServiceSource is closing a renewal for its customers every 45 seconds.

And the great thing? You can make it happen and deliver huge value to your business if you have the right partner and the right platform.

ConclusionComing in for a landing while your renewals are taking o�

These customers, while each unique, have three things in common. First, they recognize that recurring revenue management is a strategic imperative for their business. Second, they are committed to the focused e�ort that’s required to be best-in-class in growing and managing their recurring revenue streams. And they have each

gone one step further. They recognize that by partnering with ServiceSource they will get the benefits of working with a company that has closed over $14B in renewals over the past two years.

This isn’t because ServiceSource is great at everything. It's because our cloud application, Renew OnDemand, and managed services are focused

solely on helping customers maximize recurring revenue. Companies of all shapes and sizes struggle with the challenges described earlier. Maximizing recurring revenue is di�cult, but managing this aspect of your business, from transforming your data to injecting science into your sales processes, is extremely high impact.

PG 2PG 3

PG 7

PG 8

Sources

1) Morgan Stanley, 20112) Bain & Company, Harvard Business Review 3) Technology Services Industry Association (TSIA)4) ServiceSource Recurring Revenue Index by Wavelength Analytics, July 2013ServiceSource Recurring Revenue Index by Wavelength Analytics, July 2013

PG 10

PG 13

PG 14

PG 16

PG 19

6) Gartner, October 10, 20117) Gartner, August 15, 20128) ServiceSource Recurring Revenue Index by Wavelength Analytics, July 20139) ServiceSource Recurring Revenue Index by Wavelength Analytics, July 201310) Everything Channel State of the Market Survey 2011: The VAR View11) ServiceSource Recurring Revenue Index by Wavelength Analytics, July 2013

ServiceSource International, Inc. (NASDAQ: SREV) is the global leader in recurring revenue management. Renew OnDemand™, the only cloud application built specifically to grow recurring revenue, automates a highly valuable but typically manual business process. By leveraging big data to give companies a complete view of their customers, Renew OnDemand and our proven services drive higher subscription, maintenance, and support revenue, improved customer retention, and increased business predictability.

With over a decade of experience focused exclusively on growing recurring revenue, ServiceSource's products and services are based on proven best practices and global benchmarks. Headquartered in San Francisco, ServiceSource® manages over $9 billion in recurring revenue for the world’s largest and most respected technology companies. ServiceSource renews a customer contract every 47 seconds through engagements in more than 150 countries and 40 languages. For more information, please go to www.servicesource.com.