Contract Renewal: Avoid these 5 costly mistakes

1. A lack of advance preparation

One of the most common and critical pitfalls we encounter is firms failing to prepare for their contract renewal before the deadline.

If you haven’t developed your investment scenario and negotiation strategy well in advance, you’ll be at an immediate disadvantage when sitting opposite your vendor. They know precisely how to dictate terms, and you’ll find yourself accepting points in the moments before signing without time to question them.

Blackbelt XP advice

Don’t start on the back foot – smart preparation for a contract negotiation takes time. To avoid a last-minute scramble for data, start compiling a comprehensive overview of your current environment at least 6 months before your contract expires. Consider what products you’re using now, compare this with your short to medium-term plans for the company, and identify what needs to change. From here you can decide your negotiation goals and strategy.

2. Neglecting your future roadmap

It’s crucial that at the point of contract renewal, you have a crystal-clear overview not only of your current environment, but of your future roadmap too.

If you base the terms of your contract solely on the status quo, you could be investing in products that your vendor is keen to push, but that are ultimately never deployed. You also risk not being prepared for future innovation opportunities by being under-licensed.

Blackbelt XP advice

Ensure your new contract reflects what you’ll need moving forward. Start by considering your overall business vision for the next 3-5 years. Is your company in a growth phase? Or a decline? Are you planning to merge with or acquire other businesses? Then look in more detail about the impact that will have on new products and the software you’ll need for any digital transformation.

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3. Trying to negotiate without accurate data

From our own experience vendor side, we know how many companies turn up to the negotiating table without the information they need.

Make no mistake, your vendor will know every detail of your contract and will have planned their negotiation strategy meticulously to ensure they hit their revenue targets. They will be able to tell immediately if you are under-prepared, and will use this to their advantage.

Blackbelt XP advice

Take the time to compile all the information pertaining to your current contract, and understand your existing terms and discounts. Ensure the data is easily accessible at the right time, so you can negotiate with confidence and clarity, knowing you have all the details to discuss the agreement on an equal footing.

4. Neglecting key stakeholders

Too many companies enter a negotiation phase without having involved internal stakeholders beforehand.

This results in a fragmented attempt at securing the best terms and conditions, without enough consideration for different areas of the business. To negotiate successfully, you need to build an integrated approach.

Blackbelt XP advice

When developing your negotiation strategy, make sure all internal stakeholder interests are aligned ahead of time. Consult with representatives from IT, procurement and legal to understand their goals and priorities, and how they affect the firm’s software requirements. This gives you the strongest chance of agreeing a contract that works across all levels.

5. Unrealistic benchmarking

Having an optimal contract in mind that reflects your products, quantities and timeframes – all at the right price – is a key part of your preparation.

But so is making sure that goal is realistic. Only preparing for one scenario could lead to a frustrating and unsatisfactory negotiation phase, particularly if the terms you’re seeking are unheard of in your industry.

Blackbelt XP advice

Before your renewal, look at the financial and technological implications of each licensing option, and consider 2 or 3 alternative outcomes. Decide the point at which you’ll accept each option, and the terms you’d be prepared to relax. A benchmark analysis of similar companies will also give you a valuable insight into the terms or discounts you can expect.