Clearly Defining the Costs of Breaking a Contract

In episode 270 of Journey to $100 Million, Erik discusses contracts, monthly recurring revenue, and the details that have helped us communicate our scope of work to clients. When we sign with someone at Array Digital, we put a lot of effort upfront into the client and engagement. That upfront cost is amortized over the minimum commitment duration of the contract. When a client cancels early, it’s a problem because we do not have the time we expected to earn the revenue to offset our upfront costs. As an example, every other web agency will charge an upfront fee of $5k - $20k or more to create a website. Not at Array Digital - we charge the same amount every month even when we’re putting a ton of work in at the beginning of the project. But, there’s a minimum number of months that we expect the client to stay with us. When a client breaks the contract, when they cancel before the minimum commitment is fulfilled, then, contractually, there will be liquidated damages. Instead of trying to figure out what those liquidated damages will be when they cancel, Erik defines what they’ll be at the beginning...when the contract is signed. By defining how liquidated damages are calculated before the client breaks the contract, it takes the guesswork out of “what it means to break the contract” for the company and for the client. With that definition, Erik is no longer in the position to have to decide what the damages will be each time someone cancels. Instead, he can delegate this task to someone like Katya to simply apply the policy to figure out what the damages will be. The client can calculate it for themselves too. There will be no surprises. — Erik J. Olson is an award-winning digital marketer & entrepreneur. The Founder & CEO of Array Digital, he is also the host of the Journey to $100 Million Flash Briefing and daily podcast, and the organizer of the Marketers Anonymous monthly meetups. — Kevin Daisey is an award-winning digital marketer & entrepreneur. He started his first company when he was just 23, and is the Founder & CMO of Array Digital. Kevin is also the co-host of the Journey to $100 Million Flash Briefing and daily podcast, and the co-organizer of the Marketers Anonymous monthly meetups. — For more information on the show, and to check out past episodes, go to journeyto100million.com!