NetSuite recently launched the next iteration of our Software Company Edition, a verticalized version of NetSuite designed specifically for software companies. The focus of this release was on helping companies manage their recurring revenue with new functionality that automates and streamlines renewal processes. For most software companies, recurring revenue is critical and is often used as a metric to gauge the health of a company. Optimizing the stream of perpetual and subscription-based revenue is critical in managing the business.
As part of this launch, I hosted a webinar with executives from SuccessFactors and Gemcom, two NetSuite customers that face challenges around recurring revenue management. We discussed not only the challenges of recurring revenue, but five keys that we at NetSuite have learned from managing our own business. These keys range from business process changes that a company could undertake to better understand its customers to automation of the process. A demo showcased NetSuite’s latest innovations around automating renewals.
Co-termination was one of the keys discussed. In concept, it is pretty simple. We’ll use a simple example with cable as the service. Let’s say your customer signs up for basic cable on January 1 for a one-year term ending December 31. When January 1 comes around again, it’s time to renew—but what happens if in June the customer added a premium channel to catch the latest episodes of True Blood? Come January, do you renew that customer for another full year including the premium service, or do you just renew the original basic cable with the premium channel being renewed in July? (Note—I realize that cable doesn’t actually work this way). This picture helps illustrate this a little more simply.
Essentially co-termination determines whether you are managing one renewal or two renewals. If you co-terminate based on the original contract, at renewal time, you are renewing the increased amount. If you decide not to co-terminate new services with the original contract, you manage two renewals. At NetSuite, we subscribe to the philosophy that you should co-terminate based on the original contract. This approach simplifies the number of touch points required with the customer for renewal and lessens the work for finance, sales and client management—as well as your customer.
In the webinar, Glen Bromley, the Corporate Controller at Gemcom Software, discussed how his company takes this approach as well to manage recurring revenue items such as maintenance contracts, and how it’s helped Gemcom simplify recurring revenue processes. At NetSuite, we automatically co-terminate our agreements, so that if an up-sell is entered, our software calculates the remaining time until the end of the contract and ensures that the initial contract and the upsell co-terminate.
In NetSuite’s experience, co-termination is a big improvement that organizations can use to position themselves for maximum renewal efficiency and to scale with growth. However, this approach doesn’t always work for all companies; it is dependent on your particular business model and how you choose to best manage your customer relationships. I’ve spoken to a number of customers and would love to hear your perspective on co-termination. Please leave us a comment with how you manage co-termination.
Lastly, if you’re interested in learning more about the five keys, I’d encourage you to listen to the webinar.