Blog / vendor management
What to check before a tech contract renews
Most technology contracts renew quietly on worse terms. Here is what to check in the ninety days before, and where you actually have leverage.
Most of the bad technology spending I see in small and mid-sized companies was never approved by anyone. It arrived through renewals. A contract signed three years ago rolls over on its own terms, the invoice goes up a bit, accounting pays it because it looks like last year's invoice, and nobody sits down to ask whether the thing is still worth what it costs.
Renewal is the one moment each term when you have the vendor's attention. It is worth preparing for, and the preparation is not complicated.
Start ninety days out, not thirty
Open the agreement and find the notice clause. Almost every service contract I review has one: you have to tell the vendor in writing, some number of days before the term ends, that you do not intend to renew. Thirty days is common. Sixty and ninety show up too, and so do contracts where the notice window closes before you would normally be thinking about next year's budget at all.
Miss that window and the renewal is not a negotiation anymore. It is a done deal, and you get to have the conversation twelve months later.
So the first task is clerical. Pull every technology agreement you have, note the term end date and the notice deadline, and put both in a shared calendar with a reminder a month ahead of the notice date. Internet and phone circuits, security monitoring, line-of-business software, backup services, your payment processor, anything with a term. If that list does not exist anywhere in your company, building it is a better use of an afternoon than any single negotiation.
Measure what you are actually using
Before you talk about price, find out what you are consuming. Seat counts drift upward and almost never drift back down. People leave and their licences stay assigned. A plan sized for a busy quarter three years ago is now the floor you pay every month.
Pull the admin console and compare active users against what you are billed for. Check storage and bandwidth against the included allowance. Look for modules you bought during the original sales process and have never switched on.
This cuts both ways, and it is worth knowing which way before the vendor tells you. If you have quietly grown past your tier, expect a true-up at renewal. Better to raise it yourself with a plan than to be handed a surprise invoice with back-dated overages on it.
Know which increases were already in the contract
A lot of renewal shock has nothing to do with the vendor getting aggressive. It is the paperwork working exactly as written.
Look for an annual escalator, often three to five percent, applied automatically each year. Look for introductory or promotional pricing with an end date, which is extremely common on circuits and on anything sold to displace an incumbent. Look at which support tier you are on and whether its response times still match what your business needs, because that tier is usually where the price difference actually lives.
If you can explain your own increase before the vendor does, the conversation goes differently.
Ask yourself what leaving would cost
You cannot have an honest renewal conversation without a rough answer to this. Not a threat, just a number.
Can you get your data out in a usable format, and does the contract say so? What would it cost in staff time or outside help to move? How many other systems are wired into this one? How long is the parallel period where you are paying for both?
Sometimes the answer is that switching would cost more than three years of the increase, and the right move is to sign and stop thinking about it. That is a legitimate outcome, and it is the same reasoning I walk through in when keeping what you have is the right call. But you should reach it on purpose, with a figure in front of you, rather than by discovering at the last minute that you have no option.
Where the leverage actually is
Timing, mostly. A vendor's quarter end and your renewal date landing close together is worth more than anything you can say in an email.
After that it is the trades you are willing to make. A longer term in exchange for a price hold. A seat commitment in exchange for a better rate per seat. Dropping a module you never use. Getting the escalator capped or removed for the next term, which is often easier than getting this year's number down and saves more over time.
What does not work is bluffing. If you tell a vendor you are leaving and you have no plan to leave, they will usually know, and you have spent your credibility on nothing. Ask plainly, make a specific request, and be ready to hear no on part of it.
One more thing: get the result in writing as an amendment, not as a reassuring sentence in an email thread. The person who promised it may not be there next year.
If this keeps slipping
Renewal reviews are the kind of work that never makes it to the top of an owner's list, which is exactly why the spending creeps. If you want someone to build the contract calendar, go through the agreements and come back with a short list of what to challenge and what to leave alone, that is the sort of thing I do on a fixed-fee or retainer basis. Have a look at how I work with growing companies or get in touch and tell me what is coming up for renewal. Related reading: vendor management basics.