When thinking about why you use a CRM when it comes to working with existing customers, most organizations have two main goals.
First, renewal opportunities are created to ensure that existing relationships are being managed and contract renewals aren’t falling through the cracks.
Second, appropriate data needs to be tracked in order to measure churn and retention among existing customers, important in understanding financial metrics like customer lifetime value.
So, how do you structure Salesforce opportunities in order to meet these goals?
First, use opportunity types (Type is one of the default opportunity fields in Salesforce) to separate out new business opportunities, add-ons, and renewals. New business opportunities are the first deal with a new or previously churned customer or business unit. Add-on opportunities add seats or products to an existing contract and generally co-terminate with the existing contract. Renewals extend an expiring contract for a new term.
When a new business or renewal opportunity moves to Closed Won, auto-create the renewal opportunity in Salesforce for the next contract. You can now do this in Process Builder. Having the renewal opportunity automatically generated in Salesforce introduces a level of tracking and accountability to ensure that, from day one, someone owns responsibility for that renewal.
Outside of having the opportunity exist, the most important facet of the opportunity is an accurate Close Date. The Close Date of the renewal opportunity should be the same day that the previous contract ends, as that’s the last day on which you can have the customer sign a new agreement without there being a break in service. What this means for renewal opportunity management in Salesforce is that the deal being renewed needs to include the contract end date on the opportunity record.
The steps above will meet the first goal - ensuring that renewals aren’t falling through the cracks. To meet the second goal, a little more financial information (and a small amount of APEX code) is required. For more details on the specifics of how do this, you may find this article useful - hat tip to Tyler Johnson of CB Insights for sharing!
At Atrium, we have two concepts built onto our renewal opportunities. The first is a "baseline" amount, equal to the total amount that the customer actually spent over the course of the prior annual contract. This includes the value of the original new business opportunity (assuming a one-year contract) and the total value of any add-on opportunities that added seats for less than the full year. The second concept is a "target renewal" amount, equal to the annualized amount the customer spent the prior year, taking into account a full-year value for any seats adding mid-contract. In this way, if a customer added seats mid-contract and paid a prorated amount for those seats through the end of the current contract, the baseline amount would reflect the amount actually paid, and the target renewal amount is where we annualize the value of those seats to a full year amount.
The baseline amount is the important one for reporting out on dollar retention rate, measuring the percentage of last year’s amount actually spent represented on the new contract so that we can accurately view the amount of upsell, downsell, or churn. The target renewal amount is more closely aligned to what the account is worth to us as a business and is closer to what we would expect the new contract value to be.
These same concepts can be applied to other businesses - the goal is to measure both the amount from which you will calculate your overall and per-customer dollar retention amounts and the amount that most closely reflects the anticipated value of a “full renewal” on the contract. Adding these fields to the renewal opportunity as well mean that you can calculate dollar retention rate, dollars upsold or churned, and percent to target directly on the renewal opportunity and use those values in additional fields and reports in Salesforce.
So, in summary, here’s your checklist for how you might want to think about structuring your Salesforce renewals to make sure they’re happening and you have the data you need to understand the implications of them:
- Use opportunity types in Salesforce
- Track contract dates
- Auto-create renewal opportunities
- On those renewal opportunities, ensure you have an accurate Close Date, the renewable baseline amount, and the expected amount targeted for the renewal