Financial Penalty for Unresponsive Customers during Onboarding

Heather Graham

Hi all,

First time poster here; looking for some GGR community wisdom.

We are a SaaS startup with a relatively complex product.  Our implementations are fixed-price, high-touch, last 4-6 months, and require a 2 hour/week customer commitment throughout onboarding.  

While most of our customers are very responsive and eager to go-live, we have one that is not.  They are often late, miss meetings, struggle to complete required tasks, and lack a shared vision or strong leadership.  Because of this, their project is delayed and requires significantly more of our team's time than normal.

We've tried to work collaboratively to get them back on track with no luck.  At this point, we need to amend their contract to incentivize the necessary change.  The (now realized) risk of significant project delay wasn't a strong enough incentive.  So, we are exploring how to amend their contract to include financial consequences if there is a continued lack of cooperation.

A few questions:

• Has anyone done this successfully?  
• If so, how did you model the financial penalties? Percentage of implementation cost? Cost per delay incident?
  
• Any other advice?

Thanks for your help!

Ed Powers

Wow, tough spot! My advice? Stay away from altering the terms of the agreement--they won't sign it, and once the lawyers get involved, the relationship is in a death spiral.

Where are your own execs on dealing with this problem? Seems to me they should be escalating within the account's ranks to find an executive there who sees benefit and will take charge. Absent that, check your own termination clauses. Sometimes it's best just to cut your losses and walk away.

Guy Galon

I would not amend the contract. If your implementation is 4-6 months long, i assume you deal with enterprises so any legal track to amend the contract will be longer than your implementation and will put it on hold (which is opposite to your objective to speed up the implementation process).

Getting stakeholders and team engaged and make the necessary prioritization will most likely require executive sponsorship. In parallel,  I would look for the "path of lease resistance" , which means get certain implementation activities completed (I assume there are multiple teams and people engaged so there is a chance you can make some progress).  Using this approach, I did manage to gain some momentum with stakeholders and prove to them that we are making progress and with their support, we can make it faster.

Question: can you demonstrate value in an earlier stage or only after 4-6 months? with few product demonstrations of value you may be able to get more traction and cooperation.

Hi all,

First time poster here; looking for some GGR community wisdom.

We are a SaaS startup with a relatively complex product.  Our implementations are fixed-price, high-touch, last 4-6 months, and require a 2 hour/week customer commitment throughout onboarding.  

While most of our customers are very responsive and eager to go-live, we have one that is not.  They are often late, miss meetings, struggle to complete required tasks, and lack a shared vision or strong leadership.  Because of this, their project is delayed and requires significantly more of our team's time than normal.

We've tried to work collaboratively to get them back on track with no luck.  At this point, we need to amend their contract to incentivize the necessary change.  The (now realized) risk of significant project delay wasn't a strong enough incentive.  So, we are exploring how to amend their contract to include financial consequences if there is a continued lack of cooperation.

A few questions:

• Has anyone done this successfully?  
• If so, how did you model the financial penalties? Percentage of implementation cost? Cost per delay incident?
  
• Any other advice?

Thanks for your help!

GLENN HUMMEL

Agree with the others - you are in a tough spot, Heather.  A few questions from me: do you know WHY the customer is late to or missing meetings, WHY they struggle to complete tasks, etc.?  Is there something going on at the moment that will explain this?  Do you have the option of putting your Onboarding activities on hold or in timeout for some short (but well defined) period of time?  I have no knowledge of how your contracts are structured, but stepping back completely for that short period could reignite some interest on their side.

Can you get a similar profile customer that was success with your product to join a call?  Having the problem customer hear from another company that was successful has been used at my company.  The successful company can be prepped to speak in stories, giving data points about the success achieved, but ultimately telling the tale with compelling details in story format.

Are you brainstorming this customer situation with your internal resources?  We sometimes put problem customer scenarios in front of all CSMs or in front of a group of management people to crowd-source a solution.  Often, having others at the company, who know the contract language, the customer details, the constraints, etc. will allow for good ideas to surface.

I agree with the others on the financial penalties, too.  I would avoid this avenue at all costs.  At the end of the day, this may be a customer that is just not a good fit for your product and you may realize that it is in everyone's best interest to 'fire' the customer, IF all else fails.

Dennis Doyel

Heather, I've experienced this a few times.  Begin by getting sales back involved.  Explain the situation and have them circle back with the customers Economic Buyer and Champion to identify the problem and re-emphasize the business outcomes the customer's trying to achieve with your software.  Frankly, that's usually why they don't engage.  Other activities are considered more important or impactful.  Second, if their behavior improves after that then find a way to get them a quick win.  But if they don't re-engage, you're better off cutting them lose and focusing your efforts on customers who want to do business with you.  Even if you could, hitting them with financial penalties isn't going to modify their behavior.

GLENN HUMMEL

Agree with the others - tough spot to be in.  Do you know WHY the customer is not responding in a timely fashion?  What else is going on that might be having an impact here?  Being forward enough to ask the customer the WHY may give you insight to develop a solution.

Are you brainstorming this situation internally?  We do this often with good results.  Bringing this up in front of others who best understand the contract terms, the product, the customer situation, etc., can lead to new and innovative ideas.

