A Pramata Article

Contract Renewal Management & Best Practices

Your complete guide to contract renewal best practices and management

What’s in this article:

Are you missing renewal deadlines or experiencing a decrease in renewal rates? If so, it’s time to re-evaluate your renewal process.

Businesses often have renewal management inefficiencies, like decentralized contract data with inconsistent visibility to sales and legal teams. Inaccurately calculating renewal dates manually is another common issue when preparing for renewals.

These challenges become more complex with large teams or large numbers of renewals to handle. Optimizing your renewal strategy with a high-quality Contract Lifecycle Management (CLM) system improves contract retention and uncovers new upselling opportunities through automation.

Below is a guide to contract renewal management highlighting mistakes to avoid and explaining how the right CLM software can drastically improve your renewal process.

Why efficient contract renewal management is crucial for long-term growth

Contract renewals aren’t just a task. You must have a strategic approach and an organized renewal process if you want your business to grow. Not every contract or vendor is the same. But if you use a consistent, efficient renewal process, you can close deals more efficiently.

In short, contracts are the backbone of business growth, and organizing your renewal workflows is critical to sustaining success.

Contract revenue retention

It’s a pretty simple formula: To retain contract revenue, your company must have an effective renewal system. A successful renewal process goes beyond the legal department’s review. It should also provide procurement, sales, and finance teams with contract data visibility to maximize renewal opportunities.

That way, everyone who touches the renewal process can analyze historic contract performance to help determine competitive renewal rates and retain more clients. It also gives these essential teams additional time to prepare tailored renewal plans for better results.

Managing renewals with a centralized contract management system improves retention because it minimizes disruptions and allows your teams to develop well-thought-out renewal strategies together.

Risk mitigation and legal compliance

Failure to meet renewal deadlines puts your company at risk for legal compliance issues. Failing to fulfill all contractual obligations can void agreements and cause disputes.

For example, if there are changes in data protection standards, and those changes aren’t reflected in your renewals, you risk severe penalties. An efficient CLM mitigates risk by preventing the legal consequences that come with poorly managed renewals.

Enterprise revenue and scalability

Revenue protection and renewal management go hand-in-hand with deal acceleration. Optimizing your renewal workflows improves sales efficiency and productivity over manual CLM processes.

Effective CLM tools streamline manual tasks by automating renewals based on individual contract data. Your staff should always know when renewals are due and be able to locate contracts using known search terms instantly.

From contract type to renewal notification period, this data should be simple to find and accurate so you don’t lose deals. It’s not only about managing renewals better. A structured CLM system allows you to achieve long-term growth and protect revenue.

Common challenges in contract renewal management

Companies may not realize their contract renewal process isn’t efficient. But if your teams have consistent renewal challenges, it could be a sign that you need to improve your CLM system. Here are the most common renewal roadblocks that businesses face:

Missing renewal deadlines

Contracts have different renewal dates and terms. You may miss renewals or amended deals if your CLM system can’t accurately calculate data for renewal notices and alerts, causing deadlines to easily slip through the cracks.

Calculating renewal dates in advance is challenging and often leaves sales teams minimal time to prepare. It can also lead to miscalculated renewal notifications if done manually. As a result, sales teams must redo calculations, which consumes more time, and they may miss renewal dates.

Decentralized contract data

Is your contract data stored in multiple locations? Whether it’s separate spreadsheets or individual PDF files, a lack of centralized contract data delays renewals.

Scattered contract information means your team will take longer to find essential data (e.g., renewal dates) because that information is stored in multiple places. These needless delays prolong answering customer and stakeholder questions, damaging your company’s reputation.

Decentralized contract information also leads to inaccurate data extraction. It can cause your organization to miss revenue opportunities and make costly mistakes in renewal terms.

If you don’t have centralized, up-to-date contract data, it’s easy to miss clauses like unfavorable termination at the time of renewal. Businesses often have inaccurate renewal data because it’s not centralized for easy updating, or their systems can’t automate needed changes.

Lack of contract visibility and accessibility

One of the most common renewal challenges companies experience is a lack of complete contract visibility. Legal, sales and finance teams typically have siloed access to the critical contract information they need for renewals.

Limited user permissions may mean there are no secure data-sharing capabilities in CLMs and, therefore, no engagement in some key departments. Without self-service access, some team members may experience renewal workflow delays waiting for answers to simple questions about renewal terms.

