Beware of Minimum Commitments for Outsourcing Contracts

The lower the threshold, the less likely consumption is to fall below that threshold.

If, for example, the customer must pay the full cost of a shortfall over the term of the agreement, minimum commitments can prove very costly. That would amount to "paying full price for services not being received," says Tanowitz. Alternately, vendors could ask for a percentage of the shortfall or take back pricing discounts on volumes that were not met.