Not sure of the contract specifics, but what about a pause in your operations on this customer's behalf?  Can you stop your interactions and come back in a short/well-defined timeframe?  Say 3 months or so?  This may give the customer the time they need to work out any competing priorities.

How about bringing other customers in?  Do you have a similar customer who is successful?  Someone of the same size or same industry as the problem customer?  Get together on a joint call where your successful customer can outline why they were successful and tell your story from their perspective.  Having another customer evangelize for you is powerful.

Finally, I would also stay away from the financial penalties and legal actions.  At the end of the day, you may just have to 'fire' this customer.  They may not be a great fit for your product/solution.  They may be the a fit, but it is just not a great time for them.  Sometimes, it is in everyone's best interest to walk away.

Jennifer Norman

It sounds like most of the responses here are veering away from a financial penalty, which I largely agree with. Makes me curious then, does anyone have advice on incentivizing customers to complete onboarding in a timely manner? Our onboarding journey is very similar 3 - 5 months, high-touch. I agree with looping in the Sales Rep and reminding them of the rewards that await, but is anyone doing something creative for customers for hitting milestones and launching on time?

Jordan Silverman

We are an inventory management system that works with SMB hospitality companies. Lots of handholding up front is required and we commonly face nonresponsive customers who slow down onboarding and in turn cause our team additional work.

We have implemented a few processes to try and decrease the amount of no show/reschedule meetings and missed milestones:
1) If you hit all your milestones set up in the kickoff meeting you get your 7th month free of charge (we operate 6 month contracts)
2) If you show up to every meeting we will sponsor a team lunch (get everyone excited about MarketMan)

Instead of financial penalties we are trying incentives to clients. We started this last quarter - so far it has not decreased the number of no show/reschedule meetings but has impacted the milestone achievement.

Andrew Marks

The financial incentive should be the lack of value being created from your solution. Every day that goes by with your solution unimplemented, is one less day of value they are getting from your solution. You should be playing up to the executive stakeholder who made a commitment to their company to generate some sort of value by paying for your solution. Companies just don't spend money on solutions to have them sit there in the corner wasting away. Someone at that company needs to know that all of the delays on their side are limited or eliminate the value that they are expecting from their investment. I assure you that the CEO or CFO cares about that sort of thing at a minimum.

Will Stevenson

Hey Heather, 

While this might not help you on this particular customer, I have successfully implemented onboarding incentives. 

To do this effectively it has to start on the Sales side. Typically in any enterprise deal the customer is asking for a discount. One effective way to increase ACV and incentivize customers to onboard quickly is a discount contingent on launching within a certain period of time. 

For example: Sales - "Sure we can offer a 5% discount, however the discount is contingent on launching within 4 months. You'll pay full price now, but if you onboard within 4 months, we'll credit you back 5% (or 1 month or the implementation fee, etc.). 

One thing I can say, in situations like you're in over-communicating and giving the client visibility into the phase they are in helps a lot. Happy to chat through this in more detail. Feel free to message me and we can set up a time, if you're interested.  

Chat soon,

Loukas Gkoutis

Nice one Jordan!
Thanks for sharing

Guy Galon

Hi Will,
Interesting approach to offer the incentive before they sign the contract. I wonder if customers miss the specific milestone but claiming you (the vendor) is responsible for the delay (product issues/defects, integration issues , etc)?  and still asking for the discount. 

thanks,

Guy

Will Stevenson

Hey Guy, 

That could absolutely happen. However, it didn't happen as much as you might think (in our case at least). 

We ran probably 300 customers through this incentive program and if I remember correctly there were only 1 or 2 cases where the company fought for the discount, despite not hitting the goal. 

I think there are a couple keys to success with this program. (1) Make the timeline realistic for the customer to hit and (2) set those expectations while you're structuring the deal. Making sure the client signs off on the terms and understands the responsibility. It becomes even more crucial to give them visibility into What (needs to be done), When (it needs to be done by), and Who (is responsible) earlier in the process. 

At the end of the day, your onboarding process should be a competitive advantage, not a disadvantage. Talk about it early and often prior to closing the deal. After all, you have a team of experts just waiting to help the customer realize the benefits of what they're paying for.   

Dickey Singh

Very briefly because there already is good answers here.

>>often late, miss meetings, struggle to complete required tasks,
Try to get to the why here?  Is there a M/A activity going on. Is the company or department distracted.
If you can find the why answer - several solutions will present themselves.

>>and lack a shared vision or strong leadership
this is concerning. and others have offered good solutions here like escalating to executive buyer.

Sean Wilkes

I assume you charge for implementation. If yes, then there is a penalty for being non-responsive and that's the loss of any upfront fees you might charge. 50% if the PS fees on signing would be the minimum. The other financial leaver you can pull is a fixed billing start date. If a customer starts paying subscriptions whether they're live or not, that focuses people.

Heather Graham

Thank you all for sharing your experiences and suggestions. 

Before my original post, I attempted to write the contract addendum but couldn't get past the first sentence.  I'm so glad I was able to validate that initial hesitation on this forum.

We won't impose financial penalties, but I love the idea of laying out financial incentives during the sales process.   Also, your responses emphasized the importance of uncovering the why, re-emphasizing the value proposition and making sure the "check signer" is in the loop.

Much appreciated!
Heather