This lack of self-service access to renewal information or contracts shouldn’t be an obstacle for sales and finance teams to complete renewals. This is especially true with a CLM system in place.

Contract renewal best practices to scale your retention strategy

Take a proactive approach toward your contract retention goals with these renewal best practices:

Create a process for renewals

Developing a plan for renewal workflows, especially for standard contracts, is crucial for accurate renewal strategies:

Define your current renewal goals based on KPIs

Involve key stakeholders in setting new renewal goals based on prior revenue performance. Determine these goals by analyzing contract KPIs and prior contract leakages.

Contract performance metrics to evaluate during renewals should include:

Contract cycle length: Compare your short and long-term contract lifecycles to discover bottlenecks that prevent you from closing deals faster.
Contract acceptance rate: Check if your rate is decreasing and identify patterns to understand the causes for rejections or modifications.
Contract value: Look at the total value of contracts renewed within a specific period to understand what needs improvement.
Contract requests: Track your peak and lowest periods of contract requests to compare trends for refining renewal processes.
Contract termination risks: Prioritize at-risk contracts, like those with billing disputes, to improve customer satisfaction and mitigate CLM inefficiencies.
Percentage of contract renewals: Monitor whether renewal rates are decreasing and update contract terms to include discounts for loyal customers.
Number of missed renewals: Identify why renewals were missed. Reasons could include non-updated contract information or miscalculated renewal dates.

Conduct a contract audit

Compare contract agreements and legacy acquisitions in a contract audit. This analysis provides sales teams with historical contract data they can use in renewal negotiations.

Identify the following during your contract audit:

Under- or over-charging vendors
Fulfilling payment terms and conditions
Reviewing unclear or missing contract termination language
Offering auto-renewal and contract extension options

Contract audits help you improve the quality of your renewals by providing your team with data-driven insights into existing contracts.

Calculate renewal periods

First, determine which contracts require renewal calculations so you can submit new proposals on time. Next, find the product or service activation or install date, then combine it with the contractual term information. You can typically find a contract’s product or service install dates in billing and provisioning systems.

Finally, thoroughly review contract terms and keep the data updated to prevent miscalculated renewal periods, as amendments and orders may continue after installation dates. Terms may also not start until the first ordered product or scheduled service.

Prioritize renewals for contracts at higher risk of being lost

Evaluate contracts with lower performance that may keep current customers from renewing. Marking these as high priority and quickly resolving their concerns can influence them to renew.

Contract renewal risks to look for include:

Outdated products and services
Higher prices
Lower consumption than deal terms
Billing disputes
High number of customer support requests

Take this time to review your contract renewal strategy and learn why specific contracts are high-risk in the first place. Low-performing contracts aren’t always a reflection on the customer. There may be inconsistencies in your CLM that are preventing renewal approvals.

Consider improving discounts or giving your sales and client services teams contract data access to strengthen the customer renewal process. If your customers can’t get answers quickly or consider your price increases excessive, you should re-evaluate your renewal strategies.

Look for renewal quote errors

Renewal quote errors can include more than just under or overcharging. Double-check whether the terms have missing entitlements that may cause you to waive fees. Overlooking entitlements leak contract revenue because you’re not getting what you’re owed and cause unfavorable auto-renewal terms from these inefficiencies.

Prioritize contract renewals based on performance and risk levels

Here’s how to prioritize contract renewals:

Organize renewals based on contract performance and value
Label contracts with termination risks and billing disputes as high-priority
Put contracts with unfavorable terms and high prices as a medium-to-high-priority
Put contracts with minimal customer support requests at medium to low priority when possible

When creating your renewal priority list, organize these contracts using data-driven insights. Contracts with low customer support requests could become a higher priority if your analysis shows that the performance is dwindling.

Using contract KPIs in your renewal strategy enables you to prioritize the right contracts and leverage favorable rates during negotiation.

Build relationships with your current customers

Your growth strategy won’t succeed if it focuses entirely on getting new business. In fact, investing in current customer relationships is absolutely imperative for increasing revenue. Existing customers are typically easier to upsell than those new to your company because you’ve established trust.

Improve your customer renewal process by:

Reviewing contracts with high-spending customers for discount and upsell opportunities to solidify renewals or extend terms
Resolving issues on contracts with billing disputes and support requests
Analyzing current customer contracts with lower consumption than the deal terms to fix any adoption issues
Confirming that you activated or deactivated the proper discounts in customer billing

Customer value optimization can also lead to increased referrals. Maintaining a successful track record with current customers can encourage them to recommend your business within their networks.

