Do you have a contract renewal strategy?
There are many strategic benefits of proactive contract renewals. Instead of constantly searching for new business, you can leverage your existing relationships and accounts. You can assess the quality and ROI of each contract to determine whether you want to renew. The contract renewal strategy you employ can significantly impact your ability to generate revenue in this way.
You will find it difficult to remain profitable if you are constantly looking for new vendors or partners. There is a direct correlation between contract renewals and customer retention; absent customer retention, your business may struggle to compete in the marketplace.
What are contract renewals?
Contract renewal is the last part of the contract life cycle. Once a contract has reached the end of its term, your business must decide if it wants to continue the relationship. Some contracts consider how renewal will occur within the document itself. Many do this by:
- Setting an automatic renewal date: Many contracts build in an automatic date that the contract will renew unless either party decides otherwise. The contract terms typically state that the parties have by a certain date or within so many days of the contract’s expiration to terminate the contract. Otherwise, it automatically renews for another term.
- Creating opt-out conditions:Similar but notably different are opt-out condition clauses that require some performance in addition to the notice of termination. For example, a contract may require returning certain proprietary software or a piece of equipment to terminate the agreement. A business must know that these conditions exist and be ready for them.
- Renewal by date:Other contracts assume they will terminate on a specific date but provide an optional renewal. The optional renewal will state what actions must be taken to renew the contract. They may also indicate whether the contract continues with the previous terms, whether changed terms will apply, or whether negotiation must occur to renew.
A successful business has countless contractual relationships it must track—including renewals.
Be proactive with renewals to keep your best deals
According to the Aberdeen Group, companies considered “best in class” renew 56% of their agreements annually. Less successful companies will renew 25% or less of their contracts. This missed renewal will result in:
- Lost income
- Renegotiating deals with the same client
- Finding new business relationships.
The flip side is accidental renewal your company does not want. Not every business relationship works out the way you had hoped. Perhaps a vendor has raised prices, been challenging to work with, or a better option is now available. You may be contractually obligated to another term if you miss an automatic renewal. This creates revenue leakage that can negatively impact your bottom line.
Pre-renewal review process
Proactive companies use a pre-renewal review process to ensure they have the key details to make an informed decision. These details may include renewal dates, opt-out conditions, and much more. This pre-renewal process may be automated with contract reminder software, discussed later.
Using automated processes to review renewals before they happen is a proactive way to:
- Reduce legal liability
- Eliminate missed renewals
- Save time finding new business relationships.
Increase gross renewal rate to meet customer needs
A successful business is data and metrics-driven. This includes understanding your GRR, the percentage of agreements renewed within a given period. This may be measured annually, quarterly, monthly, etc. GRR does not include cross-sell or upsell in this equation but focuses specifically on contracts your company renews.
A high GRR is a positive indication of customer success efforts. When people renew, you will see increased efficiency in your own business. It is also a sign that you meet customer needs and deliver value to them.
How to increase GRR with contract management software
Your business can increase GRR by using contract lifecycle management software to:
- Use data metrics to understand customer needs
- Analyze the value of a contract to determine whether it is worthy of renewal
- Scrutinize contract bottlenecks that reduce the customer service experience
- Identify and target high-value contracts for renewal
- Receive automated updates and important details from the software.
Provide a great customer experience to increase renewals
Customers who enjoy working with you tend to return. This may seem like an obvious statement, but too many companies ignore the customer experience related to contracts. Less sophisticated systems make contract negotiation and management cumbersome and difficult for the customer.
This starts with contract negotiation. Modern systems permit red-lining and collaboration between counterparties. They can negotiate on a single platform or work on their chosen platform. This saves time and makes it easy to do business with you—significantly enhancing the customer experience and driving renewals for the future.
The same is true for how a contract is signed. Modern businesses do not want to take significant time to sign an agreement. They want a valid and enforceable signature method that makes it easy to sign. The rise of electronic signatures and clickwrap agreements have made it easier to enhance the customer experience for everyone. These methods often offer a one-click acceptance to simplify the experience in both B2B and B2C transactions.
Improve upsell motion to improve revenue
Contract metadata offers you information to drive sales growth and contract renewals. The CLM software can identify areas in the contract for upselling that could enhance the value of your existing agreements. This adds revenue on top of that already gained by the successful contract renewal.
You need to know how the client wants to grow to drive upsell. Your contracts can provide you with essential data to help make this happen. The digital contracting platform can identify helpful information such as:
- The previous sales terms and services offered to the customer
- Legal requirements requested by the client
- The previous length of the contract
- Potential services that were turned down before
- Optional or automatic upsell conditions in the contract renewal clause
It is cheaper to upsell a client than find new ones, and CLM software can help. Your sales team can analyze the benefits the customer already receives to demonstrate the company’s value to the client.
How CLM software can drive your contract renewals
Contract lifecycle management software gives you tools to be proactive and successful with contract renewals. Contract metadata and metrics can provide critical insights into your agreements, and the software can even help you get ahead of important dates.
Automate contract renewal reminders
A proactive contract renewal strategy is an admirable goal, but too many companies lack the tools to achieve it. Their legacy systems are unable to analyze contract data to create automatic reminders. With an advanced CLM, the software and integrated AI analyze contracts for tagged fields that identify when a contract is set to renew.
Contract reminder software eliminates the need for employees to track and manage contracts and renewals manually. This reduces the high workload on a sales team to let them focus on generating more revenue. It also significantly decreases the chances of human error that lead to revenue leakage. It removes the guesswork by sending automatic reminders about upcoming renewals, so your team is proactive instead of reactive.
Store all your contracts in a digital repository
A digital contract repository keeps all of your agreements in one place. This makes them easy to capture, secure, and find later. More importantly, it gives you built-in access to contract metadata to help you automate your business and discover opportunities for contract renewal and upsell.
Many businesses still use antiquated storage methods that make contracts impossible to find, or they are scattered across many different systems. This makes the likelihood of missed contract renewals (or accidental renewals) extremely high. The digital repository lets you answer important questions in seconds rather than sifting through pages of contract terms.
The metadata provides you with renewal dates and key information to help you determine if you want to renew the contract, including data on contract performance, liability, and much more. You will make informed renewal decisions that drive your bottom line with this information in hand.
Adopt a proactive contract renewal strategy for your business
You need a contract renewal strategy that works for you. Many companies still rely on manual systems and countless employee hours for processes than can be automated. Automation reduces the risk of missed renewal dates, accidental renewals, and revenue leakage. By utilizing the above best practices, you can automate reminders, analyze contract metadata, and increase your Gross Renewal Rate.
You need actionable insights into your contracts and renewals. You can improve your customers’ experience and even your own by choosing the right software. A comprehensive CLM software puts that power directly in your hands.
Table of contents
- What are contract renewals?
- Be proactive with renewals to keep your best deals
- Increase gross renewal rate to meet customer needs
- Provide a great customer experience to increase renewals
- Improve upsell motion to improve revenue
- How CLM software can drive your contract renewals
- Adopt a proactive contract renewal strategy for your business