Why Long-Term Services Contracts are Often Bad for the Buyer

Think twice, or maybe three times, before entering into a multi-year IT services contract with a vendor. I’d like to think I know a thing or two about it, having sold and delivered on Managed Services for almost 20 years. The industry has settled into contract terms that are most often 12, 24 or 36 months, with some being as long as 60 months. A small percentage of “normal” managed services contracts require a significant amount of dedicated capital by the vendor, particularly now when many systems are delivered in a SaaS model. Therefore, the fact that vendors seek to lock customers in for long terms should be a red flag, because the benefit is to them, not you. More often than not, long term contracts have more benefit to the vendor than the customer, and that just is not right. Let’s explore a few areas where this presents itself.

Sales & Bookings
I have been a commissioned sales rep in my career, even one with a 100% commission comp model fresh out of college. There is nothing wrong with this as it creates motivation and rewards results. What isn’t always right are elements of the plan that invent sales behavior that is not aligned with the customer. SPIFs (incentives) on particular products that pay a rep more than others, but might not be the best choice for a customer would be an example. Another example are commission programs based on Total Contract Value (TCV). The longer the term, the higher the comp, and if the comp is front-loaded versus monthly, this tends to have a larger impact. Sales should be rewarded as their company delivers value, not only when a new deal is booked.

Quality/Performance
What happens after 7 months of a contract that has a term of 36 months if a vendor is not living up to your expectations? Without termination provisions you can end up in a legal contract termination process or suffer early termination penalties. The whole concept was to out-task a portion of your operations so your business could focus on strategic priorities, not deal with issues of performance or entanglement. Shorter term contracts will keep your vendor focused on their deliverables, SLAs and exceeding your expectations.

Continual Improvement
If you are an IT leader, I’m certain you are focused on improving your team’s value back to your business. Improved security posture, more efficient workflow in applications and process, lower cost of delivery, improved flexibility and more. Unless you are part of a shrinking company that is only looking at cost savings, you are likely evaluating technologies and services that will enable your organization and accelerate growth. The expectations for your vendors should be the same and align with yours.

Longer term engagements incentivize behavior by the vendor to reduce costs over time. Examples are slower response to tickets, more involvement from Tier 1 engineers versus Tier 2 or 3, less meetings, etc… Shorter term engagements keep your vendor focused on growing the value and the partnership with you, knowing there will be a renewal due and you will have choices.

The PTP PeakPlus Approach
Our team is customer focused and value driven. We’re not afraid of renewals and know every day and every ticket is our opportunity to demonstrate our value. We run high-quality tools, follow mature process based on the ITIL framework, and have a team of technically strong individuals that care about doing the right things on behalf of our customers.

We will not push our customers to long-term contracts. Yes, we can offer some pricing discounts for longer terms, but it is not the basis of our business. We are successful if our customers deep our services valuable and keep paying their invoices and renewing with us. We’re in this for the long-haul, not just for booking the contract. Don’t believe me? No problem, here is what a few of our customers have to say about us!