Invest in CLM automation

You shouldn’t have to feel like you’re juggling contracts come renewal time. CLM software centralizes all contract data to optimize your renewal processes.

CLM technology uses contract renewal automation to:

Locate renewal information with key search terms and reporting
Tag obligations
Calculate contract renewal periods
Send renewal date alerts to all members
Give sales, finance and legal teams self-service contract data access

A centralized contract database eliminates the disruption of workflow caused by the need for manual data searches during renewals. When you spend less time locating contract data across multiple files, you can better prepare for renewals. A centralized database provides instant access and the information you need when you need it.

Benefits of CLM automation for contract renewals

Using the best CLM tools can transform your renewal results. Getting to more automated processes can help solve your common renewal challenges and offer many benefits to increase retention.

CRMs are only as effective as the information entered and how timely and consistently your team enters it. If your staff doesn’t update renewal dates or amend terms halfway through agreement periods, it skews your renewal period data.

CLM software should help calculate renewal dates from all contract terms so you can skip tedious manual efforts.

See why Pramata is the only CLM in the industry to combine AI technology, lawyers and data experts to calculate and ensure you always have accurate renewal information at your fingertips.

That’s not to say that CLM software replaces your CRM entirely. It should be able to integrate with your CRM to provide renewal dates more efficiently.

CLM platforms give you renewal alerts in real time. With automated accuracy, your CLM platform should calculate recommended renewal dates based on products & services, agreement terms and data analysis for each contract and keep it up-to-date.

You can also customize your CLM to provide renewal notification dates as often as you wish. A CLM should fit seamlessly into your workflows and make them simpler.

Accessing and applying high-quality contract data should be the foundation of your contract renewal system. Without data-driven insights, you can’t accurately measure the success of prior agreements or negotiate favorable renewal terms.

Common mistakes companies make with contract renewal data include:

Failing to provide up-to-date data or duplicating data
Providing incorrect or miscalculated renewal dates
Improper manual data entry
Providing limited or no visibility into off-contract revenue
Renewal dates not written in pre-signed contracts

Contract data automation gives you peace of mind by reducing human error and helping you access accurate information for renewal analysis.

Your contract renewals shouldn’t only focus on contracts with termination risks. It should also help you identify upselling opportunities.

A CLM should provide contract data snapshots, such as total products or services sold and customer summaries, to help you tailor renewal strategies. You can increase renewal retention by rewarding your most loyal customers with discounts if they agree to longer terms.

Instead of sales executives spending all their time searching for information, they can dive deeper into customer relationships. Maximizing customer lifetime value increases the chances of renewals because of your investment in your customers’ satisfaction. And CLM contract data visibility makes it easier for you to do so.

CLM software allows self-service access via renewal dashboards, so your teams aren’t constantly asking for renewal updates. Users can filter contract searches by end date to help figure out which ones to prioritize first. CLMs, like Pramata, also calculate renewal dates so you don’t miss another vendor contract auto-renewal.

CLMs bridge the gap between sales and finance teams when contract renewal data is centralized and easily accessible by all. It gives them the information they need with more time to prepare for renewals.

Inefficient CRMs promote a low adoption culture because of poor user experience. Many chat notifications and long email threads tracking renewal dates can overwhelm sales and finance teams. Having too much information is just as disorienting as not having enough.

CLMs highlight essential renewal information, including:

Initial start and end dates
Term types
Term triggers
Renewal types
Customizable reports by account type (fixed terms vs. auto-renewals)
Products and services

Your teams can feel more motivated to adopt new renewal processes and CLM platforms when doing so makes their jobs easier. Widespread adoption of an efficient CLM system is the key to meeting your renewal goals.

Avoid contract renewal roulette with reliable CLM software

Gain consistent accuracy and confidence in your contract renewal strategy with Pramata’s user-friendly CLM. We perfected what companies need from their CLMs before renewal periods to strengthen revenue retention and find new opportunities.

Our CLM software is the only one that auto-calculates renewal dates for you and keeps them up-to-date. This improves your contract renewal rates by integrating easily into your CRM. Your staff won’t have to request status updates or ever miss renewals with a centralized contract database and customizable reminders.

Let us do the heavy lifting for you.

Learn more about Pramata’s approach to helping you manage contract renewals more simply and efficiently.

The future is here. See our GenAI Experiences!