Tick, Tock – Timing is Essential to Contract Renewal Leverage

Steven Lytle Blog

Steven Lytle, Managing Consultant – 

The end of a contract term can be an ideal time to take advantage of new product offerings, pricing structures and technology innovation. But starting early is essential to an effective renewal strategy. Clients need time to engage business and technical teams to thoroughly assess new products against requirements and to effectively leverage the negotiation process to get optimal terms and conditions.

Early attention to renewal can also prevent unpleasant surprises, particularly for Microsoft customers who use an “honor system” of self-reporting estimated year-on-year growth of assets.  While rough guesstimates of asset growth are easily done, a detailed inventory is a time-consuming process. If a customer comes to a renewal discussion poorly prepared and conveys doubt and uncertainty regarding specifics on software assets and licensed users, that customer will likely be tagged as a prime candidate for a software audit – which can be an expensive and onerous proposition.

Given the importance of early attention to the renewal process, customers surprisingly often find themselves running out of time and coming down to the wire when a contract is due for renewal. If deadlines are looming and customers’ backs are to the wall, they often have to settle for a sub-par agreement. Or worse, leave themselves vulnerable to a potentially costly compliance review.

Why the foot-dragging? One reason is simple inertia and basic human nature – customers see that their renewal is due in, say, eight months, and make a note to set up a meeting with their vendors to assess their options to add new capabilities and optimize spend. However, other projects and priorities arise and, best intentions notwithstanding, next thing they know the renewal is due in a month and they haven’t prepared.

But procrastination is not the only factor at play. When negotiations are done in a last-minute, deadline-driven manner, vendors own the leverage and are better positioned to drive the outcome in their favor. This means vendors have a vested interest in delaying the process as much as possible. Typical stalling tactics are subtle and seemingly benign – “I need to get back to you,” or, “We need to have Joe involved and he’s on vacation for two weeks.”

Subtle or not, customers need to be prepared. The basic message: prepare for the renewal process well in advance of the contract termination date. Six months out is a good place to start. Equally important: assume that your vendor team will be in no mad rush to get things done and pad schedules accordingly.  Renewals of larger deals should be a priority, and ensuring involvement of the right mix of individuals is imperative.

Negotiating leverage is key to any contract discussion. For customers renewing software agreements, the longer they wait, the more that leverage slips away.

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