Why you need a client contract for your online business

Do you have a client contract for your online business? Well, if you don't, today I want to challenge you with six reasons that you might need to rethink that decision.

Six Reasons You Must Have a Client Contract

If you're running an online business, then chances are that you want safety, you want predictability, you want security, you want all these things for what you're doing with your online business.

Am I right about that? Just give me a wink.

The problem is you're running a business and by running a business, you have humans as either clients or people who are purchasing your products or services.

When that happens, that introduces a certain level of unpredictability to everything we do.

Are you with me so far? All right, good.

So that means that things like chargebacks, refund requests, declined credit cards, scope creep, we're going to talk more about that in a second, and in general just lots of uncertainty and unforeseen issues are going to creep into any type of service provider-client relationship.

The problem there being that you don't know when, where, or how these issues are going to arise.

You might just be sitting there one morning, having your coffee, maybe having a quick sip of water and you get an email or a phone call or something, and there's a problem. Or you get a notification on your phone that somebody is asking for a chargeback request or any number of issues can come up.

The problem being that when something like that happens, it has a ripple effect, right?

Because if you don't get paid by a client or God forbid you've gotten paid, but then they do a chargeback and those are probably the worst, then you can't pay yourself and in turn, you can't pay your employees. That's just a problem.

So how do we avoid all of these uncertainties? You may have guessed it. We do it with contracts. Just so you know where we're at here, contracts is the third pillar of my LOCK It Down legal protection system.

So let's talk about that today, the main reasons why you need them. Now, before we get into this, there are a ton of different types of contracts that you may need for your business and chances are, you're going to need more than just one.

But for today's purposes, we're going to be talking about the service provider-client contract, which is one of the first contracts that a lot of people are going to need for their business.

Even if you're starting an online business, a lot of people start out as freelancers, are doing client work, and so this is going to be one of the staples. When you first get into business, this is probably the first contract you're going to need.

I made a separate video that talks about the terms of sale and how that might be applicable to your business if you're selling goods off a website, but this is for people that are doing one-to-one client work and these are the benefits that you need with that contract.

A Client Contract Eliminates Concerns and Fears About Your Business Relationship

The number one reason why you need a contract is that it's going to eliminate fear for both you and for the client from the engagement. What do I mean by that? Well, I don't know about you. But I don't really like uncertainty in my life, I like knowing that certain things are going to happen.

I like knowing that when I pick my kids up from school, they're going to be safe and happy and everything's going to be good. I like knowing that every Friday is pizza night at our house. Or I like knowing that I can turn my computer on in the morning and it's going to work.

More than anything else, I like knowing that when I'm working with the client, I know that when I do a certain level of work, they're going to pay me for that work. I have legal clients that I work with and that's the way I do things. I typically will send out an engagement letter to the client before I start work. It outlines exactly what am I doing for them and when I need to do it by and how they're going to pay me for that work.

Let me tell you a quick story about this that kind of illustrates what I'm talking about here with that fear that goes in for both you and the client. That can enter into any engagement when you start off and you don't have a contract in place.

Related Resource: Got legal agreements? Here is a post about the must have contract clauses.

So recently I was interviewing a number of different accountants to do some work for my firm. I interviewed one person who quoted me a fee, was actually a fairly low fee to do my S-corp return for 2020.

Then I interviewed another accountant and he quoted me a much higher fee to do my S-corp return for 2020. The main difference between the two is that the one who quoted the lower fee just sent me an email and said, “Hey, send me all your information and I'll get started on that.”

The one that quoted the higher fee sent me a detailed contract, explaining exactly what he was going to do, he sent me an onboarding package, he sent me a list of documents and items he would need for me and my firm to do the work.

There was a lot of certainty in that relationship versus a one paragraph email that said, “Send me your documents and I'll get started on that return. Here's what the fee will be.”

So needless to say, I went with the higher priced option and it wasn't because I didn't want to work for that person or that I didn't feel like spending a lot less on my S-corp return wasn't going to be beneficial to me, it certainly would have been, but I knew with this person, I just felt much more confident in what they were going to be able to provide and that was in large part because they had a contract that spelled out exactly what was going to happen, exactly what I was going to be responsible for and exactly what they were going to do for me.

A Client Contract Makes You Look Much More Professional

Which leads us to the second reason that you need a contract for your online business and that's because it's going to make you look in general more professional with your business.

As was the case in my accountant situation, if this is the first time that your client is working with someone like you, then they might have a lot of questions about how the process is going to work. Maybe you're working with a web designer or maybe you are a web designer and somebody reaches out to you to hire you for web design services, but they've never worked with a web designer before. So they don't understand what goes into that process. They don't understand what they need to do. They don't understand what you're going to be needing to do.

A contract helps to eliminate a lot of those questions and let them know as the client how they're going to be able to get the most value from the relationship they have with you.

