The Business Strategy Behind Long-Term vs Short-Term Contracts

business strategy contracts

business strategy contracts

A good business strategy is to secure repeat business or long running contracts from a good client, says Jenny Retief, CEO of the Riversands Incubation Hub.

Riversands Incubation Hub is home to over 170 small businesses. The incubation hub hosts training workshops for entrepreneurs and events including the annual funding conference, FundEX.

Long-term contracts are profitable because they often cost less than sourcing new clients, says Retief.

“There is inevitably an extra investment of time needed to establish a new relationship.”

She adds: “Of course it’s important to keep adding new clients so the business is not dependent entirely on one or two contracts.”

The ideal mixture, says Retief, is a mix of long- and short-term contracts.

Retief gives the advantages of both.

Long-term contracts

– A base of long-term contracts or repeat business will provide a solid foundation with a more predictable workload and income.
– From that base it becomes possible expand, taking on additional short-term projects to prove the business’s value to a new client.

Short-term contracts

– It gives you a chance to create a good impression and to build relationships with a new clients. Most clients, and especially corporates, would want to experience products or services before committing long term contract.

Ways to measure your product quality and service delivery

In addition to repeat business, referrals are also a good way to measure if you clients are happy with you.

To increase both your referrals and repeat business Retief has this advice: 

Do:

– Find out why your business is not getting repeat business and referrals.
Track all referrals and repeat business as a key metric of the business’ quality and delivery.
– Protect the business with a sound legal contract. A longer-term project needs to be cemented.

Don’t:

– Be afraid to call up customers to ask about their perceptions and their experience when dealing with the business. That feedback is precious information.
– Become defensive if it isn’t all complimentary; it’s important to act on the information to build a better business. In this way, customers will gain respect for the business.

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Melissa Javan
Melissa Javan
Melissa Javan is a writer with nine years' experience in the media industry. She enjoys blogging and taking part in Twitter chats. You can find her on Twitter @melissa_nel.