During a recent conversation, the CEO of a client organization proudly said our clients have incredible stickiness with us, and over 80% of our contracts get renewed yearly. It was good to hear about this achievement. The CEO then shared his heartburn “Renewal business from existing clients constitutes over 70% of our revenues, and sales teams take the path of least resistance to meet the numbers”. This remark made me wonder whether renewal sales are easy work for sellers and what it takes for organizations to have seamless renewals. I am pleased to share some experiences which could be helpful to Sales and Delivery Managers and their teams.
The Known Devil and Unknown Angel
One of the reasons clients renew with the incumbent supplier/service provider is on account of assured business continuity. The incumbent is viewed as a known devil or safe bet and is preferred over the unknown angel. The cost, time, and effort of transitioning to a new partner make clients adopt a risk-averse approach to renewing contracts. This does not mean that the task of repeat business is a cakewalk for sellers. TINA factor (There is no alternative) used to work in favour of the seller in some industries where a monopoly or duopoly exists where the seller has an edge. However, this is a utopian state in the current market scenario.
The challenge of business value delivered
The biggest issue the Sellers and Buyers faces is acknowledging the business value derived vis-à-vis what was envisaged when signing the initial contract. In the IT industry, issues like Service Level adherence, Project timelines, resource deployment, execution flaws etc., complicate the process and may put the seller in a tight corner. Anti-incumbency, fatigue etc., are bound to set in the relationship over time. The buyer faces the twin dilemma of highlighting the issues to the business and extracting better value/service in the forthcoming contract.
In an ideal scenario where the service provider has delivered on the promises, it earns the right to seek a reward from the buyer. The key to placing this demand or request is the ability to assign a monetized $ value vis-à-vis the seller’s investment and sign off on the same. But how does a seller achieve this situation? Focus on metrics and measurement from the inception of engagement and continuous tracking of the same makes the final sign-off process a smooth affair. The delivery and sales arms of the service provider need to work in tandem in this direction.
Change of Guard to shake complacency
In many long-term engagements, some individuals in the Buyer and Service provider develop strong ties and bonhomie. This personal rapport between the Client Manager and the Service provider’s Program Manager helps to seal the repeat/renewal business effortlessly. However, a change of guard on either side can change the equation. Power and politics at buyer organizations can upset the apple cart and make the renewal a rigorous exercise. Conversely, a change of key contacts can put the engagement back on track in case of the incumbents are at loggerheads. The seller needs to leverage their political acumen to navigate within the buyer organization and clinch the renewal deal.
The Delta factor in a deal renewal
The general expectation of the buyer in case of repeat or renewal business is the additional value the seller can offer. This could be in terms of lower prices, delayed payment, better service etc. Buyers cite the cost reduction targets, profitability issues etc., in a tough market scenario and demand renewal at lower or same commercial terms. On the other hand, the seller faces inflation, rising input costs, wages, etc., to seek an enhancement. The issue becomes acute if the current pricing is stretched for the seller. Both buyer and seller focus on the “Delta “decrease or increase for their organization in the form of a “Discount” or “Premium”, respectively. Sellers need to start the renewal discussion well in advance to strike a decent deal on time. Buyers must avoid pushing the discussion to the last minute as a negotiation strategy since business continuity could become critical in case the seller pulls out. The worst scenario is a Deadlock or Stalemate in which both parties fail to reach an acceptable solution on time, and the seller continues to render service without a renewal contract. This creates compliance issues for the seller and uncertainty for the employees delivering the service to the client.
The Decent Divorce
Despite the best efforts, there could be heartburn for the buyer or seller or both during an engagement. The seller could have picked up an order in an L1 tender a couple of years back in a public sector undertaking and would find it unprofitable to operate at the same price point going forward. The buyer, on the other hand, does not have the leeway to accord a significant price hike as per rules and expects the seller to operate at the same price or with little hike going forward. In such a scenario, it would be in the interest of both parties to call quits and sign off decently than continue association with a grudge. The loss of a logo would be a demotivator for the Account Manager, but he needs to let go from an organizational standpoint if the renewal does not make sense. The key to the separation is the professionalism the seller hands over to the buyer and the grace with which the buyer settles the dues to the seller.
If renewal or repeat business is an indicator of the trust a customer places in the seller, it enhances the responsibility of the seller to live up to the expectations. The role of the Sales Manager is to ensure a 100 Say: Do ratio in the engagement along with the delivery team. Internal synergy and orchestration between the sales and delivery organizations can lead to a seamless renewal of business. Some of the takeaways for Sales professionals are-
- Focus on the business value from the sales cycle and continue it throughout the delivery phase. A measurable and monetized business value sign-off with customers eases renewal sales.
- Prepare the business case and initiate the renewal process well to seal the deal on time.
- Earn the right to demand a premium by virtue of the business value delivered and exemplary service to customers.
- Synergize and orchestrate internal resources to present a unified face to customers.
- Enhance the political acumen to navigate the power and politics of the customer organization.
- Do not hesitate to let go of a renewal deal if it does not make economic sense.