Don’t lock customers into long-term contracts.

I have always believed that locking customers into long-term contracts is a mistake for any business that hopes to become sustainable and stay in business more than a year or two.

Companies that find themselves having to lock customers into long-term contracts probably aren’t doing their jobs right in the first place. If a company is completely confident in its abilities, it will find little to no reason to lock its customers in. Happy customers that believe in your company and what it offers are customers that don’t have to be locked in. They will not only continue to use your company, but most likely refer it to their friends and colleagues.

Long-term contracts, on the other hand, lock customers in – including the unhappy ones. Unhappy customers that are locked into a contract rarely (if ever) become happy customers as a . They get even more frustrated and they start to dislike the particular company even more. They may actively tell others to avoid your company (and its restricting contracts).

A lot of companies with long-term contracts tend to employ some questionable measures to get customers into those contracts. Reduced prices for the first couple of months, waiving of setup fees, reduced prices for locking into a contract, etc. A lot of the methods are effective and long-term contracts undoubtedly reduce risk and make cash-flow more manageable. However, it can often do that at the risk of customer satisfaction. And if the customers aren’t happy and word gets out, there will almost certainly be bigger problems to address.

One Response to “Don’t lock customers into long-term contracts.”

  1. Steven Di Pietro said:

    Sep 26, 08 at 5:31 pm

    Agree. I run a Mystery Shopping Company with no contract terms. If they like the service they keep going, if they hate it, they leave. I don’t waste time with unhappy customers, they just leave. Therefore I am only dealing with happy customers. Makes life simpler, smaller and more pleasant.

    Back yourself, and avoid the contracts. Would this work for a phone company? In Australia you can buy prepaid phone contracts, like phone cards for mobiles. They are completely interchangeable and without contract, yet people stick just like they do in contracts, but they love the freedom of knowing they can get out ‘if they have to’.