By definition, contracts are finite agreements that usually include some sort of expiration date or end point. This means your company will have to do renewals on an ongoing basis.
If you don’t have a system for handling this function, you run a risk of undermining the long-term profitability and success of your firm.
Contract Renewals: No Trivial Matter
Given so much emphasis on sales, many business owners overlook the importance of retaining existing clients. This can lead to them to trivialize such tasks as contract renewals, which one might argue are the real lifeblood of good service companies.
Don’t make this mistake! Here are some of the reasons why contract renewals matter.
- Cost-effective. It’s typically much more cost-effective to retain a client than to locate and acquire a new one. If you consistently renew existing contracts, this is one of the leanest ways to grow.
- Predictable income. As you know, trying to predict your business income in the coming months and years with any sort of accuracy can be a challenging task. The more predictable you can make your contract process as well as the deals themselves, the better. Renewing your contracts comfortably ahead of the deadlines is one of the best ways to stay on track.
- Better CLV insights. Whether you’re running simple accounting for your own peace of mind, or looking to acquire investors, it’s vital to maintain an accurate understanding of customer lifetime value (CLV). The more contracts you can reliably renew, the higher your CLV will be.
Four Tips for Improving Contract Renewals
If you want to stay lean and maximize internal resources and manpower, streamlining and simplifying your contract renewals is one of the best steps you can take toward achieving those goals. But how do you do it? Here are some four prime suggestions.
- Set Up Proactive Calendars and Reminders
Many of the largest Fortune 2000 companies may have thousands of contracts in effect at any given moment. You probably don’t have that many in the works, but it’s entirely possible that you’re dealing with hundreds, or at least dozens.
No matter how organized and attentive your team is, it’s unlikely that they are able to keep track of absolutely every detail. It’s crucial for you to have calendars that provide proactive alerts that can remind you of upcoming contract renewals, among other things.
You’re much more apt to achieve an excellent contract renewal rate if you start 30 to 60 days in advance.
- Use Contract Lifecycle Management Software
As your business scales upward and your contracts jump in quantity and volume, you should consider integrating contract lifecycle management software into your workflow.
Contract lifecycle management solutions are designed to streamline every step of the contract process, including initiation, authoring, negotiation, approval, execution, management/compliance, and renewals. Because the program is largely automated, your team will be freed up to focus on the soft skills that make the management of contracts a lot smoother.
- Identify Direct Contacts for Each Client
You can’t just swoop in at the last hour and expect a client to renew a contract … even if the customer is happy with the service you’ve provided over the life of the current agreement.
Relationships are vital for successful renewal rates, so you have to cultivate them from the beginning. Our best piece of advice is to identify a direct contact on the staff of each client organization, and build that relationship over time.
If you already enjoy trust and connection with a client before the renewal period approaches, you essentially have an insider/advocate within the customer firm who is apt to vouch for you when the time comes for the entire outfit to evaluate the contract.
- Develop a Centralized Record-Keeping System
Few operational weaknesses have the level of negative impact on contract renewal rates quite like a lack of organization. When you let information or commitment deadlines slip through the cracks, this can kill both your awareness and negotiating power when renewal rolls around.
You need to be fully in-tune with everything that’s happening at every stage of the contract process. Make sure you have some sort of centralized record-keeping system in place.
This may be part of your contract lifecycle management platform. Or, for a small company, it could be something as simple as a collection of spreadsheets. Just make sure you’re doing whatever’s necessary to stay on track.
Take Your Business to the Next Level
In order to build a successful and growing business, you not only have to acquire clients, but you must retain them. Placing too much emphasis on the former without at least as much attention to the latter will run up your costs, waste time, and have a negative impact on the bottom line.
Take the time to develop a strategy that addresses how you pursue contract renewals and optimize it until you get the best possible results.