Episode 45

E45: Contracts and Your KPIs

In this episode, I talk about the role that contracts and processes play in meeting your KPI objectives.

Key Performance Indicators (KPIs) are those metrics that are most critical to your business. KPIs are used to help you measure your progress toward achieving your strategic goals. KPIs apply throughout your business from four perspectives: financial, customer, process, and people.

Today I cover contracts and their impact on KPIs in the following areas:

• Customer Acquisition Costs (CAC)

• Customer Lifetime Value (CLV)

You will be surprised to learn all of the ways that contracts and SOPs have a material impact on your business. In other words, contracts aren’t just about intellectual property.

If you have more questions regarding this topic,  don’t hesitate to reach out to me.

Connect with Erin and find the resources mentioned in this episode at hourlytoexit.com/podcast.

Erin's LinkedIn Page: https://www.linkedin.com/in/erinaustin/

Think Beyond IP YouTube Page: https://www.youtube.com/channel/UCVztXnDYnZ83oIb-EGX9IGA/videos

Music credit: Yes She Can by Tiny Music

A Team Dklutr production

Transcript
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Hello.

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Today I wanna talk about the role

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that contracts and processes play

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in meeting your K P I objectives.

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So KPI P I stands for Key Performance

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Indicator KPIs, provide targets

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for teams to shoot for milestones

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to gauge progress and insights that

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help everyone in your team.

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make better decisions.

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KPIs are distinguished from

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other metrics in your business by how

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useful they are in helping you measure

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your progress toward achieving your

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strategic goals.

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Some examples to illustrate

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the difference between KPIs and

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other metrics.

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An indicator is simply a metric

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used to make some measurement in

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your business.

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As we know, some of them can be

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meaningless, such as how many likes

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your LinkedIn post received.

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How does knowing the number of likes

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your LinkedIn post received help you

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make progress toward achieving your

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strategic goals?

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I'm gonna guess none.

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Conversely, a performance

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indicator tracks a measure related to

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your organization's performance.

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For example, how many hours your

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employees worked on a project.

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Now, even if you don't bill by the

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hour, and I know you don't, it's

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important to know this so that you

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can measure the profitability

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of the project if the resource

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is required to.

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Execute the project, exceed the value

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of the project, then you know you

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have some problems.

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There are some action items that

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come off of that that you need to.

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Make some adjustments.

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You need to raise your rates or you

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need to increase the efficiency

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of Delivery.

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Maybe you need to use a less

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expensive resource for delivery,

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such as if you are doing a hundred

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percent of delivery.

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Maybe some part of that can be done

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by a less expensive resource, such as

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an assistant or maybe automation.

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or even maybe another partner

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who's not as expensive as

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you are, or both Of course.

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So when a performance

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indicator is critical to your

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business, such as something

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that affects profitability,

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then it rises to the level of a

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key performance indicator.

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So in other words, key performance

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indicators are a subset of

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performance indicators that

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are most critical to your business.

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KPIs help you measure

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progress toward achieving your

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strategic goals.

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And these KPIs will cut across all of

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your organization financial KPIs,

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customer related KPIs, process

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related KPIs, and of course people

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related KPIs cuz we know our people

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are our most important asset.

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So today we're going to cover

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two main areas.

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Both related to your customers.

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Where we have KPIs that are related

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to our contracts.

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those two areas are customer acquisition

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costs and customer lifetime value.

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So since I know nobody wants to

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listen to a lecture on a podcast, this

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conversation will be intentionally

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superficial.

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But the point is to help you start

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thinking about.

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All the places that contracts

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and SOPs have a material impact

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on your business.

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You know, contracts aren't just about

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intellectual property.

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Of course, they're very important, but

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they're not just about intellectual

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property.

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They affect.

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Many, many areas of your business,

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including those that are important

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towards achieving your strategic

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goals and, are contributors to, uh,

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creating KPIs that help you hit them.

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just generally when we think about our

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KPIs, we wanna have KPIs that measure.

