Why You Cannot Allow Low-Value Contracts to Lapse

low value contracts

Renewals Channel Recurring Revenue Management

All tech firms have maintenance contracts and/or subscriptions to renew. For many of these firms, the majority of these contracts are low in value, yet they make up a large percentage of total contract volume. Due to the amount of time and resources it usually takes to identify and process these renewals manually, they are not economic (on their own) to chase.

Every organization defines its low-value sales threshold differently. Whether it’s $50, $500, $5000, or $50,000, these opportunities tend to keep mounting as more and more lapse. However, despite their low value, they should not be ignored and left to churn. Let’s take a look at some of the main reasons why.

Loss of Substantial, “Easy” Revenue

If your business is achieving just 10% below the average industry renewal rate, that could equate to hundreds of millions of dollars of lost revenue. This recurring revenue is low hanging fruit – ripe for taking, unlike new business, which needs more time and effort. All that is needed is a cost-effective approach to help manage these opportunities for you.

Loss of Opportunity to Upsell in Future

Today’s low-value customer could be your next big account. So, don’t make the mistake of measuring these customers based on their immediate contract value. Consider the potential missed opportunity to extend their customer lifetime value via expanding initiatives. They could be a prime target for your new or complementary products/services. 

Your Reputation Could Be At Risk

Channel perception is essential – whether you’re a vendor, distributor, or a VAR. Your partners want to work with organizations that are best-in-class, not only in relation to your product or service offering but also how easy you are to work with. Forrester’s Jay McBain recommends that channel leaders “apply basic automation technologies to get their front- and back-end systems to a fit-for-future state. Partnerships are a key ingredient for brands to better influence the new buyer through every stage in the buying journey, and new processes and workflows are critical to scale effectively.” 

So, if you are that partner who is still managing your installed base manually and allowing opportunities to lapse, then you may lose partners to competitors that are equipped to maximize every opportunity easily.

The End Customer is Unsupported

Even the smallest of contracts can be critical for the safety and security of your end customer’s infrastructure and business. Being unsupported leaves them vulnerable to threats from external sources. Don’t be the provider that leaves them in that situation.

Loss of Annuity Revenue Compound Growth

Over time, losing the annuity revenue streams will lead to a slow loss in revenue compound growth. Unless you’re filling your funnels at a significantly higher rate, overall, your service revenue will eventually peak before starting to decline.

A Higher Propensity for the End Customer to Switch Providers

If you or your channel partners don’t follow up with your customers, it’s likely that someone else will, resulting in not only loss of this opportunity, but other potential future opportunities. 

So, while it may not seem worthwhile chasing your low-value contract renewals at first glance, leaving these to lapse can affect your business more than you may realize.

If you haven’t already, I recommend initiating a full review of your existing processes, to ensure you are equipped to cost-effectively and efficiently maximize every opportunity – big or small. This can easily be achieved with an installed asset lifecycle management platform such as iasset.com. You can continue focusing on your larger value contracts while our platform automatically actions all of your low-value contract renewals on your behalf, at a fraction of the cost of doing this yourself.

 

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