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Automating contract renewals to drive tech company growth
April 24, 2023
Authored by RSM Canada LLP
Chris Armenti, CPA, MBA shared this article
ARTICLE | April 24, 2023
Technology companies’ approach to managing their contract renewal process is central to fostering successful customer relationships and the overall success of the enterprise. Tech businesses that are scaling up and seeking new ways to drive growth need to consider how automating contract renewals can help grow the business and increase efficiency while also improving customer satisfaction.
Using automation to manage contract renewals can free up time for sales representatives who might currently be doing this work manually with customers on an individual basis. Those sales reps can then focus their efforts on upselling and cross-selling to existing customers or working on capturing new markets and new logos. From the customer perspective, automating renewals also has benefits in the form of streamlined and standardized processes.
Exploring automated solutions is especially useful for tech companies in their growth stage and later in their life cycle (while those earlier in the startup stage are likely more focused on developing their product and getting it to market than they are on back-office functions). Companies that have reached a position where they have the capital and resources to create better front- and back-end systems should assess how automating renewals can benefit them.
Companies need to be intentional with how they implement automated solutions for contract renewals; there are numerous important considerations for operations, customers and employees. These include:
- Renewal eligibility assessment: Many companies might find that they cannot automate renewals for every single product, service offering or customer. An important step to implementing automation is determining which product lines, customers and contracts are appropriate for auto-renewals and which still require manual intervention or a fully new contract.
- Business model adaptation: The type of business model in place will play an important role for any company that plans to automate contract renewals. Subscription-based models are typically the most likely to enable auto-renewals. While these models are traditionally found in the technology, media and telecommunications industries, nontraditional industries such as consumer products, medical devices and industrials are following suit.
- Customer consent and regulations: Crucially, organizations cannot automate a customer’s renewals unless the customer’s contract terms explicitly allow for this treatment. Teams need to implement a process that will systematically capture and document the opt-in agreement as well as any regulatory compliance considerations. Similarly, if contracts indicate the company will notify the customer about an upcoming renewal during a specific time frame, the company needs to have systems and processes in place for doing so.
- System integration: Ideally, organizations should have a customer relationship management tool and a configure, price, quote (CPQ) tool integrated with their enterprise resource planning systems. Especially for smaller companies that are in the midst of or preparing for rapid growth, this integration can be critical for reducing future pain points and enabling end-to-end processes that do not require manual processes.
Addressing these points early in the journey toward automating contract renewals will ensure that the automation solution, once implemented, can reduce manual work on the sales side and for other downstream functions to the fullest extent possible.
Pricing and metrics
Automated contract renewals can give companies more flexibility in terms of pricing and monetization. To take advantage of this flexibility, leadership teams need to figure out how to put together stickier pricing patterns and be strategic about how to package complementary products or features together. Companies also need to enable their pricing and monetization models to operate at scale. This includes leveraging system capability to support various pricing variations such as tiered pricing, partner pricing, global pricing and other dimensions, without creating significant complexity in the company’s price books.
As business grows, tech companies will need to determine how to manage and communicate price increases to their customers. Teams should be able to build inflation adjustments into their contracts and revisit pricing structures to assess the need for other changes.
Along with pricing process changes, many companies will undergo a significant change in the way they conduct reporting and track metrics when they implement automated contract renewals because such renewals can make recurring revenue forecasts more predictable. Organizations will need to track recurring revenue metrics (such as monthly recurring revenue, annual recurring revenue and churn) and ensure that the data model and inputs are appropriately captured within source systems to easily report on these metrics.
The more precise a company’s reporting and metrics, the better-equipped teams will be to find opportunities to take friction out of the renewal process and ultimately reduce churn.
"Automated contract renewals can give companies more pricing flexibility. To take advantage of this flexibility, leadership teams need to figure out how to put together stickier pricing patterns and be strategic about packaging complementary products."
Rosalie Branton, Director, RSM US LLP
When renewal processes are manual, organizations risk delays in renewal and cash flow, increases in churn or leakage of revenue. Technology companies looking to make improvements in this area need to evaluate the end-to-end requirements of their lead-to-cash and revenue processes. This includes the sales funnel, contract management, quoting, subscription management, billing and revenue automation to ensure seamless integration of the process across technology platforms. A third-party advisor can provide guidance on leading practices and system capabilities to successfully navigate this transformation.
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Source: RSM Canada
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