Contract Renewals: Views from Datto KPI#7 & Advanced Global
Nothing lights me up more than talking about Contract Renewals – well, maybe a few things, but this is definitely in the top 10. Why? It seems like one of the simplest things to stay on top of. Compared to all open tickets, this is slow-moving and very tame.
Yet, when we respond to the No-Obligation PSA Configuration Evaluation, the most common finding is that there is a significant number of Contracts past their end date which are still active. That means a ticket can be created and time put against an inactive contract – work that I assume will never be billed, or at the very least, not tracked against Contract profitability.
Check for yourself. Roll over the big “A” → Contracts→ Contract Search →Search (this will search all active contracts), then look at the right-hand side and see the red (Contracts past their end date).
A few things you may not realize:
When a Customer leaves and we inactivate them, it does not inactivate the Contract.
When we create a new Contract to replace the expiring one, this does not inactivate the Contract.
And when the Contract hits its end date, it does not automatically inactivate.
As you can imagine, this creates a lot of active Contracts past their end date.
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Let’s look at what Datto has to say about the subject, before chiming in with our own thoughts.
Datto's 7th KPI: Contract Renewal sub-article takeaways
To help prevent churn, Autotask PSA alerts an MSP when customers are up for Renewal with Widgets, offering visibility into expiring contracts 30, 60, and 90 days out.
This helps MSPs stay ahead on documentation that needs to be worked out for renewals and leaves time for potential negotiation.
On average, it costs MSPs 5X more to acquire a new customer than it does to retain a current customer, so staying on top of renewals is a must.
In an MSP’s world, the longer the contract, the better.
Autotask PSA can break down the percentage of clients currently locked into deals that are greater than 12 months vs. a month-to-month contract.
The longer a customer is locked into a contract, the better the MSP can forecast.
Additionally, if mergers or acquisitions (M&A) are of any interest to the MSP, longer contracts allow them to demonstrate future bookings, which helps boost the company’s valuation.
Advanced Global MSP Coaching’s take on Contract Renewal…
Sorry, but I’m just not connecting the dots here. How does an expired contract cause the Customer to leave? Think about it. If an expired contract remains active, doesn’t that mean it will never bill, or be counted against profitability?
It seems that if I am putting my time on a ticket that never gets billed or tracked against the profitability of the Contract, it is a benefit to the Customer - a practice that if I was the Customer, would make me want to stay, not leave. Now granted, if the MSP is not profitable, it won’t be sustainable and all Customers will need to leave, but I doubt that is what we are talking about here.
Autotask Fans with Conflicting Views
While we love Autotask and are raving fans of the product, we beg to differ with their opinions once in a while (ok, ok, more than once). My first reaction was that long Contracts are bad for an MSP. However, when comparing month to month (not to be confused with MRR) to a year, we agree.
I do not know any MSP (and we know a lot of them from around the world) that is selling Month-to-Month contracts. T&M maybe, but to me, that is a very different world, or the writer is using the wrong terminology – but what do I know about the English language.
The reason I feel Contracts longer than a year are bad for the industry, is that it does not force the Account Manager to have at least an annual conversation with the Customer. As a matter of fact, we are strong proponents of QBRs (yes, we have a QBR template that we are happy to share).
But we have seen too many MSPs enter into 3-year deals and then forget about them. Think of it this way:
What were you selling 3 years ago?
What was your cost basis?
What was your most profitable offering?
How were you doing business?
This industry changes all the time (duh) and annual reviews are by far the smartest way to go. If you disagree, send me an email, as I would like to know why.
The only statement that makes sense to me is having a long-term Contract that increases the valuation, as long as the VC does not look closely at the 30-day termination clause, with no financials tied to it, or the churn rate of the agreements.
Who should monitor Contract Renewals?
Based on our experience, the Service Coordinator is the best person in the house to monitor Contract Renewals. Yes, we are biased - we always think they are the most important person in the building. We also think they are worth their weight in Gold, and for good reason.
As mentioned previously, almost every No-Obligation PSA Configuration Evaluation that we do discovers a number of active contracts past their end date. Which means, whoever is responsible for contract renewals is not watching the hen house (it could also mean that they are unaware of the widget that Datto is talking about).
We coach Service Coordinators to have the Contract Renewal widget on their dashboard. They are one of the people in the building who are always looking at their Autotask dashboard. When a Contract comes up for renewal, they will reach out and remind the Account Manager because they get why this is important – if not, this then is just part of their job.
When it gets down in the 60 days to renewal range, and the Account Manager gives some excuse, they will escalate it to the Owner. Even if it is the same person, they just change the phrasing from talking to an Account Manager to talking to the owner and point out that if it is not renewed, they will be working for FREE. If that doesn’t get an owner’s attention, nothing will.
When can the Service Coordinator help the most? In the last 30 days before expiring. Believe it or not, the Service Coordinator has the best relationship in the Company with the Customer.
Are you starting to get it? The reason the Service Coordinator has the best relationship with the Customer is that they are a “balanced agenda” advocate for the Customer within the MSP’s operations both for Sales and Service.
So when the Contract is up for renewal, the Account Manager has done their job, because the Owner had a private conversation with them (even if it is the same person), and the Customer is sitting on the Contract not wanting to sign until they have to. The Service Coordinator is the one who has the right type of relationship (advocate for the Customer) to ask them, “Please sign the paper, old man” ($25 Amazon gift card for anyone that emails in with where the quote came from).
So, what is the Call to Action? Provide the Service Coordinator with a significant pay raise and Contract Renewal widget. If you need help finding the widget, give us a call. If you need help giving the pay raise, let us know and we can coach you through how to be more profitable (how does $32,200 per Tech per Year sound?). And yes, we recommend the Company gives the first Techs increased profitability to the Service Coordinator.