Mastering the contract renewal process is a clear advantage in industries with recurring revenue models. An efficient renewal strategy provides a fantastic opportunity to re-engage a customer and grow revenue. Unfortunately, in most companies, handling contract renewals is a highly reactive and manual effort.
One of the most common complaints we hear is the inability to scale an effective process across the business without dramatically increasing headcount. That’s because most companies have pockets of sophistication—perhaps its intense focus on the Top 50 customer contracts or a robust process for specific products.
For the rest of the organization, if a contract renewal date finds the right person, great! But scaling efforts to proactively identify renewal dates, build best practices, and develop renewal playbooks continues to elude revenue teams.
“When we were forecasting and optimizing renewals using more manual systems, we only had the bandwidth to focus on our top 100 customers. Pramata supports our focus on giving equal attention to all our customers.”
-Shelley Bennett, Lytx
The truth is, that many of your contracts are fine auto-renewing. The customer is happy, there isn’t an immediate opportunity to expand, and the relationship is profitable.
The objective shouldn’t be to work all renewals; the objective should be to work the right ones. And that requires prioritization.
Turn a reactive renewal process into a proactive strategy
The first step toward getting more out of contract renewals is to define a set of clear objectives for the renewal motion. Then, you can assess your upcoming renewal events for how well they fit those objectives and surface the highest priority opportunities for sales teams to work on.
In working with our customers, we’ve solidified three effective ways to establish a best practice when it comes to renewal prioritization:
1. Prioritize contracts with termination risk
The top priority for any company is keeping the customers you already have. Several factors can serve as red flags that a customer could be at risk of dropping a product or leaving you altogether. Indicators for risk can be simple.
For example, if the deal doesn’t have an auto-renewal provision, it should bump to the top of the list. Here are other factors you should consider when evaluating termination risks:
Outdated products or high prices: If the products are outdated or the pricing is high compared to similar customers, it may be time to repackage their deal with a slight discount but for a longer term.
Current usage vs. expected: If their current consumption is measurably different than the initial deal terms, your team can take active steps to reconcile issues sooner, not later
Billing disputes or support requests: A good way to gauge satisfaction is to see how many support requests they’ve made and how many billing disputes they’ve had. Support requests could mean adoption issues, but they also indicate they are using your services. Disputes, on the other hand, always erode satisfaction.
2. Identify Upside Opportunities
Renewals aren’t just about avoiding risk; they are a great time to find revenue opportunities. Look for customer outliers that are over their consumption threshold. By finding over-performing customers, you can explore raising the minimum and offering a discount to lock them in for a longer-term contract. Examine the contracts for products they own that are renewing and tied to current sales or marketing campaigns.
If you offer menu-based pricing, look for things they haven’t purchased but should have given their current product mix. Make sure to point your sales team toward expiring price holds and discounts so they can follow up with the customer.
These triggers enable you to send hot leads to your sales team so they can package up a strong expansion deal. Creating a strategic renewal strategy goes a long way toward maximizing customer lifetime value.
3. Clean Up Unfavorable Contract Terms
Renewals are a prime time to renegotiate and clean up outdated and unprofitable contract terms. To do this, create a set of criteria you can use at the time of renewal to target customer accounts with unfavorable terms and prioritize them for renegotiation. This typically involves a list of contract terms with risk or profitability and their relative favorability. Here are a few examples:
By identifying these less-than-optimal terms, you’ll be informed and prepared to renegotiate a much more favorable overall deal at the time of renewal.
Focus your team on these three considerations, and you’ll help them prioritize contract renewal efforts and drive the greatest impact.