On this episode we’re joined by corporate finance advisor Andrew Jeffs. He helps founders effectively approach the process of negotiations … Continue reading Strategies for Successful Deal Structures with Andrew JeffsREAD MORE
How to Manage A Contract Renewal in 2022 & Beyond
Despite being a necessary element of negotiation, the subject of contract renewal can often be an uncomfortable one. Broaching the subject of continuing or extending a contract can be difficult, especially if key stakeholders have moved-on inside the client. To succeed, you’ll need a negotiation strategy and negotiation skills to ensure it’s a profitable and rewarding renewal for both sides.
What Are Contract Renewals?
A contract renewal could be considered as the last stage of a contract or negotiation lifecycle. One way of looking at a contract renewal is that they’re a gauge of whether your client is delighted with the progress that’s been made against their target outcomes. Put simply, they’re a follow-up negotiation to extend the terms of your original agreement with an existing client.
Some Key Elements to Any Contract
Before we start talking about renewals, let’s take a step back and look at some key contractual elements that you will be negotiating:
- Firstly, the 20/30/50 page behemoth that’s often called the Master Services Agreement (MSA) – this is where 95% of the contractual terms are negotiated. Take great care with this as it lasts throughout the working life of your relationship with the client
- Schedules attached to the MSA, for example Security Policies, Change Request Processes, SLAs/KPIs, Statement of Works (SoW), Pricing Schedule, etc. The SoW being predominantly where you specify the work you’ll be doing.
- Contract Term: This is the nominal length of the contractual relationship
- Notice Period: How much advance notice either party must give to the other if they want to end the agreement. Beware, these are often different for the client and vendor.
- Payment Terms: How long it will be before you receive the cash once you’ve invoiced. We’ve written a blog on Payment Terms.
- Termination Rights: Broadly falls into two categories. “Termination for Convenience” and “Termination for Performance”. Ideally, you don’t want to ever accept Termination for Convenience, however, clients nearly always want this right – it’s a tricky negotiation so get expert advice.
We mention them here because once you’ve negotiated specific items in the Master Services Agreement, it’s highly unlikely you’ll be able to change them as part of a renewal negotiation. The main things you’ll be negotiating at renewal are the SoW, Pricing Schedule and SLAs/KPIs.
Contract Renewals Are Vital Growth Opportunities For Your Business
Once you’ve gone through the initial procurement negotiation process and the customer has signed the initial agreement, this is where the work really begins. Depending on the supplier’s strategy and organisation design, there are broadly two models for managing contract renewals:
- The sales person retains the sales relationship with the client for as long as they work together. Therefore, the sales lead does the renewal negotiations
- The client is handed over to service delivery. In these cases, it’s usually the role of an Account Manager and/or Project Manager to negotiate the renewals.
From the moment that the client decides to contractually work with you, they’ll be tracking progress against targets and the quality/professionalism of the experience. Allowing a few months of settling-in and understanding how each party works is key. It’s important for both sides to take-stock of any material changes they’d like to make in the future and to keep notes.
However, as you approach the end of the initial Term (length) of the contract, it’s a great opportunity to review:
- Are there other services that you provide which can be included in a contract renewal with an increase in budget?
- Are there issues brought up by a client at a contract renewal which could improve the way you work?
- Are there competitors that your client mentions at a contract renewal, which could give you insight into how they work?
- Do you believe that you have undercharged for the services your client ended up requiring?
- Are you the perfect fit for the client that you initially thought, or is it time to walk away?
The list is vast when it comes to making a contract renewal work for you, and it’s important to remember that it’s a two-way street. Before talking about renewals, you have to ensure that you’re delivering/exceeding the client’s expectations. Have you solved the initial business problem and delivered tangible benefits?
Prior to renewals, in-fact at the start of the contract, you need a clear way of:
- Measuring and reporting progress against SLAs/KPIs
- Holding weekly/monthly/quarterly reviews with different stakeholder communities
- Keeping lines of communication open so that clients can discuss any issues as they arise.
You don’t want to be left floundering at the point of contract renewal, with no way of being able to claw the relationship back.
Preparing For Contract Renewals
You have to build an engagement and negotiation plan for a contract renewal at least 3 months (and ideally 6 months) ahead. You need to take into account all the data you’ve collected (soft and hard) from your own team and the client. Preparing for a contract renewal negotiation is almost the same as the initial negotiation, except now you have the benefit of data, performance and relationships.
How Should You Manage Contract Renewals?
You should create a standard process and templates for contract renewals, just like you would for new-business-sales. As you build your contract renewal strategy and negotiation plan, think about the following:
- Have you provided everything that you promised to the client?
- Have there been any issues that needed resolving during the time you’ve been providing your services?
- Were these issues resolved in a timely manner?
- Are there additional things that you’d like to add to the renewed contract?
- If these additions aren’t accepted by the client, does this mean that your business wouldn’t want to renew?
- Has the relationship with the client remained positive and collaborative?
- Do you want to continue to provide a service or product to the client?
- Has this been a profitable relationship?
- Do you need to change your pricing, KPIs and SoW to improve profitability whilst still hitting target KPIs?
- Were the client’s initial expectations realistic about what could be achieved?
Once you’ve been able to answer these questions, you’ll be able to formulate a plan on how to discuss this with the client. They’ll have the same type of questions on their mind, so it’s good to get an idea of where their thoughts are on renewing their contract early on in your discussions. While it’s important to maintain the relationship and fight for a contract renewal, don’t feel like you can’t walk away if it no longer suits the business. You’ll gain more confidence as a salesperson if you collectively admit that the client relationship no longer benefits the business or indeed both parties.
In essence, use the same formal preparation that you used in your initial negotiations and you won’t go too far wrong. Preparation, data and a clear negotiation plan are critical to successful contract renewals.
On this episode we’re joined by John Cornwell, who is the Chief Commercial Officer at Ogilvy Worldwide. John has been … Continue reading Showing Authenticity in Negotiations with John CornwellREAD MORE