What To Do When A Customer Wants to Cancel A Contract

In today’s crazy world, more and more vendors are seeing customers that want to cancel annual or longer contracts.

What should you do?

The simple answer “of course” is that yearly contracts can’t be canceled — per se. That’s the whole point of whatever explicit or implicit discount you give for doing a yearly contract (vs. monthly or quarterly). And the language likely will plainly say the contract cannot be canceled.

But … it’s just a contract. So a few qualifiers:

  • If you haven’t received pre-paid cash, it doesn’t matter. Do NOT threaten to send the customer into collections – period. Especially now, these days. There is no effective way to enforce a customer contract if the customer doesn’t want to pay and doesn’t need the service any longer. Do not create drama. This won’t work, and it will turn someone who just might be a customer again into someone that won’t be a customer again. Any “annual” contract in fact at a practical level is only dated as long as the pre-paid cash attached to it.
  • They may come back.  Make sure they want to. Why are they canceling? Think long. They may come back, or at least, refer a colleague or friend to your app. Make the exit process as positive as the entrance process. Thank them for being a customer, for however long. For taking a chance on you.
  • Move on. Issues like trying to get out of an annual contract can get the whole team’s dander up. But if it’s 0.1% of your ARR, it just doesn’t matter. Move on.
  • It’s either your fault, or the economy’s fault. It’s not their fault. Remember, any customer that cancels, cancels either because of the economy (now), or because you didn’t deliver enough value. If neither was the case, they’d still be a customer. It’s not their fault. It’s not us-vs-them. Don’t let it become them.
  • Champion change creates a lot more risk today.  Champion change (i.e., loss of your core advocate at the customer) is a big deal in general, but it’s accelerating in many cases in today’s economy.  They may take a red marker to the entire stack their predecessor brought in.  All you can really do here is get ahead of it, be proactive, and brace yourself for impacts.  The more you get ahead of it, and tell your new champion you are there to help, the more you can mitigate the accelerating impacts here.
  • Allow seamless downgrades today.  If your customer has been hit hard, and doesn’t need half their seats, make downgrades easy.  This doesn’t mean returning cash, but it does mean making renewals, etc. simpler without drama and stress.  And if they are on a monthly program, make it even easier to downgrade.  Support them in tough times.
  • There’s no need to refund any cash, 95%+ of the time. Some customers may want their money back, if they cancel say 6 months into a 12 month contract. Usually, a polite We Are Very Sorry But Per Terms of Contract You Prepaid for a Discount is enough if you are still able to provide the service.

Until you are large enough that cash doesn’t matter, annual and multi-year contracts really only matter if they are cash up-front contracts. If you don’t have the cash, and they want out, they get out. One way or another. So you might as well leave on good terms.

And let the team solve bigger and better problems than this one.

View original question on quora

Published on March 31, 2020

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