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And drive the right behavior that we

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want from our team.

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That's why a lot of these, KPIs will be

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around efficiency or utilization and

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about effectiveness.

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So we can measure how effective

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and efficient, what we are doing

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is so, First bucket, customer

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acquisition costs.

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So customer acquisition

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costs, that's the total cost that

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are accumulated through the process

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of closing a deal or gaining

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a new customer.

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these costs include research, marketing,

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and sales.

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They may also include,

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legal costs.

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So since if you have to, hire a lawyer

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for your contracts or if there are

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some clearances perhaps that need

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to happen before you can close a deal.

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So those are all those costs.

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Associated with that, acquisition.

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we're gonna talk about three

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KPIs associated with customer

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acquisition costs, sales cycle, time

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spent selling and conversion rates.

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First sales cycle.

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Sales cycle is the total amount of

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time it takes for your organization

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to close a deal.

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there are, six key steps,

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finding leads.

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Connecting with the leads, qualifying

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the leads, making presentations,

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overcoming objections, and

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then finally closing the deal.

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And so we look at that sales cycle, we

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measure it in terms of number of days.

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You might measure that per salesperson

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or through your whole organization,

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especially if you're the only

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salesperson.

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And hopefully it is a number of days,

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but it might not be.

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You may have very large engagements

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that have much longer sales cycle,

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and the fact that they're long is not

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an indicator of any type of failure, but

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just the nature of your business, such

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as if you're doing, million dollar

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deals, those are gonna take more than

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a number of days probably to close.

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It may be measured in weeks or months,

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but regardless, the shorter the

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sales cycle, the more, profitable,

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and so the lower your customer

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acquisition cost is.

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All the resources of your sales

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team while they're still trying to

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close that sale.

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the number of touchpoints

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required, each touchpoint is

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another cost.

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And so that will increase

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your customer acquisition cost.

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And the sooner that you close a deal,

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obviously the sooner you can move on to

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another, project and therefore

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increasing revenue.

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The time spent selling another

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important K P I.

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So obviously, the more time your

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sellers are spent selling, the more

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likely they're to close deals, and the

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more quickly they can close deals.

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Now it seems.

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Obvious.

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However, there are a number of

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studies that show that sellers spend

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only about 35% of their time selling.

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They are getting caught up in

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administrative tasks.

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They're getting caught up in,

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finding and delivering

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collateral, creating new collateral.

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So we're gonna talk about, ways

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that we can make these processes

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more efficient so that your sellers

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can spend more time selling.

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And then the third K p R we're gonna

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talk about is conversion rates.

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conversion rate that's defined as

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a percentage of leads that turn

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into customers.

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along with, sales cycle and times

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been selling, the longer it takes

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for lead, to become a customer,

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the higher the customer acquisition

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costs and the more time you can

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spend selling, hopefully the more

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quickly you can convert that lead

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into a customer.

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So that conversion rate is an

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indicator of your.

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Marketing effectiveness,

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your ability to get enough leads in

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the door and your sales effectiveness,

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your ability to convert those leads

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into customers.

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So if you're not getting enough

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leads, then that's telling you you had

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a pipeline problem.

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If you're not converting enough,

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then that tells you that something

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along in that sales process isn't

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working.

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Either you're not having enough

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touchpoints or your touchpoints

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aren't effective.

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So, to summarize, sales cycle, time

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spent selling and conversion rates,

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all those are KPIs that will affect

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your customer acquisition costs,

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which of course we want to be, as

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low as possible.

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what is the role that contracts

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and the related processes play

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in, customer acquisition costs?

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So let's talk about resource

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availability.

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We just talk about that 35% of time

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that salespeople are spending selling.

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one way to get them spending more

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their time selling is making sure

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that they aren't wasting a lot of

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time searching for.

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Creating, updating the collateral

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that they're using for sales.

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And so the time that they are saving

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or lost during the sales process is

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directly related to that resource

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availability, existing collateral.

