Buying out contracts: How to Displace an Existing Vendor

How to Win Customers Stuck in Long-Term Agreements

DEAR STAGE 2: I lost 2 deals this month to timing. I’ve spent months working with these companies to understand their goals and make sure our solution is the right fit, but they are in long term contracts with their existing provider. Have you seen anyone successfully build a strategy to cancel these contracts or buy them out? I can track them and come back around as they approach renewal, but it feels like there is an opportunity to do something sooner if I can solve this. ~CREATIVE CONTRACTS

DEAR CREATIVE CONTRACTS: Every salesperson eventually runs into the “we’d love to, but we’re stuck in a contract” roadblock. And for many deals that is the end of the road, but if you have done the work to uncover pain and positioned a wedge, then you might just be able to structure a buyout that makes switching a no-brainer (if the math works).

I tapped into Joe Fairleigh’s expertise for this one. Joe has helped companies successfully displace incumbents even when long-term contracts seemed airtight. Here’s his playbook:

Step 1: Is there (enough) pain? And who cares?

Before you even think about buyouts or contract maneuvers, you need to answer these questions:

1. Who signed the contract? If it was a key decision-maker, canceling early could make them look bad. You need to frame this as a logical next step rather than a mistake correction - help them ‘save face’.

2. What pain was the contract supposed to solve? Don’t ask, “Why did you choose them?” Instead, ask, “What was the pain you were solving when you made this decision?”. The goal is to isolate whether that pain still exists.

3. Is that pain resolved?

   1. If the answer is no, insert empathy, urgency, and anchor the pain → “That must be frustrating. How much bigger is this problem now?”

   2. If the answer is yes → “Got it, but there’s a reason we’re talking—what’s the pain now?”

   3. Follow up quickly in both scenarios with questions about the key-decision maker. If the person who controls the budget doesn’t care about the current pain, you have zero chance of ousting the incumbent. Move on.

Step 2: Should you take a slice or go for full replacement?

If you still have an opportunity, you now have two options: get a toe hold in the account with a partial solution or go straight for a full contract displacement.

Option 1: One Bite at a Time

Instead of pushing for a full replacement of your competitor, find pain you can resolve today that’s easy to say yes to and doesn’t infringe on the existing contrat:

• Where is the incumbent failing? Find a gap they aren’t addressing.

• Can you sell a standalone service that fits within discretionary spend? If it can be expensed on a credit card or approved by a department head, it’s an easy first step.

• Make implementation easy and valuable. Invest upfront to prove value without attacking the existing vendor.

Joe’s reminder? “You are long playing this.Don’t bad mouth incumbent. They don’t exist. This is about the pain you are solving for your prospect.” This Trojan Horse approach gets you in the door, creates internal champions, and builds a case for full displacement when the timing is right.

Option 2: The Whole Pie

If the pain is severe enough and decision-makers are open to switching, it’s time to build the financial case.

• Quantify the cost of doing nothing. How much is the current solution costing them in lost efficiency, revenue, or risk?

• Protect the decision-makers. Frame the switch as conditions changing, not a bad choice. Example: “The team made the best decision with the information they had. Since then, X, Y, and Z have changed, and it’s clear this is the right next step.”

• Explore downgrade and cancelation options. Some contracts allow for a reduced plan—can they step down to a cheaper tier while bringing you in? What are the actual costs they would incur to downgrade or cancel?

Step 3: Do the Math!

This is where it gets really interesting. If an early exit is possible, the key is to structure a buyout that minimizes upfront cash while making the switch a clear financial win for your prospect. Joe advises structuring the deal with your LTV:CAC ratio in mind and shares specific examples for you to see how this could work in practice:

Option 1: Downgrade & Replace - many contracts allow for tier downgrades rather than outright cancellations. If your prospect can move to a lower-cost plan, they can reduce their spend with the incumbent while bringing you in.

📌 Example:

• Currently paying $10K/month for an enterprise plan.

• Downgrade to $4K/month while layering in your solution.

• This offsets the cost and reduces perceived risk for the buyer.

Option 2: Buyout with Credit, Not Cash - if the customer must pay out a portion of their contract, don’t offer a lump-sum payout—instead, structure a credit-based deal.

📌 Example 1: Early Cancellation Possible

• Incumbent requires 90 days' notice to cancel.

• Customer downgrades incumbent to $4K/month for 3 months (from $10K/month).

• You offer a $4K/month credit for the first 3 months of a 15-month term with you.

• Net result: No increased monthly spend, while you secure a long-term commitment.

📌 Example 2: Locked into Full-Term Contract

• Customer has 7 months left at $10K/month with the incumbent.

• Your solution is $12K/month.

• Offer a 19-month agreement structured as:
  First 7 months:

  • Customer continues paying $10K to incumbent

  • Customer invoiced$12K/month to you.

  • You provide a $10K/month credit → they pay $2K/month net.

• Final 12 months:

  • Customer pays full $12K/month to you.

This spreads out the transition costs while ensuring they fully switch to your solution.

Option 3: Phased Rollout to Reduce Friction - a planned, step-by-step integration can smooth the transition and mitigate risk for your buyer.

📌 Example: 19-Month Phased Approach

• Months 1-2: You immediately activate a high-value function the incumbent doesn’t offer, saving them $1K/month. They continue paying $12K/month but receive an $11K/month credit, so their net new spend is only $1K/month.

• Months 3-5: Customer downgrades their incumbent plan, saving $4K/month. At the same time, they increase usage of your product by $4K/month. They still never exceed $12K total spend/month between both vendors.

• Month 6+: Fully transitioned to your solution at $12K/month.

This method reduces perceived risk, limits upfront cost concerns, and ensures they are seeing value before fully committing.

At the end of the day, some contracts are simply locked down too tightly, and burning cycles on a buyout strategy isn’t worth it. But when there’s a real opportunity to break in early, use this playbook to give your deal a fighting chance.

Until next week!