Renewal management and its importance for profitability

Renewal management and its importance for profitability

Many manufacturers focus too much on new customer acquisition and neglect renewal management. Not only can sales be increased with professional contract management. […]

The maintenance and expansion of existing customer relationships and contracts are essential components of a sustainably successful corporate strategy. Surprisingly, this fact seems to ignore the top management of many companies. According to a survey by the analyst firm Gartner, investments in recurring revenues rank 13th out of a possible 14 among CEOs on their list of priorities. This is not only questionable, but also not economically justifiable. According to calculations by Bain & Company, it is six to seven times more expensive to acquire a new customer than to keep an existing customer.

In addition, successful renewal management, i.e. the professional administration and extension of service, support, maintenance and license agreements, increases profitability sustainably and disproportionately. The margins are sometimes over 50 percent. Each successful contract extension also brings recurring sales over several years. Even new business can be increased by an average of 10 to 15 percent per year through clever contract management.

In addition to the disinterest of top management, it is above all organizational reasons that prevent successful contract management. Often there are a large number of contracts with a customer with different terms and renewal conditions. The contractual relationships are also often different – some contracts were concluded directly, others run through one or more distributors and still others are the responsibility of the channel partners.

The following five steps can solve this dilemma and take contract management to a new level:

All contracts that exist with a customer should be collected in one central place – no matter how large or small they are, and whether the amount is a few hundred euros or in the six-digit range. Specialized service providers for renewal management offer their own software platforms for this contract management.

In many cases, contract extensions are processed too late and only reactively. Do not wait until a contract has expired or is about to end, but get in touch with the customer at an early stage. This offers the opportunity to discuss the contract extension in peace and, if necessary, to adapt the existing contracts to changing framework conditions, instead of coming to suboptimal solutions under time and cost pressure.

In this task, too, it is important to keep an eye on all contracts and their terms. Professional solutions remind you in good time of upcoming contract negotiations and give you an overview of the conditions to be negotiated at the push of a button.

The traditional, reactive contract management has the big disadvantage that it is not possible to think about cross- and up-selling possibilities, because everything has to go quickly and the contract is about to expire.

On the other hand, with the necessary overview and proactive, forward-looking renewal management, it is possible to increase new business by 10 to 15 percent per year. But not only you benefit from this strategy. By highlighting supply gaps and optimizing the support and service landscape, you also help your customers. A better customer relationship and greater loyalty to you are the positive consequences.

In a world where comparison portals, customer reviews and competition are just a click away, the stubborn “pushing into the market” of products and solutions no longer works. This also applies to support and service contracts or licenses. Instead, you should feel as responsible for the customer’s success with your solutions as they feel for themselves. For this, it is necessary not only to keep an eye on all contractual relationships, but also their use. For example, if you find that a customer uses only two out of a hundred purchased software licenses, you should address them directly and proactively and search for solutions together – before the competition does.

Professional renewal management is anything but trivial, especially when contracts from direct and indirect sales have to be managed. The danger is great that the channel sees itself at a disadvantage in the design of contract extensions and therefore only half-heartedly cooperates in their implementation. A neutral body that has all interests in mind and finds an optimal solution for all parties involved is therefore an indispensable partner for professional renewal management.

The renewal and management of service, support, maintenance and license contracts are complex and time-consuming. Potentials are therefore often not used, extensions are reactive or, in the worst case, not at all. Companies that act in this way are giving away money, because contract extensions are extremely high-margin with 50 percent and more return and also offer potential for new business. The investment in a professional renewal management therefore pays off in the shortest possible time.

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