Make sure your accounting department know what's in your contracts.
Many businesses sell their product to clients based on volume - ranging from volumes of bandwidth to volumes of spaghetti sauce to volumes of heating oil. Both suppliers and customers benefit from making certain volume commitments in advance. Customers have a chance to lock-in a certain amount of supply, often at a set price. On the other hand, minimum volume commitments permit suppliers to appropriate resources accordingly.
Volume commitments often tie discounts to per-unit pricing with higher advance volume commitments leading to lower per-unit prices. Salespeople sometimes urge customers to make big volume commitments to get cheaper per-unit pricing with a sotto voce message: “Hey, don’t worry, if you don’t hit a volume commitment, no one will ever find out.”
Shockingly, experience often proves these salespeople correct! Companies that sell by volume typically calculate the total due by multiplying the actual volume by the discounted price to calculate the amount due. Company accounting departments often fail to catch minimum volume commitments buried in customer contracts and statements of work. As a result, companies under bill clients when clients fail to meet their minimum volume commitment.
One leading telecom industry consultant estimated that failing to
check the minimum volume commitment in contracts resulted in a
17% shortfall in revenue from larger corporate clients.
Those boring legal documents can provide a sales goldmine.
In almost every industry, retaining existing customers is cheaper than engaging in major sales and marketing expenditures to acquire new ones. In some instances, new customers also require costly preparation. For example, replacing a tenant often requires a complete cleaning and refurbishment of premises in addition to months of advertising.
Your contracts most likely restrict when clients can walk away. Some contracts expire on their own, others automatically renew; some give one or both parties an option to renew, and still others expire but establish default month-to-month terms if the parties continue the relationship. Contacting your clients leading up to this critical time period can make or break the contractual relationship and your bottom line. Ask about plans for the coming year. Tell them about your forthcoming new features. Keeping your current customers excited will increase your client retention. And the positive word-of-mouth can even lead to referral business.
Even a one-time sale might have a hidden revenue stream.
Sales of equipment or software often include ongoing support fees and client obligations. Lack of complete control over the details in sales contracts can lead to missing payments (or collection) of annual support and maintenance fees. Similarly, failure to track expiration of product or service warranties means missed opportunities to sell warranty extensions or obtain last minute tune ups.
By reviewing your existing contracts, you can figure out which clients should be paying you an annual support and maintenance fee that you forgot to bill. And which clients have warranties 2 expiring soon - because they are perfect upsell targets for an extended warranty or a replacement product.
For customers, maintenance and support programs help them avoid unexpected downtime. For the supplier, maintenance and support fees drop right to the bottom if you have a solid or easily fixed product or service. Moreover, maintenance offers a great opportunity to stay in touch with your customers and see what else you can sell to them.
What We Do at Contract Wrangler
We are contract nerd attorneys, software engineers, and data scientists. We live and breathe for
the opportunity to help you uncover ways hidden opportunities in your contracts to boost your
revenue. Drop us a note about your business and let’s see how we can help.