"Roll up your sleeves. Summon your courage. And above all, don't try to reinvent the wheel! Growing services revenue can be achieved if you know which levers to pull."
The trend line on your company's product revenues is a steady slope. Problem is, it's pointing in the wrong direction. And now, surprise of surprises, word has come down from the C-suite that you must grow service revenues again to help cover the gap.
Sound familiar? Well, you can take comfort in knowing that you're not alone. In a TSIA poll in May of this year, 80% of respondents indicated that their CEO believes that service revenues are critical to top-line growth, while 60% said they are being asked to grow services revenue faster than product revenue.
So what's a poor gal or fellow to do? Roll up your sleeves. Summon your courage. And above all, don't try to reinvent the wheel! Growing services revenue can be achieved if you know which levers to pull. In fact, in Q1 2013, 68% of companies tracked in TSIA's Service 50 Index had done just that. Thankfully, TSIA has documented these key levers so that you don't you have go through the trial and error of figuring it out on your own.
So what are these levers, you ask? Let us waste no time and get right to the matter at hand.
Lever 1 is the key fundamental of services revenue growth, mastering the technique of attaching support contracts to new product sales. And while it sounds very basic (and in fact, it is basic), to do it well and achieve the highest levels of support attach rates in the industry requires a steady hand and the application of best practices. So while you're likely doing some of this, you're probably not achieving the attach rates that our industry superstars are putting on the board. You ready? 90% attach rates for hardware companies, and 100% attach rates for software companies. Have you turned a lovely shade of green with envy yet?
Lever 2 is the kissing cousin of support attach and it is all about the art (and science!) of renewing support contracts. It involves monitoring two key revenue performance indicators the percentage of available contracts renewed, and the number of contracts not renewed, also known as your attrition rate.
Not only will these metrics tell you how healthy your support contract annuity business is, but they also give you important clues about the overall health of your business and customer relationships. TSIA has documented these items and more in our new white paper, Levers of Growth: Building Double-Digit Revenues in a Tech Company, which you can download for free. You can also see what the top performers in our industry are achieving with their support contract renewal rates.
This brings us to Lever 3: upsell to premium support. This is possibly the most beautiful lever of all, as it represents upside to your support contract revenue stream. You might be surprised to learn that 75% of customers are on a basic support plan.
Not only is that a lot of unrealized revenue potential from moving them to a higher support level, but its also risky business given how more and more customers are challenging the value prop of basic support and are less willing to pay for it. Not only is this lever important for growing services revenue, it is also about defending and protecting your revenue flanks.
So how does one get from here to there? From current service revenue levels to desired service revenue levels?
Your journey begins today. Right here. Right now. Take the first step by reading the TSIA report: Levers of Growth: Building Double-Digit Revenues in a Tech Company.
Here's to your success and a lovely up-and-to-the-right curve on your services revenue line!
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