While some contracts are in place for an indefinite period of time, others come with a firm expiration date. In the case of the latter, the question arises: what happens when the initial term of a contract expires? A contract renewal can be useful for all stakeholders if both parties agree to continue the relationship.
As a final state in the lifecycle of a contract, contract renewal is a critical consideration. It's not just a logistical enterprise — it's an opportunity to renegotiate terms, build stronger relationships with clients, and address any updates or changes that will yield financial benefits.
Read on to learn more about contract renewals, why they matter, and how having a contract management process accounting for contract renewals can help position your agency for the most yesses, and the biggest benefits of strategic and proactive renegotiations.
What is a contract renewal?
Contract renewal is exactly what it sounds like: the process by which agencies and clients agree to keep working with each other. (As opposed to contract termination, where one or both parties decide to end their working relationship.)
While in some cases, contract renewal is as simple as agreeing that the terms of the current contract will continue, in others, it involves altering the current business relationship by negotiating the terms across factors like period of time, the scope of work, and key performance indicators.
Contract renewals are also an excellent renegotiation opportunity for both parties to evaluate and adjust terms to be more favorable to their current business needs and goals.
What is the difference between a contract renewal and a contract extension?
The terms “contract renewal” and “contract extension” are sometimes used interchangeably. However, they are two distinct things.
Extensions occur when both parties agree that the business relationship will continue with the same terms previously agreed upon. When this happens, a new contract isn't necessary. Rather, both parties can sign an extension agreement that becomes part of the original agreement.
Contract extensions are often used for term-limited projects in need of additional time. As such, the extension will refer to the original contract while extending its terms for a specified new period.
On the other hand, contract renewals involve the creation of a new agreement that replaces the previous one. This may entail negotiating new terms or renegotiating existing terms based on the changing business landscape and evolving business relationships.
How to secure contract renewals
Contract renewals are a beneficial business process as they secure and solidify your relationships with clients and allow for the establishment of more favorable terms. Here, we’ll look at some strategies for facilitating contract renewals.
Establish an effective contract management plan
Contract management is managing contract creation, execution, and analysis to maximize a company's financial performance and reduce its financial risk. It comprises multiple steps: initial requests, authoring, negotiating, approving, execution, tracking, and renewal.
Managing a contract across its complete lifecycle — from building in a renewal clause and deciding on renewal provisions to checking in with clients regarding their changing needs — is the best way to steward clients to (and through) contract renewal.
Maintain stellar communication with your client
The contract renewal process may seem unnecessarily time-consuming to clients. They may also be reluctant to renew if there’s any doubt about the quality of the services you’ve provided them so far.
Stellar communication with clients underscores the value of the services provided so far as outlined in the original contract while also highlighting the contract renewal process as an opportunity to further align the terms of the contract with their business objectives. Keep in touch frequently to determine how the client feels about your team's work and find out if you're meeting their needs.
Don’t put off the contract review
Contract reviews may not seem like a priority when compared to other mission-critical business tasks. However, putting off the review until the renewal allows for less contract strategy and optimization.
Building ample time for the contract review process into your contract management system can ensure a proactive approach while also saving time by streamlining the process.
Include key players and team members only
Which team members are necessary for the contract review and renewal process, and which are extraneous? Every person you add to the contract renewal process adds time and work. Determine exactly which stakeholders should be involved and utilize role-based access to optimize the workflow.
Exhibit the value the contract has provided
We touched upon this earlier, but it bears repeating. If clients don’t fully comprehend the value of the products and services you provide, they have little reason to renew their contracts. This is why it’s imperative to clearly convey the benefits they’ve gained from working with you using key performance indicators and other quantifiable measures that demonstrate ROI. Nothing speaks louder than hard data.
KPIs are also an excellent way to attract new clients to your firm. Showing them that you understand the benefits you’re looking for and will measure results to demonstrate performance is a powerful recruitment tool.
Actively manage process documentation across all clients
Lack of proper documentation management can lead to lost time and lost profits. Not convinced? Consider data indicating that more than half of office professionals spend more time looking for documentation than they spend on planning, strategy, and other activities that support company growth.
Conversely, proper documentation management ensures that everyone is on the same page regarding the status of tasks and projects, including contract renewals.
Automate processes that take up time
Given the multi-faceted nature of contract management, keeping up with its various aspects — including contract renewals — can be uniquely challenging, especially if you’re using manual processes. Amplified across all of your client contracts, manual management isn’t just time-consuming and inefficient; it’s also a risk.
This is where automation comes in. By helping you collect data, track contracts, secure e-signatures, identify expiring contracts and contract renewal opportunities, and nurture clients along the way, project management software like Teamwork can help make automatic renewals as fast and easy as possible. (In fact, here are 10 other project management challenges that Teamwork also helps you address.)
Communication, transparency, and responsiveness all improve when you introduce automation to the contract management process.
Benefits of securing contract renewals (early and consistently)
If everything seems to be going smoothly with a client, it may seem easier to simply extend a previous contract. This may be the case in straightforward cases involving adjusting the contract period.
However, defaulting to contract extensions as a rule of thumb can also have detrimental implications in the form of missed opportunities for strengthening your client relationships and boosting client retention rates.
Contract renewals are generally regarded as “low-hanging fruit.” However, this doesn’t mean you should take a careless approach to the renewal (or auto-renewal) process. The business landscape changes quickly. More likely than not, changes have occurred since your client initially signed the contract.
Paying close attention to timelines, estimates, and deadlines can help you determine scope creep and other potential areas of improvement based on differences between now and when your client signed the original contract. Those terms may no longer be beneficial from a financial perspective. Contract renewals are your chance to assess and adjust.
Stronger business relationships
Just as contract renewals are opportunities for agencies, they're also opportunities for clients. In addition to helping clients see where their money is going and how your products and services are helping them move toward their business goals, contract renewals are a chance for them to make even greater use of your firm. In sum, when approached mindfully and proactively, contract renewals are a win-win for both parties.
Keep business relationships strong with streamlined project management — learn more about how Teamwork helps agencies like yours reach their goals.
Improved contract management for future clients
Contract management is progressive. Every new adjustment to renewal terms with each subsequent contract renewal is an opportunity for incremental gains.
Accomplish your agency’s contract renewals with Teamwork
Contract renewals can lead to a host of benefits for agencies and clients, including decreased risk, increased revenue, higher ROI, and enhanced opportunity oversight. However, the degree to which your agency reaps these benefits hinges on the degree to which you understand and implement best practices for project management, including contract management and renewals.
As a leading project management platform, Teamwork can help with all aspects of project management and its challenges, including templates, documentation, automation, and contract renewal management.
To start putting the power of Teamwork to work for your agency, sign up today.