How to Identify and Correct Poor Contracting Strategies

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contract practices

Three crucial steps toward better contracting strategies are asking tough questions, analyzing channel processes by department and building better contracting processes.

Manual contract management. If your company still relies on spreadsheets and other manual processes to track channel contracts, it's time to rework your contracting process. According to KPMG, 90 percent of all spreadsheets contain errors, and these small mistakes can cost companies a great deal in revenue, can compound over time and may never be discovered. These losses are not only unacceptable, but they are avoidable. Additionally, manual processes tie up human capital that can be working on other revenue-generating activities. By implementing an automated system, companies can redistribute employees to higher-impact tasks.

Poor channel performance. If your channel partners aren't performing at the desired levels, there's a chance it's you, not them that is the problem. Lackluster contracts with poorly crafted, generic incentives and promotions can de-motivate potentially productive channel relationships. The key is to better understand your partners—what motivates them and what doesn't—and develop incentives to meet those requirements. Yet without visibility into partner contract data, companies often can't identify failing relationships, let alone develop more lucrative terms. 

Partner dissatisfaction. If your company's channel partners are fleeing in swarms, there's obviously a problem. This degree of channel partner dissatisfaction can be caused by missed, late or inaccurate incentives payments or unfavorable agreement terms. All this stems from a poorly managed contracting process. By implementing a better contract management system, companies can stay on top of incentive payments, ensure timely payments and develop more powerful contracts overall, encouraging better partner sales.

These are just a few of the telltale signs that your company's contracting process isn't performing as well as it should. Every organization must routinely identify partner success criteria and evaluate performance. After acknowledging the flaws within your contracting process, it's time to right the ship.

Ask Tough Questions

The first step in improving your contracting process is identifying the questions that you wish you could answer about your contract, partner and channel performance. For example, how much revenue does each partner generate? Are your partners meeting your expectations? Do your contracts generate expected outcomes? By pinpointing what you want to know, you're one step closer to solving your contracting woes.

Analyze Channel Processes by Department

After identifying the higher-level questions you wish to answer, it's time to dig into the different departments in your organization and determine their needs before establishing better channel processes.

Sales. Sales teams are primarily concerned with two things: meeting quotas and signing deals. For those reasons, slow contract cycles can really eat away at a sales team's bottom line. The longer a contact is delayed, the longer it takes before sales can meet their quotas or gain commissions. This can cause tension within any company and can hurt overall revenue.

Contracting. Contracting teams often strive to develop as many contracts as possible. However, without accurate visibility into contract success, a greater number of contracts might not always be better. Instead, these teams need to worry about contract quality as much as quantity to ensure they're developing the best agreements for their organization. To help ensure all contracts meet quality guidelines and move through the organization effectively, it is imperative to implement a streamlined contracting process with identified workflows and an approved repository of terms and conditions.

Finance. While sales teams dream of developing complex and creative incentives to drive revenue, finance teams often live in fear of these intricate promotions. Finance departments must ensure they accrue the appropriate payment for each incentive. When organizations over-accrue, they aren't using their precious revenue in the best way, and when they under-accrue, they're left scrambling to find the dollars to make their payments. Enterprise resource planning (ERP) systems simply aren't able to handle the volume and nuances of complex incentive calculations, which often drive finance departments to revert to their old friend, the spreadsheet (a compliance department's worst nightmare). 

Legal. Legal teams strive for compliance. However, compliance is difficult to ensure when teams lack visibility and control over contract terms and conditions. Without a streamlined system in place to promote compliance and eliminate errors, organizations are at risk of lawsuits, penalties and damaged partner relationships.

Channel management. Channel management teams have their hands full keeping track of old and new partnerships and driving corporate revenue. The channel team is also tasked with helping design promotions and incentives to attract partners and drive new revenue.  Without insight into partner performance, channel management teams can't properly manage existing relationships or secure new ones.

Building a Better Contracting Process

After identifying overall company needs and aligning them with departmental requirements, it's time to start building a better contracting process. The most noted source of ineffective contracting is a slow contract cycle, caused by a disconnect between phases of the channel agreement lifecycle. The eight stages of the channel agreement lifecycle include agreement creation and authoring; reviewing, redlining and approvals; signatures; invoicing and claims for incentive payments; validating eligibility and accuracy; payment execution; monitoring and executing milestones; and analysis.