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You may have some standard pieces of

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collateral and can they find it easily.

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is that existing collateral

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constantly being updated?

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You making sure that any, data or

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numbers that are changing, make sure

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those are updated.

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Don't make your sales reps do that.

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Are there any links in there

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that need updating?

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Make sure those are updated.

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Is any branding change?

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Make sure that's up, updated.

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If you have any new testimonials and

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things like that, new case studies,

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make sure that's all up to date

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so that you're.

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Salespeople can find it, access

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it, and engage with the client as

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easily as possible.

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I'm a huge fan of having an inventory

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of these things.

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I call it IP inventory, but,

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other types of content management

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tools will work as well to make

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sure that everyone knows and the

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business knows what's available,

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and then can easily access it.

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That we're not recreating

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the wheel.

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Now sometimes though, you will

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want to recreate the wheel will not

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recreate the wheel, but personalize,

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customize some of that collateral.

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When you have big dollar engagements,

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you'll absolutely be creating,

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personalized collateral for

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those prospects.

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Having personalized collateral will

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reduce, sales cycles, will

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increase conversion rates, but we wanna

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make sure it's still effective

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and efficient.

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even though it's customized, we

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want a process for customization.

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So making sure that we have those things

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in place so that our salespeople

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can easily and efficiently,

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personalize our collateral and

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get that shared with the clients.

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And then, again, all these pieces

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of content, whether it's our standard

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content or our personalized

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content, making sure that it is not here.

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There're everywhere to have one place

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that we can find all this material

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so that our sales team can use it very

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effectively, whether they're on the road.

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so they can access it.

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If they're in the middle of a call

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and someone asks a question and that

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there's, something that can help

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illustrate a point.

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Or to help overcome an objection.

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These are all things you wanna

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have available to your sales team.

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Then for the contracts in

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particular, making sure that you have

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standard term sheets here, that when

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they're going out in the field or, having

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their conversations, I'm dating myself

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with going out in the field.

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do, people still go out in the field,

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and That part of that negotiation

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process, that they know exactly what

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the parameters are, where they

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can give, where they can't give.

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And more importantly, that

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they don't promise something that

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you can't deliver.

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sometimes things get a little, heated

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in the middle of a negotiation.

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Sales people are pleasers, they wanna

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make sales, and so make sure they

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understand, what the parameters are.

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So having those standardized term

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sheets avoids any conflicts there.

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Having a streamlined contract creation

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process, you wanna have standardized

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proposals.

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If you have the type of, business where

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you are sending out proposals, even if

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they are customized, you still wanna

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have a template that everyone's using.

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And also when it comes time for.

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Signing, having standardized

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services agreements, and in the event

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if your clients are large corporate

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clients, the likelihood of

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them having their own services

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agreements, that they're going to

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require you to sign, that doesn't mean

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you're completely at their mercy.

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You wanna have your own s o w templates

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that are specific to your services.

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You I review.

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Hundreds of large corporate

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agreements.

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All the time, and they're very

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generalized.

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They want that same vendor agreement

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or that same supplier agreement.

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They send it over to you and almost

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none of it applies to your services.

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So make sure you have some

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exhibits that can.

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Easily be attached to customize it to

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what you're doing.

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Have your own s o w templates that

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talk about your services, have

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your own operating procedures or terms

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and conditions so that you can just

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attach those as exhibits that don't

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have to be overly negotiated so you

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can get to the finish line quickly

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and start working on your projects.

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and then in terms of closing, what

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differentiators do you have?

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Obviously you have your reputation,

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but there's also some objective

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differentiators that are important,

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certainly in the current environment

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of information and data security.

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Do you have like ISO certifications

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for instance?

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Or do you have just, policies regarding

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information security and technology?

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If you are going to have access

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to their network, there's definitely

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going to have, their own requirements

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regarding that And the further along

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and having your own systems in place

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that you can show them, the more

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comfort they get.

