Flint's Blog: Do Long Term Contracts Lead to Unhappy Customers?

The Business of Software Blog had a great post recently (see here) about why locking customers in for the long term can often be a bad thing. One of the big takeaways is that when customers are locked into long term contracts then your goal is primarily to get customers to sign the contract. Keeping them happy becomes secondary because what are they gonna do, they can't leave.

The outsourced billing space operates primarily on long term contracts as well. The theory put forth is that a certain amount of equipment time (printers/inserters) needs to be purchased/reserved and that if customers could leave whenever they want, then it would be incredibly difficult to forecast capacity and therefore impossible to run the business. I think for the most part this is a complete fabrication.

At the very high end of our market where customers are mailing out tens of millions of bills per month, this logic is true. In fact, some of outsourcing vendors actually will buy not only additional equipment to service a customer but also additional facilities to house the equipment. I agree that long term contracts make sense here because you're asking a vendor to commit a lot of capital and they need some assurance that they've got the business for a fixed amount of time.

However, this large end of the market probably accounts for < 2% of the billers who outsource or are candidates for outsourcing. For the other 98% of the market, the equipment needed to satisfy their billing volume is minimal. Therefore the argument that you need to protect the vendor for the capital outlay doesn't hold up.

Now for my blatant Billtrust plug. Over 99% of our customer contracts have the following clause:

Unconditional Guarantee: If at any time Customer is dissatisfied with the performance of Billtrust or for any other reason wishes to cease using the Billtrust CompleteBilling Service, Customer may terminate this Agreement by providing written notice to Billtrust.

We do this for a few simple reasons. I want our customers staying with us because they love our service. I want everybody in our organization to know that if we don't do a great job, that customers have the right to leave. I absolutely don't want customers staying with us because they legally have to.

So after almost seven years in business, I think we made the right call. Our customer retention rate is over 99% in an industry that churns 10-15% of their customers annually. Our customers are our best salespeople because we try our best to keep them thrilled with our services every day.

Comments

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I would be interested in learning more about what kind of steps you can take within your organization to instill the importance of earning the customers business every day. Without a long term contract, one mistake can lead to lost revenue.

Posted by: Mike | April 28, 2008 at 08:49 AM

In the beginning, long-term contracts seemed to make sense.customers were so unhappy with their existing
contracts,Unhappy customers have reported no calls at all or very delayed calls.

Posted by: Rackmount LCD | September 04, 2009 at 05:35 AM