The 15 Month Annual Contact

Author: Frank Bertalli  /  Category: Tips and Tricks

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One of the questions I get asked frequently is, “Can you help me with my renewals?” Renewals are unique because even a short spread between contracts can dramatically impact the profitability of a company.  I’ve even had people tell me that they really wouldn’t need more customers if they could just renew with their existing customers in a timely manner!

One industry that thrives on renewals is the Pest Control industry.  Years ago they came to your home or office and treated every month collecting a small payment for their services.  Then, the chemical manufacturers developed new insecticides that lasted for many months and the Pest Control industry thought they were really onto something.  They could now charge for an annual contract about the same amount as they did for 12 monthly visits but they only had to visit and treat the property once a year.

One technician could now handle 12 times the number of accounts but 12 months is a long time and, since the insecticide was still keeping away the bugs, it was easy for customer to let that renewal slide a month or 2.  Soon, those “Annual Contracts” started turning into 15 month contracts or longer! Worse yet, once the bugs started to return, many customers were a little embarrassed so they moved on to a new company rather than renew with the previous provider.

Once that contracts ends you are subject to your competitor’s pitches and coupons and all the other things that they’ll do to get your customers to hire them instead of you.  Typically, non-renewal cost you at least 18% to 25% per year and more if you have to replace the customer because they moved on to your competitor. Still, you have one big advantage, you know when the contract expires and you can beat the competition to the punch if you are proactive.

A popular tool that is being used more and more frequently today is gift cards. Companies buy them from retailers like Walmart and Bestbuy and give them to their customers for timely renewals. The pitch goes something like, “Send in your payment before ##/##/## and we’ll give you a $50 Walmart card.” This is on the right track but here is the problem.  Your customer will say why don’t you just give me $50 off the price? Well, for the same reason as not giving the customer a discount to renew. You might as well wait until they see a bug because it pretty much works out to cost you the same amount.

I’ve been offering gift cards to my accounts as an incentive for some time now but I do it a little differently.  My gift cards are used to obtain rebates for purchases rather than a card that is used at the checkout like cash. This gives you an advantage as you can select 5 or 10 most appealing retailers in your area to have on your card. Another benefit is that rebates take a little effort to submit and it also takes a few weeks to get the money back so the instant gratification isn’t there either. What we have found over the years is that we can charge substantially less than face value for a gift card because people tend to forget to use them.  The perceived value is there so, even if they don’t take advantage of the card, you will benefit from a timely renewal and increased profits without having to give away the farm - or - lose it.

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