In my experience, for B2B, high tech businesses that have been selling contracts for a number of years, the typical service contract renewal rate is about 85%. This means that every year, 15% of your contracts are not renewed. Think about what this 15% means to your bottom line. Here is my list of the reasons that your service contracts are not being renewed.
Top Ten Reasons That B2B Customers Do Not Renew Service Contracts
- Your customers are going out of business
- Your customers are replacing or cutting back on the use of your equipment
- Your customers are moving to third-party maintainers
- Your customers are moving to self-maintenance
- Budget cuts are forcing your customers to drop contracts and go to time & materials
- Your business is too difficult to work with
- The renewal notice went to the wrong person or was never sent
- There was no telephone follow-up after the renewal notice was sent
- Your customers believe their service experiences no longer meet their expectations
- Your value proposition no longer works for your customers
How To Minimize Service Contract Non-Renewal
To minimize service contract non-renewals, the reason(s) that a customer does not renew a contract must be determined and analyzed. The analysis should look at both the individual case and all the other non-renewals taken together. Based on this analysis, you can decide what actions to take to reduce defections. The best way to collect this data is to first have the sellers ask the customer for the reason for not renewing. Depending on your assessment of the credibility of the answers, have a senior person make a follow-up call and try to get to the heart of the reasoning to not renew. When you have enough data, you can start figuring out what changes to make in your marketing and selling efforts.
Frequently, companies with this problem contact Middlesex Consulting to collect and verify the data and recommend next steps.