Updated: Sep 23, 2020
Step 1: Controlling Expenses
Every dollar you save through expense reductions goes directly to your bottom line. In many organizations, service contracts are a low hanging fruit, ripe and ready to be picked. Do you know when your service contracts were last reviewed? Do you have a service contract policy?
Step 2: Tailored Services
Not only does reviewing service contracts provide opportunities for cost reduction, it can also provide a moment to reflect on how well the service meets your needs. Would a different service be more efficient and add more value? Would a different configuration be more suitable? For example, if some members of your organization use a lot of cellular data, it might be cheaper to add a pooled data bundle than pay for overages.
Step 3: Check-in with Staff
You may wonder if your employees are already working on cost saving measures? Ask them. Staff and junior managers are typically focused on the day to day tasks of their specialty. After all, being great at these tasks is why you hired them in the first place. Often contracts are regarded as an annual nuisance to be completed as quickly as possible. Employees will sign-off on renewal offers sent by vendors with no questions or exploration. Unless you have experienced contract specialists within your business, there is opportunity to save.
Step 4: Service Contract Inventory
Make a list of the service contracts your company has. Areas that frequently offer savings opportunities are communications (phone, cellular, Internet, MPLS, etc.), security, and credit card processing. Though every organization will have its own list of services, these tend to be common sources of opportunity.
Step 5: Needs Assessment
For each of the contracts identified, you should answer the following questions:
What current business need does this service satisfy?
In what other ways could the business need be satisfied?
Are there other business needs that this service could be used for?
Step 6: Decide to Start
While many businesses choose to wait until contracts end to conduct a review, it is advisable to review them sooner . Depending on the circumstances, vendors will be open to renegotiating in the middle of a term, especially if that means extending the term or creating new business. Keep in mind that you might find a service is no longer a good fit. If this happens, you want time to evaluate your options before the pressure of a contract renewal date is looming. Now is the time to start.
Step 7: Set a Schedule
By defining a specific time to review service contracts, you will avoid being surprised by a renewal date. A proper evaluation requires time. Most organizations will find a quarterly or semi-annual schedule suitable. If your company has a lot of service contracts or it has been a long time since they were last reviewed, you might want to set a monthly schedule initially. The important thing is to set a time and stick to it.
Step 8: Get Employees Interested
One of the things you can communicate to your employees is your belief that service contract negotiating is an important part of their job. You can do this by putting it in their job description, keeping track of who does it (anything measured is important), and offer to reward them for finding successful savings or improved fit.
Step 9: Training and Coaching
Negotiating contracts is a skill that can be learned and honed through practice. If you have employees that are particularly good at negotiation, ask them to spend a portion of their work hours coaching other departments in the practice. For those employees that need to build their confidence, find an online course in negotiating.
Step 10: Create Structure
Any good system requires structure. If you want to ensure these steps are adopted in your organization, you should create a service contract policy that outlines the process required to engage in a service contract and to periodically review the contract. Taking the time to develop or improve this structure now will be a worthwhile investment. Click here for a free sample policy and review form.
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