The Clause About Leaving

Most recurring contracts get negotiated on one number: the monthly price. It is the number on the proposal, and it is the number the salesperson has room to move. The terms that decide what the deal really costs sit further down: how long you are committed, and what happens when one side wants out.

Two negotiations from my emails, five years apart, on opposite sides of the table.

2015: we were the ones being paid

In December 2015 we were sending card processors a steady stream of merchant leads from our comparison sites, and getting paid a share of the processing revenue on the merchants they signed. I had met one processor’s team at a trade show and asked for their agreement:

Can you send me the most aggressive referral agreement along with Schedule A to review asap? We are producing approx. 200-300 incoming leads a month right now.

Their redline came back on 29 December. Someone on my team went through it line by line, and most of the problems were about leaving. The draft had removed the clause that kept our commissions paid “for as long as [the processor] receives revenue attributable to merchants in spite of any cancellation, expiration or termination of this Agreement.” It let the processor change the rates after the initial term on 30 days’ notice. It had no cap on liability. On our side, we wanted any lead they had not closed within two weeks to come back to us, so we could send it to someone else.

Almost none of it was about the headline rate. My reply that afternoon:

Unfortunately we simply have too many issues here that remain at odds; not sure where to really go from here.

Their senior vice president suggested we get the attorneys on a call, since it was surely nothing that could not be resolved. I answered from a plane that the issues were “more substantive then language oriented,” and that I would send the list.

We did end up working with that processor. By July 2016 the monthly residuals were small, and an unexplained withdrawal had come out of our account. Their rep suggested shutting the account so it could not happen again; someone on my team worried that this was a way to stop paying us. My answer turned on that same clause:

Shut the account; residuals stay even after termination. & even if they don’t it’s 30/month

The second half of that line is the honest part: by then there was not much left to protect. But the first half is why the clause was worth a fight in December. On a referral deal, the merchants you sent keep processing long after the relationship ends, and the commission on them is only yours if the contract says it survives.

2020: we were the ones paying

In January 2020 I was on the buying side, leasing a commercial scent system for the house. The vendor’s first price was $140 per unit per month for five units. My budget was $500 a month, and I said so:

I would like to get this done for 500/month, but need to hit that budget.

The salesman worked hard. He went “all the way up the exec ladder,” came back at $120 a unit, offered a free first month, and suggested fewer units. Then the agreement arrived. It was a 36-month lease. The first of my questions back:

Term: 12 months. Three years is just way too long if we don’t like the product.

He offered an early cancellation addendum. I asked for 60 days’ notice and no fees. He came back with a 30% fee to leave. So I traded:

If you are going to do a 30% fees; then give me a 12 month duration. I am okay with this; just don’t want to get tied up with the wrong product unnecessarily….

He said a 12-month term would push the price to $250 a unit. I moved to 24 months, with the 30% buyout, and said that was the limit. Two days later I put the whole trade on the table in one line, and let him choose:

4 systems ; 120 each; 30 month term

Or

5 systems 120 each 24 month term

Pick your poison.

The deal never got signed. Twelve days later his company decided it would no longer install that system in homes at all, for liability reasons. “Ok that is bad news; but life goes on.”

What the two have in common

On both sides, the monthly figure was the number everyone wanted to talk about, and the term and the exit were where the real cost was hiding.

When I am paying, a cheap rate on a long lock-in is a bet that I will still want the thing in three years. In 2020 the trade I offered was fewer units or a shorter term, not the lowest rate for the longest time. When I am being paid, the clause that matters is the one that keeps paying after either of us walks away.

In 2020 I spent nearly three weeks on the price before the term came up at all. The term was where the cost was. And the most useful moment in that negotiation was when the vendor had to say what a shorter lease would cost: $250 a unit instead of $120. That number told me what the three years were worth to them.

The other negotiation on this site, The 90 Days I Asked For, is the same instinct from another angle: in that one, the term I cared about was the time to find out before committing at all.

Settling the exit before the rest of the terms are agreed is routine in the negotiations I am brought into.