Why Contract Lifecycle Management is so Important in the Subscription Economy
Starting about six years ago, there was an explosion in the subscription billing industry. Almost three dozen companies sprang up to cater to the billing needs of businesses who sell to their customers through subscriptions, led by Zuora and including names like Recurly, Tract and Fusebill, each taking aim on a particular segment of the market. The existence of these vendors is a trailing indicator of something bug: the way people and businesses are paying for things is changing. No longer are customers obligated to throw all their money on the table and buy everything up front; instead, they can buy things over time through a subscription model. That’s created what was been dubbed “the Subscription Economy” (a term coined by Zuora, appropriately enough). If you’re in the software industry, you know about the subscription economy only too well. SaaS applications exist because of the acceptance of this concept: the user pays as it goes, eliminating the budgetary barrier to entry of years gone by (and moving costs from the capital budget to the operational budget). If that user decides to switch vendors the process is easier than in days gone by, since there’s no investment to protect or heavy-duty investment to make to bring in a replacement. The reality is a bit more complex. Even if they’re billed on a month-by-month basis, businesses usually sign a contract for one, two or more years. That gives the vendors a bit of security and predictability – they don’t have to win the customer’s business every month. But, at the same token, it also makes it easy to take those subscribers for granted and to lose sight that it’s critical to manage their relationships so when a renewal period arrives they’re ready to sign on the dotted line. That’s why contract lifecycle management (or CLM) is so incredibly important in the era of the subscription economy. If you sell in this economy, your survival hinges not on new customer acquisition but on customer retention. In a study conducted by Karl Stark and Bill Stewart, a business that can retain all of its customers by just one additional month can achieve an additional 3 percent of annual growth. If it can retain its customer base for four additional months, it can create double-digit growth without acquiring a single new customer. In B2B selling, the key to creating a good customer experience (and one that will incline a customer to stay a customer) is frictionless selling – making it as easy as possible for a customer to business with you. In the context of contracts, that first means alerting your own team about expiring contracts. This is a great time to look for areas for additional products and services; a good CLM product will provide those alerts and flag opportunities to increase contract value. Once your team is alerted, the CLM application can then send new contract proposals to all stakeholders and track redlines as contracts are iterated. The approval process should include parallel workflows so your legal and finance departments can review contracts simultaneously. Once the new contract’s been signed off, it can go through an automated approval process. All of this serves to keep contract renewal streamlined, quick and painless for the customer. Ideally, he’ll never be kept waiting by your business’s processes – which will give him less reason to think about your competitors. Having a CLM application in place to make contract renewal faster and easier is a great way to make the process easier for the customer and to demonstrate that your company is organized and equipped to operate in the subscription economy. Want to learn more? Listen to our webinar on Reduce Risk with Contract Lifecycle Management Best Practices, featuring Forrester’s Duncan Jones.