Use Your Contracts To Back Up Your Company’s Promises
Updated: Feb 11
The second in a series of articles on contract management.
This article argues that a company's contracts should be the vital link between its sales efforts and its actual performance under the contract.
People running their own companies, necessarily being optimists, usually believe that, if potential customers only knew how good their company was, they would beat a path to their door. Your contracts should help make that happen, but they probably don't. If your company is like most, your contracts are seen as irrelevant to the sales effort, if not an outright impediment. This is a major mistake, because your contracts, if properly used, can be a powerful and effective tool for increasing sales.
Contracts are often seen as a wet blanket on a company's sales efforts. In its proposals, a company naturally tends to promise the highest quality of goods or services, to be delivered in the shortest possible time, for the lowest cost. Rarely, however, is it willing to commit formally to such promises in its contracts. When a customer, who has accepted a proposal that promises everything, subsequently receives a contract that provides much less, the company's credibility is seriously undercut. To prevent this, and because preparation of a separate contract is often seen as expensive and time consuming, the company frequently tries to rely on the proposal as the actual contract, hoping that if there are any problems it will be able to work them out. When hard-nosed, savvy customers insist on sticking to the literal wording of an overly generous proposal, however, the company is almost guaranteed to lose its profit margin, if not much more. In an effort to protect itself, the company therefore clutters up its proposals with off-putting legal terms and conditions. The result is the worst of both worlds: a combined document that, as a proposal, is an ineffective sales tool and, as a contract, is internally inconsistent, overly generous, and dangerously vague.
The reason the contract isn't used to increase sales is because its role is not kept in perspective. The contract is the critical link between the company's promises and its performance. It should be a clear and direct statement to customers explaining just how and when the company is going to make good on its promises, and how it will deal with any potential problems. If your contract is consistent with your proposal, it will reinforce your credibility. If its terms describe a fair and reasonable working relationship with the customer, it will justify the confidence that the client placed in you when it accepted your proposal.
Here are some guidelines for using your contracts to increase sales:
· On most projects, make your proposal a more effective sales tool by deleting all legal terms and conditions and putting them into a separate contract document.
· On small projects, use a short, carefully-worded letter agreement format that serves as both a user-friendly proposal and a legally sufficient contract. The letter must contain all the items that were in the proposal as well as all the necessary contract provisions but it should not read like a contract. The objective is to get a quick signed acknowledgement from your business counterpart, thereby making it a binding contract, rather than having it sent to your client's lawyers, who may not respond until after the project has been partially or even wholly completed. If payment problems then arose, you would have no governing contract.
· Reinforce your credibility with your customers by coordinating the language of the proposal and the contract, so that the proposal doesn't promise more than is legally realistic and the contract doesn't undercut the proposal - and therefore your credibility - by retracting promises made either orally or in the written proposal.
· Use your contract to sell your company's experience, expertise, and responsiveness by explaining in it the types of problems that are likely to arise during the course of the project and then providing fair and reasonable procedures for resolving them.
· Use plain and direct language, since the contract is above all a tool for clear and effective communication and resolution of the problems that might arise during performance of the project.
By properly implementing these guidelines, your contract will be a bold statement of your commitment to excellence, not an attempt to escape from responsibility. It will thus differentiate you from your competitors and make your sales efforts significantly more effective.