Key takeaways

  • Subscription-based enterprise software companies are likely to face increased customer churn as customers seek cost-containment during the COVID-19 pandemic.

  • Despite these challenges, there are opportunities for certain enterprise software players to manage this scenario proactively and effectively.

  • These organizations are shifting the dialogue from downgrades and discounts to working with customers to find mutually beneficial vendor consolidation opportunities.

  • Companies that adopt this customer engagement strategy stand to mitigate their downside risk and experience rapid growth during the recovery.


The spread of COVID-19 is an unprecedented humanitarian crisis that has disrupted the normal course of business for organizations across the globe. “Shelter in place” and social distancing initiatives have been enforced around the world in an attempt to halt the spread of the disease. Due to these drastic containment measures, many businesses across size and industry verticals are experiencing dramatic declines in revenues and, in some cases, significant near-term liquidity issues. 

As such, companies are seeking ways to conserve cash and manage working capital, and are looking across their profit and loss statements for potential savings. As these cost-saving efforts lead to a review of software spend, customers may contact their vendors to seek downgrades and discounts, or in more drastic cases, to discontinue usage altogether.

While this creates risk for software vendors, there are measures that can be taken to mitigate the risk of churn/down-sell during these times, and perhaps even realize some upside in certain cases.

Protect against churn or down-sell with current customers by adopting a win-win mentality — helping customers identify vendor consolidation opportunities

Many midsize to large customers use a disparate array of applications and vendor offerings, sometimes even within a particular department or function. This is the result of many factors, including decentralized decision-making, previous M&A activity, ingrained preferences and/or a lack of focus on vendor rationalization.

In a “bull” market, customers may justify using disparate vendor offerings as employing a “best of breed” application strategy to help pursue optimal growth. However, as the market contracts, the return on investment for using best-of-breed solutions over integrated (and less costly) solutions is diminished. Now is the time for software vendors to push their suites. This will enable their customers to reduce their total software spend while increasing their spend with them — a win-win.

  • Assess the extent to which the customer is using the full suite of solutions you offer and the degree to which the customer is using other vendors’ solutions to meet their needs. This can be done by using a combination of benchmarking spend across your customer cohorts as well as through primary research among your customers and other market participants.
  • Offer opportunities for the customer to consolidate vendor spend across its disparate partners through bundled offerings. This can help customers realize total net cost savings, despite increasing business with a select vendor. Product bundles can be designed through customer research to understand solution preferences and price elasticity, and how these vary by customer segment. Another aspect of helping customers realize value is by accelerating a software as a service transition, as the current crisis (and associated work-from-home mandates) may reduce barriers to transitioning.
  • Form partnerships with other vendors that have complementary offerings to help better serve mutual clients. This can help solution stickiness by creating a more cohesive and comprehensive solution delivery model. If operationalized correctly, a strong partnership can also help reduce administrative and customer service burdens shared by both parties. Identifying the right organizations to partner with often requires an assessment of the vendor landscape and benchmarking of associated solutions.
    • An example of this is a strategic partnership launched in 2019 between Snowflake, a cloud data platform vendor, and Tableau, a data visualization software vendor. By delivering the scalability and flexibility of Snowflake’s data warehouse in conjunction with the visualization and analytics capability of the Tableau platform, these vendors sought to bring customers a cohesive solution that covers storage, analysis and visualization.
  • As-available, cross-sell solutions might be more fitting for customers given the current circumstances. Such solutions include those that help businesses adjust to remote working arrangements or help them better utilize alternative channels and/or ways of interacting with their customers. Select examples include:
    • Par Tech, a point-of-sale (POS) hardware and software solution provider for the restaurant industry, is emphasizing digital solutions such as virtual drive-thrus, kiosks and online ordering instead of its traditional POS systems1
    • Salesforce is marketing and offering free trials for Quip, a productivity and collaboration platform that houses documents, spreadsheets, slides and chat all within Salesforce, by emphasizing the value this solution can bring to remote teams

Proactively reach out to priority customers to preempt service reduction requests

The aforementioned strategies can help offset customers seeking to churn or reduce spend, but relying solely on reactive responses to such requests can be risky, as decision-making may be hard to influence at that stage.

A good first step in customer retention is to identify customers that are most at risk of churning and understand what ancillary offerings you may be suited to offer them. By creating a method of segmenting customers based on risk profile and importance of account, software vendors can streamline and effectively target proactive outreach efforts and retention strategies deployed. Executing a primary research campaign to understand customer needs, current business state and anticipated operational changes can help inform a segmentation strategy.

Despite the challenges that continue to unfold, proactive enterprise software companies can position themselves to maintain current revenue and even continue growing by helping clients make mutually beneficial decisions around vendor consolidation.


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