Why you should offer multi-year contracts

Need advice? We can help.Get in touch today

What is a multi-year contract?

It’s simply a contract with your customer that lasts longer than one year and gives you both some financial stability.

More importantly, it eliminates the need for them to look for new contracts or deal with annual renewals of existing contracts.

Multi-year contracts have the added benefit of reducing the time you need to spend looking for new customers each year and give you the certainty of sales in future years, enabling you to plan better.

Beware of rising costs

Market forces and inflation can cause supply costs to increase. Therefore, you may want reassurance and some type of guarantee that the value of the contract can increase as future costs rise.

You may agree to adjust the price annually based on the inflation rate. Still, if your costs are tied to a particular external factor (e.g. the price of oil or exchange rates), you may need to devise a more sophisticated formula for price rises. 

For example, you can set a fixed rate of increase each year ahead of time. Or, you can tie payments to the specific inflation rate each year by determining a specific date for when prices will change and come to an agreement on a particular inflation index.

The advantages of multi-year contracts

There are some great advantages to multi-year contracts from a buyer’s point of view, and you can make them a crucial part of your marketing messages.

Multi-year contract benefits:

  • Enable you to plan ahead and secure better supplier discounts, thus keeping your prices down;
  • Avoid future unknown price fluctuations;
  • Save resources, effort, and time; and
  • Help develop strategic alliances between suppliers and customers, which will be beneficial for both in the long run.

In other words, they represent a valuable Win-Win arrangement between suppliers and customers and, used correctly, can hugely enhance the value of your business.

Useful information for Why you should offer multi-year contracts

Limited Companies

Should a key member of your staff be suddenly unable to work, it might be best to consider how you can reduce the impact of their absence.

Read more
Limited CompaniesSole Traders & Partnerships

Here are the tax implications relevant to providing a gift/event to best please your employees, whilst also being financially sensible.

Read more
Sole Traders & Partnerships

Sole traders & partnerships: If your year-end is not 31 March or 5 April, HMRC is changing how it will assess your profits.

Read more
Limited CompaniesSole Traders & Partnerships

If you’re considering using a piece of cloud-based accounting software, such as Xero, QuickBooks, or Sage, then it’s important you understand what each option can offer you. What follows are some worthwhile considerations…

Read more
wave

I am a...