What is a sales contract?
A sales contract is a legal agreement between a company and its customer that spells out the pricing, scope of work, and service terms. A good sales contract establishes the offering while setting prices and specifying the terms of the agreement.
Types of sales contracts
It depends on the scope of the job and on how your business prices its products and services, but there are five common types of sales contracts.
Fixed price sales contract
In a fixed price sales contract, the buyer agrees to pay a set sum for goods or services regardless of how much time or money it takes to produce them.
The contract specifies what work is to be done and how much it costs. The contract is usually signed before any work begins on the project.
Fixed price contracts are common in many industries where there are fixed costs associated with producing a product, such as manufacturing or construction.
In a cost-reimbursement contract, the customer agrees to pay all related expenses stated in the terms of service in addition to the stated price. This type of contract is common with businesses that need to make a large purchase from a supplier and want to ensure that all costs are covered. For example, if a company needs to buy equipment for its employees, it may enter into a cost-reimbursement contract so that the supplier will cover all expected (and unexpected) expenses that may incur.
A cost-plus contract is an agreement between a customer and a business in which the client agrees to pay all allowable expenses plus an additional fee for completing a set of work. The cost-plus contract can be used in almost any business, but it is especially useful for companies that provide services.
The cost-plus contract is often used when the company needs to estimate its costs before beginning work. It can help protect both parties from paying too much or too little for the work.
Time and Materials
A time and materials contract is one in which you pay the customer a fixed time fee (such as an hourly rate) along with the cost of the material used to complete the job.
Time and materials contracts may be appropriate for small or large jobs, but they are generally used for large jobs that have an uncertain scope and/or duration.
For example, if you're bidding on a construction project, such as building a house, you might bid on it using a time and materials contract. You might also use this type of contract when working on the production of a book or film.
As with most contracts, it's important to understand what each party is responsible for before signing any agreement. With this type of contract, it's important to explain everything that constitutes "time" and what constitutes "materials."
A unit price contract is an agreement between a buyer and a seller, where the purchaser agrees to pay a set fee per every unit provided.
Whether it's software, a product, or a service—when a customer agrees to pay a set fee per every unit provided, the contract is called a Unit Price.
Unit prices are common in many industries, especially within manufacturing, where they are often used as an alternative to fixed-price contracts.
The main difference between unit price and fixed-price contracts is that the buyer pays for each unit delivered instead of paying for the entire product or service upfront. This allows both parties to protect themselves against uncertainty about how many units will be required or purchased by the buyer.
What are the don’ts of a Simple Sales Contract?
Here are the two most common mistakes you should avoid when creating a simple sales contract:
1. Not including every relevant detail
A good sales contract is detailed. It should include all pertinent information about the transaction, such as what is being sold, who it’s being sold by, when payment is due and how much money should change hands.
You may also want to include things like warranties or guarantees so that your customer knows exactly what they are getting into before they buy anything from you. Leaving out any of these types of details could mean problems later on if something goes wrong with their order or if they decide they don’t like what they've purchased once it is received.
2. Not explaining what happens if something goes wrong
You may have heard the phrase "buyer beware." But if you neglect to explain what happens if something does go wrong, it can create problems in the long run.
By outlining exactly what happens, you will have less chance of customer complaints and will be able to deal with any complaints more quickly and efficiently with less risk of a public debacle.
What are the do’s of a Simple Sales Contract?
Here's a quick checklist of the seven things that you should do when creating a simple sales contract:
1. Determine Customer Needs
Determine what your customer needs before you begin your sales process.
The better you know what the customer wants, the more likely it is that you can sell them on the benefits of your product or service.
2. Agree on a Solution
Once you know what you need, then you can look at the different types of contracts available and choose the one that best fits your needs.
Make sure this agreement is in writing, so both parties are clear on what they're agreeing to do.
3. Indicate the Scope of Work
Include in your sales contract a description of what is being sold, who is buying it and who is selling it.
The scope of work should be as detailed as possible so there are no misunderstandings about what is being purchased.
4. Set the Timeline
This is one of the most important parts of any contract because it determines how much time you have to get everything done.
If you don't set a timeline, then there's no way of knowing when things need to be completed!
5. Establish Pricing & Payment Requirements
There's no point in having a contract if you don't know how much money you will be paid!
Make sure that there's an official section where all of your pricing details are laid out clearly so there's no confusion later on down the line.
6. Create Service Terms
Service terms are a great way to protect yourself from unexpected surprises. If you're providing a service, a terms section can protect your business from unexpected costs.
Here are a few examples of what to include in your service terms:
Description of the service being provided
Terms for canceling the contract (e.g., 14 days notice before the next scheduled appointment)
The amount of down payment required and how it will be applied towards future bills (e.g., one-fourth of total charges)
How much each additional item will cost
How much is due if you cancel or reschedule an appointment and how much notice is required
7. Send the Sales Contract for Review & Signature
Once you've created the perfect sales contract, it's time to send it out to your clients for review and signature.
It's important that they understand what they're signing before they sign, so make sure they do! If you suspect you or they might have concerns, consider offering to schedule time to work through the contract together one-on-one before they sign on the dotted line.
Example of a Simple Sales Contract
For an example of a simple sales contract in action, be sure to check out Proposify's sales contract template library.
If you're looking for an easy way to create a simple sales contract, Proposify is the solution.
Our software creates interactive, easy-to-understand contracts that are more than just a sheet of paper—they’re a valuable tool in sealing the deal.
Get started with Proposify today!