08 Nov Building your install base: Contracts
by Erich Rusch
The primary way that we organize information in the install base is centered around the contract. The contract is, put simply, a physical representation or record of the commercial relationship you’ve established with your customer. It should contain basic information about what has been agreed to between your company and your end customer. This second installment of the install base series will explain what contracts mean within your CPQ and CLM processes. If you missed the first part, catch it here.
What you’ve purchased
Not only should you have a related set of products associated with the transaction, but we need to know the types of these individual products. In modern enterprise software, most companies treat Subscriptions or Recurring Revenue-based products differently from one-time or perpetual items. We’ll talk a little bit later about how these decisions get made and why they’re separate types of records, but ultimately it’s about building a picture of what your customer has purchased from you and how the commercial transaction has evolved over time. Gone are the days when you would simply sell one product to your customers and wait until they wanted to purchase a new machine.
Today’s business environment dictates that your relationship evolves quickly, sometimes on a daily or weekly basis. As customers grow and scale, their need for licenses increases. They need to be able to simply and easily call their rep to obtain a quote for more licenses. Each time these types of expansions occur, we really don’t need to recreate the wheel every time and negotiate a new contract. We should simply be able to leverage the contract we initially agreed to and keep track of how many licenses have been added over the course of time.
What is the legal agreement
The contract is also the junction point between Contract Management and Quote-to- Cash. Leveraging the contract as a central repository of what products were purchased (from Quote-to-Cash) and what legal terms have been agreed to as a part of the transaction (from Contract Management) you have a robust concept of the commercial agreement between you and your customer. As you enter into agreements and leverage Contract Management (also known as CLM), you can begin to build a clause library that helps your legal team understand how agreements are changing and being redlined. Over the course of time, you can see which clauses typically change and, in the future, you can potentially craft better standard agreements so that you can accelerate your sales cycles.
Once we have a central point to connect all the aspects of the commercial relationship, we can more deeply understand each element. In the next two parts, we’ll discuss how we can leverage Subscriptions and Assets to build a better picture of what we’ve sold our customers.
Erich Rusch is Director of CPQ Presales Solutions at Simplus. Co-founder and CSO of CirrusOne until joining Simplus, Erich has years of experience in the CPQ space and has an unparalleled expertise in cloud solutions.