Reduce Negotiation Rates on Your Contracts to Get Deals Done Faster
Contract negotiation is a crucial, and often stressful, part of the sales cycle. To reach your revenue goals, you need to lead your team to each finish line quickly, without exposing the business to risk.
That’s why our sales leadership partnered with our legal team to create a process that reduced negotiations on our standard customer agreements by 43% year over year.
Here are our guidelines for creating a fair and balanced enterprise services agreement, allowing your sales teams to build customer relationships with minimal time spent in legal review.
Collect and review your contract data
You’ll probably have some idea of which points are most frequently negotiated simply from experience, but collecting data on even a small subset of contracts will help surface the issues (and may surprise you).
- Track redline rate by specific contract section
- Prioritize changing sections ones that were most frequently problematic for customers
- The Ironclad platform can help track points like these through contract data
- Investigate what the “market” is doing
There’s an unfortunate lack of market data on contract terms, but one helpful source of intel is your own vendor agreements. If you can, have someone survey your vendor agreements and track key terms. This can help to level-set on what is “market” and what you and your counter-party should find to be reasonable and acceptable.
Contract data also allows you to negotiate confidently when you know your pitch is competitive with similar companies, being able to say, for example, “This scope of work includes ten 10% more consulting hours for the same rate you’d get with X.”
Develop a customer-friendly template agreement
There are two schools of thought on form contracts:
- You can draft them heavily in your own favor, thinking that will leave room for negotiation so the final fee can end up somewhere in the middle; or
- Avoid negotiation altogether by starting with a template that is middle-of-the-road, or even customer-friendly.
We find that starting with a friendly contract signals that you’re looking for a partnership rather than just a transaction. When the prospect sees that your agreement is favorable to them on the important points, they’re less likely to push on minor points.
Conversely, if a reviewer sees even minor parts of a contract that are unfair, they will view the whole piece more skeptically, leading to more redlines.
- Refer to your list of friction points from the data you’ve gathered
- Review your existing contract templates with fresh eyes
- Partner with legal to evaluate intent behind the language
- Changing even one word can sometimes make a difference in the tone or perception
- The Ironclad platform makes it easy to immediately implement any template changes in all future contracts
“Our comments are minor because your template is unusually well drafted, fair, and reasonable. Kudos to your legal team.”
Put the agreement online
One of the most effective ways to reduce negotiation is simply defaulting to an online version of your contract. For example, our order forms reference a URL with our enterprise services agreement, rather than an attached document.
Based on our data, switching to an online agreement alone resulted in a 16% decrease in redlines.
Putting terms online reinforces the concept that they are standard and adds a bit of a barrier to making edits.
Tip: With Ironclad, you can seamlessly integrate online agreements with the overall sales process, and smoothly transition from online to negotiated agreements, reducing the need for manual input.
Establish a “no negotiation” threshold
This means setting a minimum dollar value under which you or your legal team won’t accept negotiations.
Through instituting a dollar threshold on our sales contracts, our redline rate under the threshold decreased by 89% year-over-year, with no loss of deals.
This idea might seem risky at first, but if you follow the suggestions above to refine a reasonable and easy-to-accept contract template and deliver it online, this process will be much easier.
- Get finance involved to make sure the threshold is set appropriately
- Collaborate closely with finance and other business teams and make sure they agree with the potential trade-offs
- The threshold can be moved up or down over time as your company changes
Educate other teams about the sales process
As you know, negotiations are often extended not just by the counter-party, but by your own internal teams (looking at you, legal). But they may not realize the pressure you’re under to get a deal across the finish line – after all, their success or failure isn’t measured by whether a deal closes or not. By holding a session or two about negotiation best practices, and explaining what you’re working to accomplish by reducing redline rates, you’re more likely to get their cooperation.
- Remind legal that reducing redline rates frees them up to focus on other issues
- Remind everyone that time kills deals, time is money, and all those other truths that have withstood the test of time
- Train people think of contract negotiation as an option that can be circumvented rather than an inevitable part of the process
Making friends with legal
Your legal team can be an important ally by helping to produce standard sales and service agreements that are so close to perfection the client won’t think twice about signing the contract.
They also have the ability to transform the process by designing solutions to frequently negotiated legal friction points. For example, instead of negotiating language around term length or auto-renewal in a customer contract, they could incorporate a checkbox for you to indicate the customer’s desired term length and whether the contract will auto-renew. While the issue will still need to be addressed, it won’t need continuous legal input.
Create a cover letter for your agreements
Prepare a template cover email that gives context around your sales agreement and what it contains, to be deployed when a counterparty asks to negotiate. This shouldn’t be too difficult, since you’ve done your research and developed an agreement that’s customer-friendly.
- Be transparent: include key points in the contract, your reasoning for including what you did, and why you prefer to avoid negotiation if possible
- Add value props to further emphasize the value of your solution to their business
- The letter can also serve as something of a script for a verbal talk track on the contract
Reap the rewards
These tips will help you to reduce negotiation on your standard contracts, getting deals done faster. Redlines and negotiations may be unavoidable for certain deals, but you can eliminate plenty of headaches with a well-crafted service-level agreement and the right tool to support both sales and legal.