Improving profits with intelligent contract renewal management

By  Nick McMenemy

Nick McMenemy, CEO Renewtrak, discusses how diving into your renewals function is key driving customer success

Successful technology companies are examining how they can maximise revenues and profitability throughout their entire business and are working to understand the benefit of focusing on long-term profitability through renewals. Customer success has become crucial to driving the profitability and sustainability of technology companies.

Winning new deals requires a tremendous amount of effort and resources. Marketing and customer success teams have to expend resources and create costly campaigns. Sales teams must commit to calling, emailing and connecting with leads until a deal is closed. Additionally, execution teams must be brought in to customise and implement solutions.

All too often once the deal is won, and their initial client needs are met, these clients are managed into a steady state of profitability decline. Although we are all aware that it is easier and cheaper to sell to existing clients, then it is to acquire new ones!

Contract renewal management software is the key to success in this effort. Intelligent renewal software tools help firms manage and monitor their existing contracts. It helps engagement professionals keep up with current clients and be notified when renewal dates are approaching. Specific factors make focusing on contract renewal for customer success especially important.


1.     The Long Tail

While most new sales efforts go towards the 1% of deals worth over $25,000, the vast majority of contracts are under $10,000. The long tail of clients worth over 97% of the total technology market is spending under this threshold with a majority of those under $2,000. These clients are purchasing SaaS solutions, cloud hosting, security, operational tools and much more. However, their contract size is not significant. So it does not make sense to spend thousands of dollars marketing and using sales team resources to capture a single client in this long tail.

Instead, it makes sense to spend less effort on reaching out to a large number of potential clientele. The companies that reach the bottom of the funnel and become full-fledged clients deserve more attention as renewals become a key to profitability.

Sales teams often visualise this dynamic as the Ubiquitous Market Triangle with the high-value clients on top of the pyramid and the low-value ones on the bottom. However, it turns out that the majority of the volume is in the fat, long tail of clients.


2.     Divide and Conquer Mentality

Unfortunately, many firms ignore the lessons of the Long Tail. Instead, they have a divide and conquer mentality with existing contracts. In other words, they merely rank their existing contracts by size and put resources in that order.

As previously mentioned, this leaves out the majority of revenue and clients. Focusing on the largest ones may allow for noteworthy sales, but it results in lost revenue, lost opportunity and lower profitability. Instead, firms that use intelligent software to keep in touch with all current clients no matter how small do much better over time. These companies can build up their client base and revenue through the long tail rather than picking off a few individual large contracts with extra effort and resources.




3.     Overlooking Rebates

Another common mistake customer success and sales teams make is overlooking rebates for high renewal retention. Vendors often provide a 12% rebate on revenue for renewals of over 90%. Even if the team can maintain a renewal rate of over 70%, they often receive up to a 9% rebate.

Those rebates flow straight to the bottom line or the commission income of the sales team because they do not require any additional cost outlays. Technology Firms interested in profitability and sustainability should be very focused on achieving rebate targets.


4.     Features of Renewal Management Software

Technology firms that use renewal management software see many critical benefits. First and foremost, these tools help customer success teams to remember when the renewal date is approaching. As businesses switch to focus on long tail clients, keeping track of all the various renewal dates for contracts becomes increasingly difficult if not impossible. Intelligent software allows for sales or engagement teams to receive pop-ups, messages or emails reminding them to contact clients about an upcoming renewal. They also include the date and size of the renewal contract.

Another critical feature is automated outreach and contract offers to clients. For some essential services like hosting and domain registration, the outreach can merely ask the contact to go to the payment page and enter credit card information at the same price for continued services. Other solutions like security or SEO that are more complex may automatically suggest a phone call with a sales representative to determine the best way to improve or upgrade services at an expanded rate. Either way, these tasks are done automatically without manual input from sales or marketing.

Renewal management tools also help to review and organise existing accounts. Focusing on the long tail still may require segmentation of clients into different buckets. Each bucket may have a different sales strategy or product offering. For example, a company may sell simple anti-virus security online. PCs, Macs and Linux computers would all get different offerings. Additionally, clients that need additional support for cloud services would get a more tailored pitch that also yields more revenue and profit. However, it would also be automated so that the sales and marketing team would not need extra effort before the client responded.

These intelligent software solutions allow teams to assess the risk of failure. Companies that are not using their existing services and have not contacted the vendor for help are at extreme risk of not renewing. On the other hand, clients that use the service on a daily basis and have high interaction with the vendor are almost automatic renewals. Using this analysis, the sales team can determine where their efforts may yield the best returns. High-risk clients require early intervention while low-risk clients may be contacted near the end of their term.

Intelligent contract renewal software should be as easy and accessible to use as possible. That means there will be a native mobile app, web access and constant updating. The solution should be intuitive and easy to customise, and implementation should be a matter of days. These tools are crucial for customer success teams to be able to deliver the growth technology firms must deliver to remain competitive.

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