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If you will be handling any

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personal data, you're going to

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be have to show them that you

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comply with.

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Data security laws, and data processing

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laws and large public companies.

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International companies will

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also have, codes of conduct

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requirements, ethical,

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requirements, um, E S G requirements.

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These are all things, if you

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already have these things in place,

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that will also smooth the route

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to close and Reduce that customer

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acquisition cost.

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All right.

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So now the next bucket, customer

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lifetime value.

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Customer lifetime value is the

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predicted dollar value that you'll

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derive from future transactions with

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the customer during the course of your

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entire relationship.

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Unlike customer acquisition costs,

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which we wanna reduce, obviously

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customer lifetime value, we want

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to increase.

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The longer that customer stays

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with us, the more profitable

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that customer is.

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So losing a customer is cost of business

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much more than just the direct revenue

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that you use.

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there are some costs of acquisition

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that you need to recover, so you

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need to make sure that that customer

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stays around long enough to recover

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those costs.

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And second, a business is not

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sustainable if you can't have some

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measure of customer retention and

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repeat business.

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It's a very difficult business

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if every sale is a one-off sale.

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And of course, every time a

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customer leaves team morale suffers.

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So generally, across a wide range of

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industries, just a 5% improvement in

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customer retention rates yields

Speaker:

25 to a hundred percent increase in

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profits and that's very impactful.

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Couple of reasons why, the carrying

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cost of keeping a new customer is

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a fraction of the cost of bringing

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on a new customer.

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So when your sales and marketing costs

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to an existing customer go pretty

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close to zero, all of that money save

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drops directly to your bottom line.

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Also a happy customer is like

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an noncommissioned sales rep, right?

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They are singing your praises to

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other customers and, they are

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providing referrals.

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They provide opportunities

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for upsells and cross-sells.

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They are your own personal market

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research panel that you can go to

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for feedback and product suggestions.

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And of course, the longer they're

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with you and they continue to open

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their wallet to you, the more

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entrenched you come with that customer.

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So the KPIs that we're gonna talk

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about in connection with customer

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lifetime value, customer complaints,

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client churn rates, and cross-selling

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and upselling.

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First customer complaints.

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this is a leading indicator of client

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satisfaction.

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So measuring complaints is

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critical to ensuring that our

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quality matches our customer's

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expectations and requirements.

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So you can pick up a change in complaint

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levels much earlier than a change

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that you might see through a customer

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satisfaction survey or by

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looking at your client retention

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metrics where.

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It's obviously too late after

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you've lost them.

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customer complaints is an early

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indicator regarding client satisfaction

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that helps us react and correct quickly.

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So we definitely wanna keep a track

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on those client churn rates.

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That's the percentage of

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customers that fail to make a

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repeat purchase or discontinue

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your service during a certain

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period of time.

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So that provides insights on how

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the business is performing.

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Of course, it is an indicator

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of customer dissatisfaction.

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Indication of product quality,

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maybe that shows that your prices

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aren't favorable.

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They get in there and then they see

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that they're not really getting

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the value that they thought they

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would, so they're not renewing.

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Maybe competitors are coming in with

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better offers, so you're losing them

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to competitors, if they aren't, doing

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repeat business.

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you need to keep marketing to your

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clients and maybe your marketing,

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game falls off once you sign them on.

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Or it could be just a natural part of

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the life cycle.

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But we do wanna make sure we are paying

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attention to these and understanding

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why it's happening, so we know what we

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might need to fix.

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Do we need to create a better

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renewal program?

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Do we need to make sure we're

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staying more customer-centric

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after they sign so that they are

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keeping us in mind, so we can reduce

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churn rates and therefore maximize

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our renewal revenue?

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And then the last one is that we're

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talking about, there's many more,

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but the one we're talking about today

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is cross-selling and upselling.

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So that is getting additional

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value from your existing customers

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and providing additional value

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to your existing customers so that

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you increase that repeat business.

