A small business or startup has to think carefully before entering into a long-term contract or service level agreement (SLA) when outsourcing professional services. “Locking” customers into long-term agreements can prove burdensome to a business that is just getting off the ground.
However, a long-term contract can be an economical, steadfast solution for some businesses – especially those that may be reliant on fixed goods or services like pest control or maintenance and repair. Let’s look further into why a long-term contract or SLA may be used by a vendor, and if long-term contracts are in the best interest of your startup.
The Long-Term Contract or Service Level Agreement (aka Statement of Service)
If you’re like one of these famous tech startups, you’ve come to realize that the way to lift your small business off the ground is through outsourcing. By outsourcing professional services, a startup can focus on other areas of their business as well as access talent that their payroll may not otherwise afford.
Some vendors will try to negotiate a long-term contract or service level agreement. They may call it a statement of service, but either form of agreement will indicate how long you’re “locked in” to their services. Sometimes, this period will be relatively short (2-3 years or less). Other times, a long-term contract may try to lock you in for 5 years – or longer.
When do Long-Term Contracts Make Sense?
For some businesses and in some situations, a long-term contract may suit their needs quite well. Your company may receive a discount say, on credit card processing fees, if you are willing to lock-in for a longer contract term. Suppliers of hard-goods like office supplies or leased equipment will often seek long-term contracts. Or perhaps if you’re leasing your office space, you may negotiate better terms of rent by committing to a long-term rental contract.
In these instances, it’s fairly easy to understand how a long-term contract may be in your interest. By removing some of the headache associated with continual re-ordering or maintenance and offering a discount, a long-term contract can in some instances be a great option for startups.
For instance, if you sign a long-term contract on leased equipment like a printer, that agreement often includes the maintenance of the piece of equipment. This could save a business money in the long run, and eliminates the need to have an expert printer repair person on staff. Or, a contract that supplies paper towels, toilet paper, office supplies, and other goods to your business at a set, reasonable rate. Your need for these items may not change much over a few years.
Notice, however, that we’ve only referred to long-term contracts that are in favor of an owner when the good or service in question is for a fixed, predictable need. When it comes to outsourcing professional services, a flexible short-term contract may be preferable.
Why Startups Benefit from Flexibility
Outsourcing professional services is a far cry from pest control or even IT services. Unlike these examples, which sell to you because of their regularity and not their innovation, a professional services vendor will cater their services to you based on your needs. And in a startup, those needs are highly likely to change over time. Therefore, flexibility can become a key issue in service agreements – especially if you’re unhappy with the service you are receiving.
When you sign a long-term contract with a professional services vendor, you are eliminating the incentive for them to evolve with current market trends or to continually ensure your satisfaction with their work. That’s not to say you won’t receive great customer service with a long-term contract, but rather to point out that for some vendor relationships, longer terms may not be in your favor.
It’s always a good idea to evaluate your potential professional services vendor and make sure they are transparent, flexible and communicative. Sometimes an agency that outsources for businesses will pull some moves that signal they aren’t working to ensure your long-term success. This could include retaining ownership of your domain, which would make it less practical to terminate your contract should you choose to do so. Even if some of these agencies are willing to offer flexible contract lengths, they may seek to retain your patronage out of obligation.
At Growthwright, we offer flexibility to our clients because our goal is to build a relationship that compels you to work with us for years to come, rather than contractually obligate you to do so. Learn more about the professional services we offer to startups by reaching out to a team expert today.