Every organization has a contract renewal process. Some organizations have well thought out processes, others have less formally organized activities. But every company has a way to deal with contract renewal. A ‘this is how we do it’.
Although every situation is different, you will almost certainly have to go through the same ‘motions’ when renewing a contract.
It would make sense to; timely make a renewal plan, execute the plan and evaluate halfway if it is working or not. And finally, create a proposal your clients will gladly accept.
However, not in every organization all of these steps have been identified and organized.
When little is organized, much is up to the account manager. In these situations, it is not uncommon to experience a ‘should have’ or ‘could have’ feeling at the moment a contract end date is in sight. When little is organized there will be little grip and proactive behavior and too often a lot of last-minute pressure.
Organizations that have embraced a more structured approach to contract renewal feel much more in control. And also, because proper preparation prevents poor performance, the impact on their results are quite impressive. Many more contracts get renewed before clients go to the market, so there is much less competitive pressure. And when competitors do get the chance to put in a bid, they compete with an organization that has much stronger position and with a clear competitive advantage. Also, contracts more often get renewed against better terms and/or a better share of wallet.
Do you recognize anything mentioned in the forgoing text? Here are some indications that your organization will benefit from improving its renewal process.
- Account managers start too late thinking about what it will take to renew the contract
- There are no written plans to renew or grow the contract or improve conditions
- Your organization relies heavily on ‘writing the winning proposal’ (that is the only structured step in your contract renewal process)
- Often your teams realize only close to the end date, they could have done more or differently
- Last minute meetings and time pressure are common
- Sometimes price cuts have to save the contract
- You do not experience having the ‘competitive advantage’ as the current contractor
- Profitability may erode with every renewal.
- Account managers spend too much of their time on the operational level (performance) and not enough on strategic thinking on contract renewal or improvement.
All organizations we have worked with that have successfully improved the renewal process (and their renewal results), have one thing in common: they increased the level of organization in the renewal process.
They facilitated their account managers with a structured process and effective tooling. They organized doing the right things, the right way, at the right time. By providing a formal process and proper tooling to the right people, good intentions materialized into excellent results.
A ‘process’ may sound a bit complex, but it actually is not. The best processes are simple but a great aid to be effective.
A process should facilitate the three essential steps we have already mentioned: start timely, make a plan, execute and evaluate your plan (halfway). Common sense, is it not?
But understanding what needs to be done will not lead to the same result as actually doing it and doing it well. A formal process will help you get from common sense to common practice. From good intentions to good results.
Here are a first few tips.
To start timely
Being proactive means: start while all options are still open to you. Formally set a timeframe for starting renewal activities. Let your account teams know when they are supposed to start. For contracts longer than 3 years, we recommend you start working on renewal 18 months before the contract expires. For shorter contract periods, this might be at the half of the contract term.
To make this a common practice, create an (automated) signaling system. Make sure every account manager receives a reminder 18 months before the contract end date asking him/her to start renewal activities.
To have a plan
A goal without a plan is just a wish. Start the renewal process by making a plan.
Facilitate your account managers with a renewal plan format. A format will guide their thinking and helps them focus on what matters to renew the contract. You want your account managers to use all their talent and creativity on all the right things. You want them to be fully in control.
An important aspect of an effective renewal plan format is the size. No one wants to spend time writing a thick renewal plan that no one reads.
If you want, you can download the Contract Renewal Canvas from our website. It’s a simple to use tool for your account managers. It is a one-page plan that will help you get strategic about contracts you want to renew, grow or improve. It is essential in your process.
Evaluate and adapt (if needed)
Merely executing the plan is not the whole story.
Things might change during the execution phase or the plan might not work as expected. You want to know whether the plan is actually working when you still have time to change course and adapt your approach.
We advise you to set a milestone in a renewal plan that, when achieved, is a clear indication your plan is working. But don’t overcomplicate it. For example: In the Contract Renewal Canvas we have introduced the DRM, the Decisive Renewal Milestone. This one milestone will decisively tell you whether or not the strategy you have chosen is still the right strategy or whether you have to reconsider and adjust your plan.
Adopt, adapt and improve
Contract renewal should be a well-organized and structured process. You should be in control. Or rather, you should feel your team is proactive, effective and fully in control. Good luck on improving your renewal process