In the current tumultuous and uncertain economic environment, acquiring new customers, clients, and subscriptions is tougher than ever before. Many companies have laid emphasis on retention and sought better ways to retain existing contracts.
A well-thought-out contract renewal strategy gives you an overview of your strengths and opportunities and provides a projection of your performance based on the socioeconomic environment (in which your organization is bound to operate). But first, let's see what contract renewals are.
What Are Contract Renewals?
Contract renewals refer to the process by which parties extend the validity of a contractual relationship that is set to expire. The purpose of a contract renewal is to continue an ongoing business relationship and ensure that the parties can continue to enjoy the benefits of the original agreement.
During the contract renewal process, the parties have an opportunity to revisit the terms of the original agreement and make any necessary changes or updates. For instance, if the original agreement was signed several years ago, the parties may want to modify certain provisions to reflect changes in the business landscape or market conditions.
The renewal process may also involve negotiating new terms, such as pricing, payment schedules, or service levels.
Contract renewals are not automatic, and both parties must agree to the renewal terms. In some cases, the parties may decide not to renew the contract and instead terminate the relationship. When a contract expires, the parties are no longer bound by its terms and can pursue other options.
The Importance of a Proactive Contract Renewal Strategy
A robust contract renewal process can significantly enhance the performance of your business. A proactive strategy has many advantages:
- It gives you room to retain and fully capitalize on existing accounts instead of hunting new ones
- When you don’t have to worry about renewal and retention, you can focus on expansion
A good strategy is, therefore, an organization’s opportunity for better resource allocation. And imagine all the stress that you and your enterprise are relieved of!
Ensuring the Efficacy of a Contract Renewal Strategy
Now that you know how contract renewal strategies make lives easier, how should you go about getting one that strengthens your organizational structure and improves your dynamics? There is a lot more entailed in this seemingly simple process. Here are some key factors that make up a good contract renewal strategy:
#1 Determine what at-risk contracts mean and how to monitor them
Determining risks associated with every contract should be the cornerstone of any renewal strategy. By placing a risk analysis and identification mechanism, you can allocate your resources towards prompt mitigation and ramp-up retention. As with any identification process, you should set aside specific indicators that alert your team. But what can be considered an indicator of risk associated with an account, you ask? The following points might help:
- Executive sponsor change
- User raising numerous support tickets
- Reduced usage of features or products
- Unsatisfactory or negative feedback
- Missed milestones like adoption, onboarding, or lifecycle
- Lack of perceived value by your customer; this includes shifting priorities within your customer’s business, which are likely during this economic downturn.
- Lack of visibility or missing indicators can escalate the possible churn of a customer
These indicators can vary across segments and life cycle stages.
However, identification is not enough. Monitoring the frequency of occurrence of these indicators is also vital. And just as vital is to include a system that constantly monitors and automatically alerts the customer success team about these indicators.
This monitoring system should also be able to arrange relevant indicators in a hierarchy, based on varying degrees of customer health and criticality and deal with them accordingly.
The health scorecard of a customer success platform is one such tool or system. Leveraging your CS platform and identifying at-risk customers lets your team address any issues without being surprised in the final moments of renewal.
When a system within the organization has been established, incorporate indicators apart from the collected customer data- business-driving events and important news, such as acquisitions, funding rounds, CEO changes, or financial losses that occur at a customer account.
#2 Create a standard policy for renewal closure
After creating a risk identification system for your account pool, you need to design a process or policy to mitigate any risks before the contracts are renewed. Policies are a concrete yet convenient way to manage contract renewals and guide your resources about the actions needed at each step to close the renewal.
You may have to devise different policies for at-risk and healthy customers, but the importance of setting up a standardized contract renewal process cannot be overlooked. Once you have a standard policy in place, no one has to contemplate about the necessary steps for renewal closure and keep track of each one. Your resources would have a rooted reference point resulting in workflow consistency and reduce any variation in approach, action or outcome. Needless to say, this also frees up space for better communication and collaboration. According to a survey, 53% of renewal sales and marketing activities are tracked and documented only sometimes.
Once a standard policy is in place, you can take your contract renewal strategy up a notch by setting up centralized command centers. These centers implement the same set of policies across the spectrum and also keep the stakeholders aligned.
#3 Scale your policies for better retention
“People will forget what you said, people will forget what you did. But people will never forget how you made them feel.” ~ Maya Angelou
Your accounts may choose to stay with your organization for another contract cycle due to lack of options, but that retention is not born from a very bright sentiment. Retention should be impactful and meaningful, that generates value amongst your stakeholders. Scaling your policies and procedures appropriately can help you achieve just that!
Automated renewal strategies and processes not only enhance organizational efficiency but also engage the users/customers/account holders as long as they are a part of a customer journey.
6 Best Practices for Contract Renewal
Setting up policies? Check. Increase retention? Check.
Once you have set up the guidelines and employed tools to enhance efficiency and customer experience, you can simply identify the areas of opportunity in your existing renewal process and optimize it as it matures with time.
Now, let’s explore what best practices you must follow while working on contract renewal.
#1 Do not wait to review until the renewal is due
Nobody likes chaos at the last minute. There is not enough time to make amends, nor to brace for impact of an impending loss or attrition of accounts. It is often advised not to put off your contract reviews until the due date.
