[author: Christopher Kinney]*
Companies routinely sign contracts and promptly file them away, often neglecting to thoroughly review the terms and costs agreed to. The truth is major cost reductions regularly lurk unnoticed within signed contracts.
By analyzing contracts before renewal, major cost reductions can often be achieved on services, pricing, length of term, and other outdated provisions. Even minor improvements add up when addressed across an entire contract portfolio.
Why You’re Leaving Money on the Table
The “set it and forget it” mentality around contracting often sets up a company to overpay for products and services over the term of the agreement. Escalating pricing, terms and unnecessary or underutilized services get renewed year after year without regular evaluation. Expenses then continue to rise without realizing savings could be uncovered.
When to Review Contracts
The best time to analyze your contracts is 6-12 months prior to renewal. This allows ample time to identify areas for improvement and negotiate favorable updates with vendors and suppliers or to competitively bid out the work. It also prevents you from getting boxed into the standard or automatic renewal terms.
Analyzing Contracts to Uncover Cost Savings
Thoroughly analyzing your contracts can uncover numerous opportunities to reduce expenses and improve your bottom line. Making contract analysis part of your regular business processes ensures you never overlook savings opportunities within your signed agreements. You can then renegotiate contracts to favorably update outdated, inefficient, or expensive terms.
Areas to Analyze Savings
- Pricing: Review all costs to find opportunities to pay less. Look closely at fees, penalties, taxes, and provisions for price increases.
- Services: Determine whether you still need all services listed in the contract. Eliminate unused or unnecessary ones.
- Length: Consider defined term contracts to bid services regularly to realize the best market rates.
- Outdated Terms: Update contract language to reflect changes in technology, business processes, company needs and more.
- Volume Discounts: Look for ways to consolidate contracts with the same vendor to achieve better volume pricing.
The Impact: Major Savings
Contract analysis uncovers savings most companies never realize they are leaving on the table. The effort yields an exceptionally high return on investment through lower ongoing costs and improved agreement terms.
Tracking realized cost reductions also allows you to quantify the value of making contract reviews a continual process. You have nothing to lose and plenty of savings to gain.
*Gray Reed
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