The Compounding Value of Renewals and

Subscriptions for IT Resellers

Read time -3.5 minutes

The Compounding Value of Renewals and Subscriptions for IT Resellers

In the IT reseller world, growth often hinges on big deals, typically involving hardware sales. However, the true hidden goldmine lies in renewal management and software subscriptions. These drive recurring revenue, growing it from around 9-15% to over 30%+ of total revenue.
Renewal management software like Owlytica can unlock this potential, making renewals a central part of your revenue strategy. By focusing on renewals and subscription tracking, you gain predictable, recurring revenue that builds strong, ongoing customer relationships instead of relying on one-time hardware sales.

Why Renewals and Subscriptions Matter

For many IT resellers, the priority is to secure new deals and big hardware contracts. While new sales are essential, renewals and software subscriptions present a powerful opportunity to grow revenue. Here’s how:

Predictable Revenue: Unlike hardware sales, renewals and software renewal management provide a steady income stream. This stability helps smooth out cash flow fluctuations.
Customer Retention: Using a renewal tracker strengthens customer relationships, reduces churn, and increases upselling and cross-selling chances.
Profitability: Renewals are often more profitable than initial hardware sales, requiring fewer resources while providing high margins.

Comprehensive Renewal Tracking for Hardware, Software, and Maintenance

With Owlytica, resellers can track not only hardware renewals but also associated software and maintenance agreements linked to that hardware. This means that when a piece of hardware is up for renewal, you’re also tracking and managing the renewal of any linked software licenses and maintenance contracts. This comprehensive approach ensures that every renewal opportunity is captured, whether it’s a hardware unit, its associated software, or its support and maintenance agreement.

Example of the Compounding Effect of Renewals

To illustrate this, let’s look at a sample scenario:

Imagine a company with the following starting assumptions:

• Total Sales in Year 1: $50 million
• Revenue Attribution:
  • Hardware: 60% of sales, or $30 million
  • Software & Cloud Subscriptions: 30% of sales, or $15 million
  • Professional Services: 10% of sales, or $5 million
• Support Percentage of Hardware Sales: 10% (meaning $3 million in Year 1 goes to support or maintenance)

Now, let’s see how renewals grow this income over time:

1. Renewals Start Adding Extra Revenue:
   • In Year 4, a portion of Year 1 hardware contracts come up for renewal.
   • Assuming 20% of Year 1 hardware revenue renews, that would add $6 million in renewal revenue.
2. Compounding Effect in Year 5 and Beyond:
   • In Year 5, additional contracts from Year 2 will renew, adding to Year 4’s renewals.
   • If another 20% of Year 2’s hardware revenue (which grew to $36 million due to growth) renews, this brings in an additional $7.2 million.
   • Now, Year 5 renewal revenue is $6 million + $7.2 million = $13.2 million.
3. Growth through Retention:
   • By Year 6, renewals from Year 3 come in, and renewals from prior years continue, adding each year’s new renewals together.
   • Each year, the revenue from renewals stacks on top of previous renewals, creating a steady stream of revenue growth.

In the linked spreadsheet, you can see how a $50 million reseller could transform into a $202 million or even $228 million company over time using the power of compounding renewals. That’s a $26 million difference just by leveraging renewals as a growth lever.

Why This Matters

This compounding effect means that renewals drive revenue without needing new sales. Each year’s renewals build on previous ones, creating a steady stream of income. However, it’s okay if some customers don’t renew. With a strong renewal solutions platform, you can identify refresh opportunities where customers may upgrade to newer products rather than renewing. This recreates the revenue cycle, making income more predictable and sustainable.

Unlocking the Compounding Effect

To fully leverage the value of renewals, resellers need to invest in tracking and managing these revenue streams:

• Automate Your Renewals Process: Ensure no renewal is missed with automated reminders.
• Track Hardware, Software, and Maintenance: Owlytica enables you to track not only the hardware but also the software and maintenance agreements linked to it, ensuring that every renewal opportunity is maximized.
• Focus on Customer Success: Renewals are easier when customers see value, so maintain regular engagement.
• Quantify the Financial Impact: Show customers how renewals increase their IT budget management from 30% to 70% by managing assets you didn’t originally sell.

Using this approach with Owlytica’s renewal management software can transform your business model. Start a demo today and discover how to build more compounding revenue and margin for your business.