How to Prepare a Sales Contract in 7 Steps (+ Free Template)
Jess served on the founding team of a successful B2B startup and has used a wide range of sales and marketing tools over the course of her 15-year career. She uses her industry knowledge to deliver the best answers to your questions about sales tools and sales management.
This article is part of a larger series on Sales Management.
A sales contract is a formal document detailing the pricing, scope of work, deliverables, timelines, and service terms for a customer to agree to and sign. Preparing one requires you to establish an offering for the customer, set pricing, and indicate the terms associated with the work. In this article, you’ll learn how to write up a sales contract in seven steps, explore the benefits and challenges of using a sales contract, and review various types of contracts.
Free Sales Contract Template
In addition to addressing how to write up a sales contract, we’ve created a free sales contract template you can use throughout our step-by-step process. We recommend adding organization-specific information, such as your company name, the scope of work, and terms, then storing it in customer relationship management (CRM) software for all reps to access in one place.
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💡 Quick Tip:
Use customer relationship management (CRM) software to store your sales contracts and share them with team members. Pipedrive makes it easy to create and share documents in one central platform.
Most CRMs have some degree of document management capabilities. For instance, Pipedrive has a Smart Docs feature where users can create and share documents, spreadsheets, and slide deck presentations directly from the CRM. You can also add templates, making it easy to insert information in a sales contract and customize a template directly from the sales deal module.
Pipedrive Smart Docs (Source: The Marks Group)
Types of Sales Contracts
Depending on the scope of work and how a business prices its products and services, you could be engaged in a few types of sales agreements. The most common types of sales contracts include:
- Fixed Price: Customer agrees to pay a set lump sum for the product or service regardless of resources used or time spent by the business provider.
- Cost-reimbursement: Customer agrees to pay allowable expenses indicated in the terms of service in addition to the price stated in the work order form.
- Cost-plus: Customer agrees to pay all allowable expenses to the business provider plus an additional fee for completing the work.
- Time and Materials: Customer agrees to pay a fixed time fee, such as an hourly rate, as well as the cost of materials used in the work.
- Unit Price: Customer agrees to pay a set fee per every unit provided, such as a product, software, or tangible service.
Preparing a Sales Contract in Seven Steps
Once you have a prospect who want to make a purchase from your business, you are ready to draft and send a written agreement. Here’s how to prepare a sales contact in seven easy steps:
1. Determine Customer Needs
Before you can prepare a sales contract for a new customer, you need to know which of your products or services you will be providing. This starts with evaluating their individual needs and providing a few options for them. Do this during a client meeting where you take a consultative selling approach and find out what they want to solve and their budget range, as well as if they have any product or service preferences.
These aspects of a buying decision are relevant no matter what industry you are in. If it’s real estate, a new homebuyer will have certain parameters on their house, such as price and their reason for moving. Those buying software products might be trying to solve a specific problem in their business such as improved productivity. They could also have a clear budget range, and require a certain level of usability in the product.
Alternatively, someone looking to buy equipment, such as an industrial printer or dishwasher, will need their product within a particular budget and be installable in their unique building or home infrastructure. Regardless, once you understand their needs and wants, you can propose a few options during the conversation or after once you find a set of solutions for them.
2. Agree on a Solution
After going over some options, focus on the solution(s) they seem most interested in. You might even send a business proposal for that specific solution or send multiple proposals for each potential option you’re recommending. Each proposal will clearly go over details on your brand, previous experience, pricing, delivery, and projected timeline.
Once you’ve agreed on the product, service, or variation of the two, confirm that they understand the pricing and deliverables before generating the sales agreement document. As you start drafting the agreement, start with adding the customer or client’s identifiable information, such as their name, address, and billing details, and the contract start date (otherwise known as the “Effective Date”).
3. Indicate the Scope of Work
The scope of work and subsequent deliverables and timeline sections are important because they set the expectations for what work will be done and when. This ensures that there’s no confusion or miscommunication between each party throughout the duration of the contract. For the scope of work section, this is simply the name of the product, service, or combination they are purchasing along with a brief description.
For example, you might make “Human resources consulting” as the main service. You then could describe it as “Management of client’s human resources functions, which include (but are not limited to) drafting employee agreements, handling conflict resolutions, and documenting formal employee complaints.” Try to be as specific as possible in this section and include any activities that will be involved.
The deliverables and frequency section is more objective and lays out specific tangibles that will be completed throughout the duration of the contract and how they will be delivered. This could be units of a product physically delivered, such as “100 x reams of paper to be delivered to the above address” or tasks involved in your service, such as “3 x articles delivered via Google doc” or “3 x Security Awareness Training to be conducted via Zoom.”