Related Resource: To check the legal templates available on our website, click here.

A Client Contract Establishes Professional Boundaries

But on the same hand, now we're going to get into the third reason that you need a contract, and that is because it helps to establish professional boundaries.

What do I mean by that? Well, it tells both you and the client what you're responsible for. So it tells you what you're going to be doing for the client and it tells the client how much they're going to have to pay you for that service.

It's going to tell you how many calls you're going to have. It's going to tell you what the deliverables are going to be. It is going to tell you when payments are going to be due, it's going to tell you all of these things that go on are going to surround the professional relationship.

A Client Contract Will Protect Your Time and Resources

If you don't have those boundaries in place, then it's very easy to get into the fourth reason why you need a contract, that it safeguards your resources. What I mean by that is a contract will help to eliminate what's called scope creep.

Scope creep is when you enter into an engagement with somebody to do a certain level of work, and then they start asking you for other things, and you probably can appreciate this. You agree to design their website and before you know it, you're doing their graphics, you're writing their sales copy for them, the website was supposed to be a simple thousand word website that you're designing. Now it's a 10,000 word, behemoth, long form sales page. It's just different.

So you need to be very clear on what the engagement is going to entail from the very beginning. A contract will help you to do that. By doing this, it helps both you and the client to understand if you go beyond what's in the contract, you can do that, but here's what the fees will be to do that.

A Client Contract Outlines Future Services and Fees so there are No Surprises

So the fifth reason that you might need a contract for your online business is that it kind of serves to establish a certain level of liability ahead of time. What do I mean by that?

I mean, that it talks about when the engagement is going to end, when you or the client can get out of the agreement and what the cost will be if you should choose to do that. You don't want to have an open ended contract that doesn't have an ending date ever.

You need to have an ending date at some point and that ending date is either when you provide the deliverables that are requested or when the client pays you after you provided those deliverables. Until that point happens, then you still have a client and the client still has somebody they're working with on that project.

Related Resource: Do you need a lawyer to review your contracts? Book a consultation with me.

So recently I hired somebody to redo some copy on my website, and we had a very clear and definite beginning date and end date. We had a process that went through the entire scope of the engagement, and there were definite benchmarks that we had to hit throughout the engagement. But a couple of weeks ago, she delivered the final version of the sales copy that I'd asked her to draft for me and we knew that at that point, the engagement was done.

Now I may hire her for future work. At this point, we have not done that. I paid her all the fees that was owed under that original contract. She provided me with the work. She had a good contract in place to help me to understand everything that was included in the process, and that's the way it's supposed to work. That's the way it gets done.

A Client Contract Allows You to Plan for Contingencies

But there are cases that might fall outside of your control and that's the sixth reason that you need a contract and that's kind of as a what I would call get out of jail free card.

Now, 2020 was a unique year with the pandemic. We all know what happened, and there were a lot of contracts that were broken in 2020, and they might've been broken because people didn't have money to pay the contracts, they might've been broken because of factors beyond their control. So if you booked an event someplace and we were on a government mandated lockdown and the venue had to be closed because of COVID, that was something that would happen beyond the control of the parties.

What a contract will do is provide that get out of jail free card, which means that if you find yourself in a situation where you are at odds with the client over something that needs to be done in the contract, or maybe you find yourself where one of you cannot fulfill on the obligation of the contract for reasons beyond your control, or maybe you just have unpaid invoices, any type of situation where you have a disagreement with the client about what should or shouldn't happen moving forward, you can rely on that contract to help, to basically figure out which is the best way to proceed.

So no more squabbling over what disagreements you might have. A lot of times I call contracts disagreements because contracts can also be called agreements. But in some cases I like to call them disagreements because the only time you really need them is when you do have a disagreement.

Then you can point to the contract and say, “Well, here's what the contract says we're going to do in this situation,” and it protects both you and the client. Or if you are the client, it protects both of you in the event of those situations.

Related Resource: To check the contract templates we have on our website, click here.

So in general, a contract is going to give you a whole lot more confidence when you're working with your clients. It's going to make you look more professional. It's going to add a lot of certainty to the relationship with your clients and I would argue that it would change the client's perception of you as the service provider as well.

A well-written contract can go a long way towards establishing you as an authority, a poorly written or bad contract can have the opposite effect in many situations as well.

As I talked about at the very beginning, a contract can also help you in those instances where you have clients that don't want to pay, or who attempt chargebacks on your services.

Now, as I said, at the very beginning, everything I talked about in today's video is written from the perspective of someone who is a service provider, not somebody who is selling goods or digital or products on their website.

But a product-based business, especially an online product-based business, can definitely benefit from the use of contracts as well. For that reason, I've done another video that you can find right here that talks about how a product-based business can benefit from the use of contracts as well, especially online product-based businesses.

Click here to visit our contract template store and get legally legit today!

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