How badly do you need to keep that revenue?

If a customer really wants to leave, you are probably best off letting them leave. Certainly, if they’ve reached the end of their contract, and you are actively engaged in dialogue with one another, you should note little things like, “Your contract auto-renews”.

What not to do: Not tell the customer about the auto-renewal, then essentially point and laugh when they complain that they’re stuck with you for the next several years. Yes, absolutely, it’s the customer’s fault when this happens, and they have only themselves to blame, but it is still a terrible way to do business. (For those of you wondering how this kind of thing happens: Many organizations don’t do a great job of contract management, and it’s the kind of thing that is often lost in the shuffle of a merger, acquisition, re-org, shift from distributed to centralized IT, etc.)

There are all kinds of variants on this — lengthy multi-year auto-renewals, auto-renewals where the price can reset to essentially arbitrary levels, and other forms of “if you auto-renew we get to screw you” clauses, sometimes coupled with massive termination penalties. We’re not talking about month-to-month extensions here, which are generally to the mutual benefit of provider and customer in instances where a new contract simply hasn’t been negotiated yet. We’re really talking about traps for the unwary.

Unhappy customers are no good, but they often sort of gloom along until the end of their contracts and quietly leave. Customers who were unhappy and that you’ve forced into a renewal now hate you. They’ll tell everyone that they can how you screwed them. (And if they tell an analyst, that analyst will probably tell anyone they ever talk to about you, how you screwed another client of theirs. We like objectivity, but we also love a good yarn.) It has a subtle long-term effect on your business that is probably not worth whatever revenue coup you feel you got to pull off. An angry customer can torpedo you to potential prospects as easily as a happy customer can bring you referrals.

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Posted on December 9, 2008, in Industry and tagged , . Bookmark the permalink. Leave a comment.

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