For some professional service businesses, they won’t know the exact deliverables or frequencies because they work on retainer or “as needed.” For these circumstances, indicate in the section that “Deliverable frequency is on an ‘as-needed’ basis as requested by the client above,” and then describe how that deliverable will be completed or delivered.
4. Set the Timeline
Your timeline, or term of the contract, is from the “Effective date” indicated in the top section. For the most part, it is an estimate of when you think the deliverables will be completed, delivered, or satisfied. However, if you have hard deadlines, such as an annual subscription with a set date of expiration, indicate it as something like “One-year (365 days) from the date this order form is signed by the above client (the Effective date)” or “1/2/2022 to 1/2/2023.”
For retainer-based businesses, you can make the term of the contract indefinite by stating something like “Upon termination of the agreement for any reason (by the client or service provider listed above) from the date the above client signs this order form (the “Effective date”). This section is also an excellent place to note milestones. For instance, you might have four deliverables where you indicate when each is expected to be completed.
5. Establish Pricing & Payment Requirements
Your pricing should have been agreed upon prior to drafting the sales contract. This section will look different depending on the pricing model you use. For example, you might have an actual price because you know the exact deliverables and frequency, such as a set price per unit of a product or software.
Your services might be billed hourly, in which case you will indicate the hourly rate, specify how it’s rounded, and how you’ll track your hours by using a log, signing it, and sending it with each invoice. For “as-needed” service contracts, such as professional content writing, break down the price and pricing method of each type of writing project.
Lastly, this section details the terms of invoicing and payment. Indicate how invoices or bills will be sent, what payment methods are accepted, and the requirements of making the payment, such as “Payment is due no later than thirty (30) days after each invoice is sent.” Some businesses require all payment upfront, which is fine as long as it’s established in this section of the sales contract.
6. Create Service Terms
The service terms (sometimes referred to as “Terms of Agreement”) outline some of the legal items involved in a contract that the client agrees to. This section, in particular, should be created by an attorney due to the length and complexities involved. We recommend making a separate, generic type of service document that you send attached with the work order each time. Some items and sub-items you may see in this section include:
- Definitions: This goes into specific descriptions of the terms or concepts listed on the work order form, such as “Deliverables” or “Services.”
- Fees and taxes: Confirms that the client agrees to pay fees or taxes in relation to what’s indicated on the order form. It might also describe how certain expenses need to be reimbursed by the customer, if applicable.
- Access to client information and systems: Describes how the customer needs to provide the business with any information, materials, personnel, and computer system access necessary to complete the scope of work.
- Subcontracting: Indicates and details whether or not the business has the right to subcontract certain work.
- Warranties: Provides confirmation in the sales contract that the product or service will be delivered without defects.
- Contract termination: Details the process and reasons for termination of a contract, both for cause and convenience.
- Confidentiality agreement: Creates the understanding that the business will not divulge certain information regarding the customer or client—essentially a built-in non-disclosure agreement (NDA).
This section also details how liability or legal issues will be resolved. The combination of the work order form, which shows the scope of work, deliverables, timeline, and pricing, and the terms of service will be the full sales contract.
7. Send the Sales Contract for Review & Signature
The last step is to send the contract to the customer for review and signature. Note that in some industries, it’s common in the sales process to have a negotiation period where each party goes back and forth to find an agreement on pricing, deliverables, and specific service terms. Be prepared to handle those kinds of concerns promptly and keep the process smooth by addressing your strategy in your sales plan.
We recommend using an e-signature and contract management tool such as DocuSign to send out sales contracts and obtain signatures. DocuSign lets you upload signable documents such as sales contracts and add actionable sections where businesses, employees, or customers can add their information and sign the document. You’re also able to send contracts directly from the system and monitor pending signatures.
DocuSign adding contract fields (Source: DocuSign)
Benefits & Challenges of Sales Contracts
There are clear benefits and challenges business owners, and those in sales management positions, need to be aware of in creating and adhering to a sales contract. Some of these implications include:
Benefits
Challenges
There are solutions to optimally address each of these listed challenges. The high costs of a sales contract due to legal fees, for instance, can be mitigated by using a low-cost, online legal service such as LegalZoom or LegalShield. Ensuring that customers understand important contract details can easily be done by going over key parts of the agreement on a call before the contract begins or is signed.
Lastly, collaboration between sales and legal teams can be achieved by implementing the right processes and systems within your business. For example, having premade contract templates created by the company’s attorney and stored in a CRM for a rep to fill in with the basic identifiable information streamlines the process—assuming there’s minimal contract customization and negotiations.
Bottom Line
A sales contract formally sets the expectations for the pricing and how a solution will be delivered to a customer. By using a simple sales agreement template, you streamline the contract generation process by simply plugging in customer-specific information and sending it to them for review. Different types of sales contracts require complex legal language, so we recommend hiring an attorney to help draft one for your organization.
