Long-term contracts in the business world present you with the chance to develop client relationships in ways that the short-term simply can’t. Use a product for a month, you’ll know it pretty well. Use a product for three or four years and said product becomes something more.
But obviously, persuading a potential client to sign up to your product or service for the long haul can be a difficult task, given the plethora of rival businesses (no matter your industry) and short-term contracts out there.
There are many companies that offer contract advice, though, so no matter whether you’re trying to sign an employee or a new client, our inter-connected world makes everything only a few clicks away.
So, without further delay, here are the advantages of a long-term contract.
The guaranteed revenue stream
The first advantageous feature of a long-term contract is that you can make revenue predictions into… well, the long term.
Let’s say you secured a client on a four-year deal. You know that so long as you fulfil the requirements of your contract with them, you have four years of revenue dripping into your pot.
With a few clients locked into this type of deal, you can begin to forecast portions of guaranteed revenue, enabling you to make critical business decisions going forward.
Your clients can help you… to help them
With the hyper connectivity of the internet and social media platforms like Twitter, Facebook, Reddit, and the ability for a person or business to be in touch with people all over the world 24/7, having clients on a lengthy contract gives you the opportunity to view a long-term client/customer view of your service or product.
With an effective community management team, you can engage your customers, followers, fans, clients, and even critics by engaging with them about your product through digital and offline marketing.
Apple are a perfect example of this—their iOS operating system is available as a beta version to any users of its products who want to test the new software—with a built-in feedback app available to, you guessed it, give feedback. Plenty of video game companies are doing the same thing—releasing the game in an early state, like the love-it-or-hate-it global phenomenon, Fortnite.
Dan Ritzenthaler, Senior Design Manager and Product Owner at Iora Health, once tweeted that, “I get very uncomfortable when someone makes a design decision without customer contact.”
The longer a client’s user journey is, the more time they have to benefit from its features, and to raise issue with any bugs in the system.
You have more time to negotiate contract renewals
Let’s keep that four-year deal client example in our heads.
From the moment a client first signs a contract to enjoy the features of your product or service, you should be looking at the long game questions. One of these questions should sound something like:
“How are we going to ensure that our customers are so satisfied with our product, that no matter what our competitors do during the client’s contract duration, they want to renew their contract with us?”
That’s not a bad question to sit around the table brainstorming, but how about this variation:
“How far can we push ourselves as a business to give our clients a product that they are so satisfied with that they’re already sure that renewing their contract is what’s best for them?”
Google Creative Lab Vice President, Robert Wong, once wrote that “Choose the right purpose, people will be attracted, motivated, and unified.”
It’s easy to use business aphorisms about matching counter offers, providing the first X months of a renewal free, beating any deal, etc.—and clients will, of course, always measure the value versus the cost of any product, especially when there are competitor products to consider, too. And don’t be fooled, most of your clients will be aware of competitor products on the market—some might even be in early stage negotiations.
But that’s where this tip ties into the previous tip. Yes, a four-year contract gives you plenty of time to tinker with pricing models. But what you should be trying to do is obliterate your competition with a four-year product/service experience, so that when the time comes, let’s say twelve or six months before contract expiry, your client already has their pen clicked, ready to sign on the dotted line.
The better their experience, the less you’ll have to negotiate—at which point any financial bonuses you offer will be additional success.
Are there disadvantages to long-term contracts in business?
One of the dangerous concerns of a long-term deal is that if your business begins to falter—whether it be due to profit losses, or the departure of vital staff, or the arrival of a strong competitor—breaching your Service Level Agreement with your client becomes a heightened risk.
Once you breach your contract, it can be simple for clients to escape, and then your revenue stream becomes volatile.
Ergo, you need to be careful when making business decisions for the long game, and stay aware of potential threats to your business from all possible sources. Complacency is the enemy.
Ultimately, it’s down to you to determine what sort of contract lengths your business should look to secure with your prospective clients. You might want to initially offer short-term deals, prove the value of your product or service, and then propose to them a lucrative long-term deal.