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You're exposing your customer to more of

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your, service and product portfolio.

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You're creating a deep relationship.

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Enhancing the customer experience.

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if you aren't getting cross sells

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and upsells, then you are failing in

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one of these areas and you need to

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make sure that you are looking to see

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how you can, do that and you Many

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product and service ladders are built

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on the assumption of cross-selling

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and upselling.

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That is an important part of growing

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your business.

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So if those things aren't working, then

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we definitely need to figure out what's

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going on there.

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maybe the upsell opportunities aren't

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truly upsells.

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Maybe that really, is one

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service doesn't really follow

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on the next one.

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And so we need to look at that to

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make sure we have appropriate ladders.

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So the role of contracts in the

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customer lifetime value, process

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many things.

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First, contracts set expectations

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from the beginning, you the transaction

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or, and the utility of a contract does

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not end at signing.

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You once you sign that contract,

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That is the place where you set

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expectations.

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You want to make sure that the

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client clearly understands what

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the process will be, so that there

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are no surprises.

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In addition, once that contract is

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signed, you want to make sure that

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there is a handoff process from

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your salesperson.

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To the team that will be

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doing delivery.

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So that, that is seamless.

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You never, want to have bumps in that

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because you want customer confidence

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to be high that the time when they are

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second guessing a purchase and we've

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all done this, know, whether it's

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in our businesses or personally.

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Once we sign on the dotted line and

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we start to second guess ourselves.

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Don't let that happen.

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Make sure you have a process in place

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to make it smooth.

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No surprises, happy customers give

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you the benefit of the doubt as

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the, engagement moves along.

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maybe you introduce the delivery

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team so that they really feel like

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they understand who's working on

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their, engagement.

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Contracts provide transparency again,

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you making sure that they understand

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the entire journey.

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and a lot of times this will be done

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through a kickoff, meeting, again

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to talk about the process and

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introduce the team.

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you wanna make sure you have your, very

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clear performance and delivery

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process in place.

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You want to make sure that the

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contract lays out all of the

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milestones when you expect to have, them

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to be hit, what will be delivered, who

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it's delivered to, what the acceptance

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process is when you expect to have,

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questions, when they have their

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questions to you.

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when you have time to turn that back

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around, if there are any issues to turn

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that back around.

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There should be no surprises in that

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process, and that should be laid out

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in your s o w if not in the agreement.

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Of course, you have to have a dispute

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resolution process.

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the more complicated the engagement I.

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There's possibility that

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there'll be some miscommunications

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and we wanna make sure those things

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are resolved as soon as possible

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to maintain a good relationship so that

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we, have a long-term relationship

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with that client.

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And then, Equally important as

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onboarding is offboarding, making

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sure you tie up any loose ends,

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making sure you remain a resource

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for your client.

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This also makes it easy for you

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to do have those cross cells and

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do those upsells.

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You wanna also, be able to come to

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them for referrals, you want them

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to consider you, for them to be a

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referral source and of course,

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a testimonial process as well.

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It increases their value because

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it helps you

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obviously,

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sell and reach new markets.

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So I hope this was helpful to you.

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Again, this is just an overview some

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examples of the way that contracts do

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help you hit some of your key performance

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indicators.

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Don't think of them as just,

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intellectual property tool,

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but it is also a.

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Performance tool.

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Until next time.

About the Podcast

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Hourly to Exit

About your host

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Erin Austin

Meet Erin Austin, a Harvard Law alum with over 25 years of copyright and contracts experience. As the go-to advisor for professionals with corporate clients, Erin empowers entrepreneurs to be their own advocates, standing out for her commitment to transforming expertise into empires through the creation, protection and leveraging of intellectual property assets. Explore her blend of legal expertise and entrepreneurial insight on ThinkBeyondIP.com and the "Hourly to Exit" podcast. Off the clock, you'll find Erin in the great outdoors or connecting with business coaches to elevate 6-figure consultants into 7-figure powerhouses.