An observable trend reveals that 74% of large customers and 61% of medium sized customers are contacted 90+ days prior to contract expiration. But based on the volume of work involved with the procurement and legal teams, not many organizations get a chance to plan the renewal strategy before the due date.
When the significance of the tasks at hand is determined by their criticality and urgency, it can be difficult for teams to review terms, strategize, and optimize contracts. But no one said there can’t be a way out!
An AI Contract Renewal Management Technology/System reviews and drafts contracts much faster than the lawyers in your organization, leaving them with the crucial task of legal analysis.
#2 Refer to your library of preferred terms and templates
There may be certain aspects you would always want to include in your contracts. Some terms, conditions, and disclaimers become non-negotiable based on the risks and opportunities you encounter in the real world. Referring to your preferred terms list while renewing contracts can make the process easy and ensure consistency throughout contracts.
And if you don’t have one, it’s actually a great idea to create a library with all the essential parts you’d want in a contract. This helps you easily access the content without missing out on important details. You can also track down the best parts in various contracts you offer and compile them in a single location.
#3 Automate data collection and tracking
Most companies lack a dashboard that tracks contract renewal status and upcoming service expirations.
Data collection and data tracking are imperative to get a feasible projection of not just your performance but also your decisions as an organization. Whether existing accounts are compliant with the changes made in the current contract, how much time they take to respond, and whether they want to renew or not are some of the vital analyses that shall have deeper implications but also take a lot of time to research.
All of this can be automated by leveraging an excellent contract renewal strategy that uses an automated data collection and tracking system. This saves a lot of time and effort on gathering, keeping, and presenting the data.
#4 Assess renewal risks and opportunities
Not every renewal is desirable as not every account would have the same Return on Investment (ROI). You should weigh your risks and opportunities, and renew or terminate the contracts accordingly.
This notion is particularly true for companies that are perpetually expanding. With expansion, the number and size of the operations to run the organization would increase but the company hours would stay the same. As the company hours are limited, it is better to focus on accounts/contracts with better ROIs. Research by Frederick Reichheld of Bain & Company shows that increasing customer retention rates by 5% increases profits by 25% to 95%. This is another example of how the tiniest of steps can translate into humongous outcomes. A proactive contract renewal strategy analyzes each contract and assesses if the renewal is in the organization’s interest.
#5 Monitor who has access to documents
In contract management, setting user permission is critical. Contract documents and user data are sensitive information and should not be readily accessible to everyone. Restrict to authorized personnel according to the roles and responsibilities assigned to the individual. Tampering can happen at any time, but mostly happens when you cannot care to keep an eye on everything. A little tweak in the data can avalanche into something catastrophic.
Contract management software can set user permission built into the platform. You can easily define the security details and designate authorized and restricted users for separate contract files.
#6 Invest in contract management technology
A good contract management system recognizes consolidation and expansion opportunities, reducing costs and boosting profits. It also reveals contractual benefits for maximization of your existing accounts which otherwise go unnoticed.
When it comes to contract renewals, it’s often easy to miss out on the renewal date, leading to an unwanted auto renewals.
“I’ve often faced clients complaining about how they end up renewing unwanted contracts because nobody told them whether the contract was supposed to be terminated. I recommend SpotDraft to them because it allows you to set up renewal reminders weeks ahead of the last date of contract.”
~ Mohammad Moiz, Vice President, Customer Success, SpotDraft
With a good CLM system, you will be able to set up custom reminders to know when it’s time to either renew or terminate a contract, putting an end to unwanted auto renewals. With these auto notifications, you will have enough time to execute renewals or prepare for termination before the due date.
With a smart CLM in place, you save time, effort, and optimize resource allocation better than you ever could. And contrary to conservative belief, it is easier to migrate to a digitized or automated mode from manual.
Managing Contract Renewals with SpotDraft
CLM software saves money and time for businesses - it saves countless hours contract managers could otherwise spend analyzing renegotiation terms and finding renewal dates. It organizes clauses and renewal dates from a large number of contracts swiftly.
To be precise, contract reminder software such as SpotDraft provides multiple benefits and helps you:
- Receive automatic reminders to your emails
- Renew contracts right within the reminder email
- Make manual tracking irrelevant, as it automates everything
Let's dig deeper and find other advantages that SpotDraft offers:
Utilize a centralized contract hub
Contracts are easy to track, housed in a central repository, and never lost. So, the hassle of missing renewal never pops up. Also, SpotDraft can automatically extract critical information like key dates from your contracts and present it to you in the form of a concise summary.
Build a contract repository
You could furthermore add custom tags to contracts so that they become entirely searchable. These personalized tags save time and help you identify contracts in a flash.
Get ready in advance for contract renewals
SpotDraft allows you to set up recurring reminders for important contract dates. You can also use in-depth contract renewal management strategies. You get alerts, ensuring that you never miss a reminder or auto-renewal for a contract renewal.
Contract renewal reminder
With an intuitive contract reminder, you receive messages in advance, meaning your business team has more time to deliberate terms and propose amendments.
With your teams rapidly scaling and contracts firmly growing, keeping track of contract renewals may become more challenging. You may benefit from automated renewal reminders to avoid hiccups and surprises and build healthy customer relationships.
SpotDraft offers teams a separate negotiation window before the actual renewal. It gives them extra time to ensure the deal provides a competitive advantage. Try out a demo.
