When to start planning for your Renewal
Cloud-based software companies are built to not just acquire clients, but to keep them. They make significant investments into ensuring their client base will remain loyal, and paying, for years to come - a great example is Client Success groups, focused on your satisfaction but also on increasing usage of their platform within your organization to increase ‘stickiness’.
These firms are valued on recurring revenue - whether privately held or pre-IPO where their expected value on sale is heavily dependent on churn rates (% of clients not renewing), or public where market analysts will inspect guidance on future revenue for buy-sell guidance. It is in your vendor’s interest to get you to renew - is it in yours? And if so, how early do you start planning for it?
Key Questions to ask:
1. Is this application effective?
Before any other thought needs to go into the renewal process, this is the first. If you entered into a contract in order to fix a specific problem, or achieve certain operational goals, you need to know if it worked! If not, you have a current contract that needs to be paid, but it’s time to start looking at other options. Perhaps, if unlikely, the answer is putting more internal resources to get your desired results. Your vendor may have additional modules or partners that can be added. Alternatively, it’s time to investigate what other vendors are in the market. Everything below here is immaterial to you.
2. How easily can we change providers or solutions?
If your application is used by a handful of staff in one department, and alternative solutions can be successfully implemented in a matter of weeks, you may not need to start renewal considerations until a month or two before your current contract expires. At the other end of the spectrum, an ERP or CRM system may be so ingrained throughout your business that any type of change would take 6 months or more - and would require organization-wide buy-in on change. As you are answering that question for yourself, know that your vendor is at least as educated as you on what that process would look like - they will approach renewal conversations with that fact in mind. For a complicated, company-wide software renewal, it is critical that you begin the review and negotiation phase at least 3 (and likely 6) months before the time it would take you to transition to a new solution - this may be a year or more in advance of your current contract’s expiry.
3. Do I have price protection?
We hope that you included some element of future price protection in your current agreement - perhaps a two-year original deal, with options to renew at no more than a 3% increase, say at one-year increments at a time. That reduces the time necessary for the renewal process, and you have likely factored the expected costs of your application in your long-term planning.
If you haven’t pre-negotiated that, your renewal is essentially a new contract negotiation. Consider the amount of time your team devoted to the first agreement, and that is a decent estimate of what you can expect this time.
4. Do I have the budget for this renewal?
Your application may be effective, and well-liked by users. But if your economics have changed, and it no longer fits in your budget - you need to begin renewal conversations with your vendor earlier. Perhaps a seat count reduction will work for you, or they have a different service model. But those negotiations are more time-consuming than simply signing a renewal, and you have to factor that in.
5. What do my alternatives cost?
As in all negotiations, the CONA (Cost of No Agreement) is critical for you to understand prior to beginning your negotiations with your current vendor. What are the recurring costs of a competitive solution? What are the internal costs, in FTE or contractors involved with implementing a change? Those costs will assist in your decision to renew, and it may take significant time to gather them.
There isn’t a one size fits all answer to how early to start thinking about your renewal, but if you can answer the above questions for yourself and your organization, you will have a much better sense if those negotiations need to begin with a year, six months or a few weeks remaining in your current agreement. If you are overwhelmed by the process, and don’t have the time or expertise to get it done properly, the experts at Cloud Negotiator are ready to help.