By Jeff Cochran, Partner, Shapiro Negotiations Institute
We’ve all been there before. You’re halfway through your initial contract with a new client. Things are going great. Sure, there were some growing pains in the beginning, but you feel you and your firm are adding a lot of value and you’re confident your client feels the same way.
So why is it that most of us always wait until the current contract cycle is about to wind down to engage about an extension?
At Shapiro Negotiations Institute, we coach the principle that the best negotiation occurs when you have leverage. This article discusses what you, as a supplier, can do mid-contract to make your upcoming negotiations more successful.
Step 1: Get your team on the same page
One common challenge for renewing or upselling business at the point of a contract extension is simple: alignment. Typically, coordination among departments and team members is never as tight as it is during the initial pitch exercises for that first deal. Once the work is won, however, the contract begins to take on a life of its own. This can become a challenge down the road when it’s time to re-negotiate.
In some cases, we’ve seen companies do a complete “hand-off” at various stages of the project. From winning the deal to kicking off, or from moving a project into a new stage of development, suppliers can become distanced from the actual work and, therefore, from the relationship with the customer. This is usually where an oversight role — like that of a strategic account manager, who’s responsible for the overall corporate relationship with the customer — can be helpful to coordinate everything from start to finish.
Even in working relationships that involve a SAM at some level, it is still critical to keep the team aligned. Especially in larger projects, we commonly see senior partners or directors forming the arrangements but more junior associates or managers doing the day-to-day work. Over the life of the contract, this sometimes results in providing extra services at cost for the good of the relationship or the “leaking” of various intel from your team to the clients.
In any case, we recommend having consistent communications and team check-ins at multiple stages through the life cycle of the project. Establish priorities, discuss future opportunities and even determine talking points around critical internal issues. A united front is imperative to successful (and smooth) renegotiations and extensions.
Step 2: Manage expectations
Negotiations are about promises and clear terms to create a value exchange. Misunderstandings can be catastrophic. Therefore, you should manage your client’s expectations at all times. We’ve coined this essential tenet “Cochran’s Law” after – you guessed it – Yours Truly.
Cochran’s Law boils down to the idea that satisfaction = reality ÷ expectations. If expectations rise, then reality – what your client receives from you — has to rise as well if you want to keep them satisfied. If you provide too little, you put your contract renewal or upsell in jeopardy. But if you provide too much, you spoil them for the next agreement and risk a drop in customer satisfaction.
There are a number of ways to manage expectations throughout the negotiation and project, but two of the simplest will never fail:
- Work to understand the client’s decision-making process. Do what you need in order to understand which stakeholders are involved, who has final approval and what key performance indicators will determine success. Connect lofty business goals to concrete and measurable objectives so you can align on exact targets.
- Build relationships along the way. Most discovery processes will allow you to create a map or schematic of the key stakeholders, their roles and what they value most. Whenever possible, we recommend building relationships with as many of these stakeholders as possible, leveraging the reach of your full team. Going deeper into key departments will help you gather more intel, while going wider into other departments may offer you different perspectives or insights about the project and its value to the company. Maintaining only one key contact leaves you at risk if they change roles or leave the organization.
The key is to get credit for the extra value you provide and manage expectations on what you’re expected to deliver. Once you know the client(s) and what they value, you can maintain status quo or scale your value strategically to surprise and delight. For example, small tasks like setting up Google alerts to help your client track media mentions and performance could be highly valuable to your client with minimal extra effort on your part.
Step 3: Always be selling
Your mindset is key. A trick of the trade – something you’ve probably heard a ton and possibly even scoffed at – is that you need to always be selling. Remember: While you’re delivering your work and building your relationship, you’re also always in a constant cycle of negotiation.
Your work product is part of that negotiation. The rapport you build personally and professionally factors into it, too. Another common mistake we see is people referring to the time before your contract expires as “the renewal cycle.” Many companies fall into this trap of “OK, we’re about one month away from our deal expiring, it’s time to start negotiating again.” If you begin your negotiation weeks before your current deal expires, you’re already on the back foot.
The effort you put in in the middle of the agreement is actually often the most valuable for several reasons:
- Your client will feel like you are really invested in him or her, rather than just appearing to care when it is time to renew. High-quality partnership will be remembered.
- Projects and work streams don’t always follow fiscal cycles. Effective work mid-project will lay foundations for your team that may actually make it more challenging to end the contract than to extend it.
- Strategic planning should never be limited to one window. Throughout the project, every task should ideally serve a larger purpose in a strategic plan looking at least three years out. Helping your clients identify long-term priorities both allows you to shape them and gives you a seat at the table as their foundational partner.
Your Next Contract Negotiation
Be prepared, be engaged and be committed. Those three traits will go a long way in your continued success.
Jeff is a partner at Shapiro Negotiations Institute and a frequent presenter and keynoter for Strategic Account Management Association. Connect with him on LinkedIn: https://www.linkedin.com/in/jeffcochran/