The Underlying Value Of Contracts
By Stanley Louissaint, Fluid Designs
Contracts, agreements, MSAs … I'm sure you have heard these terms and had to figure out what exactly what they mean to you? I too have been there.
The importance of contracts happened early on in my career when I was developing websites. One of the biggest pain points for me was getting all the content from the client that would be posted on the site. The longer they took to get me the information, the longer it took for me to get paid as the project was delayed and I got paid upon completion.
At that point I realized I needed to have contracts in place to specify exactly what the client had to do and what my deliverables were. Looking back, that was the best thing that could’ve ever happened to me.
I am a part of different industry organizations and have many colleagues in the field and there is constant discussion about if you should or have contracts and other factors surrounding them. The answer is simple, you should.
One of the primary reasons to have a contract in place is to fully define the relationship. You have now been forced to have an honest conversation with your prospective client about what exactly is going to happen after they sign the dotted line. With a handshake arrangement, even though you think that you discussed everything, you didn’t.
There are many important items that need to be included in your contract but, before I reveal these items, please understand I am not a lawyer nor will what I mention here replace your need for one. Before you finalized any contract please have a lawyer review it just to make sure you are covered.
Back to the point at hand: what to put into your contract. Here are a few key items that you should have in there:
- what/who are covered
- your response times
- standard support hours
- outside stand support hours or holiday time
- how support requests are made
- your fee structure
- how addition/subtractions are handled
- contract duration
- client's payment obligations
- client’s responsibilities
There are other items you may deem important that could be missing from the list above and I encourage you to include them in your contract. If things ever go south with a client, that contract is what you will use to get anything that may be owed to you. If someone signs a contract there is a duty to honor its terms.
Aside from protecting yourself and your business there is another reason to have contracts: value. When you look at your business you have to ask yourself some questions. How do I add value to my business? How do I steady my cash flow? What will the end of the road look like for me? This is where I feel many MSPs and others in the industry fall short.
Contracts are often considered a hinderance rather than the tool they are adding value to your business. I guess this is what happens when many in the industry are technical people first and business people second.
Let’s look at an example where we will bill a client $1,000 a month for support services. If we give them a month-to-month contract, their value to us is $1,000. Why? Because we can only guarantee their revenue based on our contract for the next 30 days because they can cancel their month-to-month contract.
Now, if we provide someone with a yearly agreement they can’t cancel without cause until the year is up, they have a value to us of $12,000 as we are guaranteed 12 months’ worth of income instead of one month. Something that seems so minor can make a huge difference in how you run your business and what business decisions can be made on that guaranteed revenue you have coming in — everything from your marketing budget to adding staff.
An additional benefit is you are adding to the resale value of your business. When you have longer-term contracts and your business switches hands the new owner still has that client locked in and will instantly generate revenue from them. That is invaluable when you are wanting to sell and move on to the next phase of your life.
As you can see there is great value in having solid. Long-term contracts in place. You are able to forecast your revenue over a period of time, allowing you to make sound decisions. Depending on your personality you might even sleep better knowing you have done everything you could to protect yourself. You are also able to add value to your business and its potential resale value. Yet the most important thing is you are able to properly define the relationship between the client and your company. Remember to always have professional eyes review whatever it is that you decide to write up.
About The Author
Stanley Louissaint is the Principal and Founder of Fluid Designs, a full-service IT services and support services firm that focuses on the computer, networking, and application needs of businesses. His passion for technology led him to form the firm in 2001. Under his leadership Fluid Designs has grown from serving a handful of small businesses into a premier IT services company in the Northern & Central New Jersey region.