4Knowledge's Sake, 10/20/2023

As someone who began my career negotiating and managing B2B sales contracts, I’ve given a fair amount of thought to the inter-relationship between contracting and company resiliency. Too often viewed as the output of a successful sales engagement and not much else, contracts are actually the canary in the coal mine, a bellwether of overall organizational health.

When you think of a company in terms of front office (marketing, product, go-to-market, sales, etc.) and back office (order management, delivery, supply chain, customer support, etc.), sales contracts sit right at the seam between the two. Disfunction upstream from the contracting function results in offline approvals, missing or inaccurate content, or a mishmash of data from different sources and systems that is meant to be sewn together into a cohesive customer offer via the contract. Chaos downstream from contract execution is represented by painful order handoff processes, poorly understood SLAs, or dissatisfied customers looking to contract clauses for legal remedies. Either way you look, the contracting function has a long line of sight.

As artifacts of selling, contracts have a lot to tell about a company’s state of health. The proportion of sales to existing customers compared to new ones (amendments vs new agreements). The health and reliability of the sales funnel (spikes and valleys in volumes outside of seasonality). The effectiveness of sales compensation models (a wave of low margin, high volume deals arriving just as quota gates are closing). Even the company’s relative market strength can be signaled by its contract motions, as the party in the driver’s seat generally dictates the form of the agreement (customer paper vs supplier paper).

If I were to pick one fundamental for which contracts act as an accurate barometer, it would be the marketability of a company’s product suite. Unless an organization is wholly in the business of selling bespoke products or services, a high proportion of ad hoc, non-standard contracts is a clear sign that there is a misalignment between what the company believes are its core products, and what its customers want to buy. Paying attention to this indicator can result in an innovative leap to new niches in the marketplace, or efforts to shore up the existing product catalogue’s value proposition. Ignoring it, however, causes undue pressure on the entire organization, as resources strain to ingest customer deliverables that have no pre-defined support models.