Why would an online store commit to a long-term contract?

Every day, online stores invest in attracting and retaining customers. They continuously invest in marketing, search engine visibility, new products, customer service, and the customer experience. Even an existing customer won’t come back on their own. Every order must be earned anew.

That’s why I find it striking that long-term contracts are still commonly used in the fulfillment industry. What advantage does an online store actually gain from such a long-term commitment?

Predictability is not the same as setting something in stone

I understand the need for certainty. A fulfillment company also needs predictability. Staff must be scheduled, warehouse capacity must be reserved, and operational processes must be set up. A customer who cancels today and leaves tomorrow is not desirable for any fulfillment organization.

I therefore think a reasonable notice period is a given. But predictability is not the same as committing to an online store for several years.

For a fulfillment company, a multi-year agreement offers clear advantages. Revenue becomes more predictable, customer retention is better safeguarded by contract, and that predictability can be a factor in a company’s value. These are understandable business advantages.

But these are primarily benefits for the fulfillment company. What does the online store get in return? I think that’s a question that should be asked more often.

When a Long-Term Contract Is Justifiable

A long-term contract can be entirely justifiable when a fulfillment partner makes a substantial upfront investment specifically for a single online store. Examples include custom solutions, specialized equipment, or warehouse layout designed exclusively for that customer. In such cases, the fulfillment partner assumes financial risk, and it is understandable that this is offset by contractual certainty.

However, many investments in fulfillment are not customer-specific. Take automation, for example. An online store can benefit from it through a lower error rate, higher capacity, and faster processing. But above all, automation helps the fulfillment company itself operate more efficiently, be less dependent on staff, and process more orders.

There's nothing wrong with that. But to me, an investment in the overall efficiency of a fulfillment company isn't automatically a reason to commit to an online store for years on end.

You don't just switch providers on a whim anyway

Switching fulfillment partners is a major decision for any online store. Inventory must be transferred, systems must be reconnected, processes must be tested, and in the meantime, orders must continue as usual.

So there’s already a significant natural barrier to switching fulfillment partners. That’s why I wonder how much additional security a fulfillment company really needs in the form of a multi-year contract.

Why not have a notice period instead of a term?

Perhaps, as the fulfillment industry, we should therefore reframe the discussion. Instead of talking about multi-year contracts, we should focus on a reasonable notice period. As far as I’m concerned, a notice period of up to six months is sufficient in many situations.

This gives a fulfillment company time to carefully scale back its warehouse capacity, staffing, inventory, and operational processes. At the same time, the online store retains the freedom to make a different choice if the service no longer meets its business needs.

At Cenfil, we’ve made a conscious decision in this regard. We standardly apply a six-month notice period, with no minimum term: the partnership is open-ended, and either party can terminate it at any time. We use those six months to carefully count, pack, and prepare the inventory for shipment, and to smoothly wind down warehouse capacity and staff scheduling. In practice, this works better for both sides than a rushed exit. I can easily imagine that another fulfillment company might use a shorter notice period. As far as I’m concerned, there’s nothing wrong with that.

You provide certainty by establishing a reasonable notice period, rather than tying an entrepreneur to a contract for years on end.

You have to earn customer loyalty

Ultimately, I believe that a partnership isn't made strong by the length of a contract. A partnership is made strong when both parties are satisfied with what they mean to each other.

For us, customer retention therefore doesn't mean that a customer is contractually unable to leave. It means that we have to make sure they don't want to leave.

Perhaps it's time for us in the fulfillment industry to talk less about how long we can retain a customer and more about how long we can keep a customer satisfied.

After all, the same principle applies to us as it does to our customers: an online store has to earn every order all over again. A fulfillment partner should earn its customers’ trust anew every month.