Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
When you’re running a small business or building a startup, contracts are part of daily life.
You might be signing up new customers, engaging freelancers, negotiating with suppliers, taking deposits, offering discounts, or tweaking deliverables mid-project. And in almost every one of those moments, one legal concept quietly sits in the background helping determine whether your agreement is actually enforceable: consideration in contract law.
Consideration sounds technical (and it can be), but the practical idea is simple: a contract generally needs an exchange of value. If one side is promising something, the other side will usually need to give something in return.
Below, we’ll break down what consideration is, what counts as consideration, common traps for business owners, and how to structure your agreements so you can confidently trade, grow, and protect your cash flow.
What Is Consideration In A Contract?
In Australian contract law, consideration generally means “the price” paid for a promise.
In other words, consideration is what each party gives (or promises to give) to the other party as part of the deal. This is why you’ll often hear it explained as an “exchange of value”.
From a small business perspective, it’s helpful to think of consideration as the commercial trade that makes the agreement more than just a casual promise.
A Simple Business Example
- You agree to build a website for a client.
- The client agrees to pay you $7,500.
Your consideration is the website build services. Their consideration is the payment. There’s a clear swap: services for money.
Does Every Contract Need Consideration?
As a general rule, yes - consideration is a key requirement for enforceable contracts.
But it’s also important to know there are exceptions. For example, a deed can be binding even without consideration. Businesses sometimes use deeds for things like settlements, releases, guarantees, or certain variations where you want extra enforceability.
Also remember: consideration is only one piece of the puzzle. A contract typically also needs things like agreement (offer and acceptance), intention to create legal relations, certainty of terms, and capacity. If you want a helpful overview of how these pieces fit together, what makes a contract legally binding is a good starting point.
Why Consideration In Contract Law Matters For Small Businesses
Consideration can feel like a “legal technicality”, but it directly impacts commercial outcomes that matter to you, such as:
- Getting paid: whether you can enforce payment terms if a customer refuses to pay.
- Managing scope creep: whether you can enforce a price increase or timeline extension when the project changes.
- Handling discounts and refunds: whether a revised deal is properly documented and enforceable.
- Protecting relationships: clearly recording “what each side gives” reduces misunderstandings and disputes.
In practice, most business disputes aren’t about obscure legal principles - they’re about expectations. Consideration forces you to be explicit about the exchange, which is often what prevents the dispute in the first place.
Consideration And Cash Flow Risk
Startups and small businesses are especially exposed to cash flow issues. A common scenario looks like this:
- You agree to “do a bit extra” for a client “to keep them happy”.
- The client later insists that extra work was included in the original price.
- You’re left arguing about what the contract actually required.
When changes happen midstream, consideration is one of the key concepts that helps ensure the “new deal” is a real, enforceable deal - not just a vague conversation.
What Counts As Consideration (And What Doesn’t)?
When business owners ask “what is consideration in a contract?”, what they usually mean is: what kinds of things are treated as consideration?
Consideration does not need to be equal in value (a court generally doesn’t re-price your bargain), but it must be something recognised by law as value.
Common Examples Of Consideration In A Contract
- Money: a fee, deposit, subscription payment, milestone payment, or royalty.
- Goods: supplying products, equipment, or stock.
- Services: building software, consulting, design work, marketing services, delivery, or installation.
- A promise to do something: “We will provide ongoing support for 12 months.”
- A promise not to do something: in some contexts, agreeing to refrain from certain conduct can be consideration (for example, agreeing not to approach certain clients as part of a separation arrangement).
Does Consideration Have To Be Monetary?
No. Consideration can be non-monetary - which is common in startups where you might exchange:
- equity for services (for example, a co-founder build),
- revenue share arrangements,
- access to software or data,
- promotional opportunities (for example, influencer collaborations).
The important thing is that the contract clearly states what each party is giving and what triggers that obligation.
What Does NOT Count As Consideration?
Here are a few issues that often trip up growing businesses:
- “Past consideration”: if the other party already did the thing before the promise was made, it may not count as consideration for the new promise. (For example, you did a rush job last month, and now the customer says “we’ll pay you extra for that” without a proper agreement at the time.)
- Vague goodwill: “we’ll keep working together” or “we’ll refer clients” can be too uncertain unless clearly defined.
- Doing what you’re already contractually required to do: if someone is only promising to do what they are already bound to do under an existing contract, that can create issues when you’re trying to enforce a “new” promise (more on this below).
To avoid this, it helps to document clear terms early and update them properly when the arrangement changes.
Common Consideration Problems In Startup And SME Contracts
Most of the time, small businesses don’t run into consideration issues when they first sign an agreement - it tends to come up when the deal changes, or when someone tries to enforce a promise that was never properly documented.
1. “We Agreed To Change The Price” (But Nothing Else Changed)
A classic scenario: you quote $10,000 for a project, then the customer asks for additional features. You say “sure, it’ll be $13,000 now,” and they reply “agreed” over email.
Commercially, that makes sense. Legally, the enforceability can get messy if it’s not clear what the customer is getting in return for paying more - and in some situations, a promise to pay more for the same performance can be difficult to enforce unless it’s documented properly and supported by fresh consideration (or the arrangement is structured another way).
To make it cleaner, document the additional deliverables, revised timeline, or additional support. That makes the new consideration obvious: extra work (or other additional value) for extra money.
Where you’re formally changing a signed contract, businesses often use a variation document (sometimes called an amendment). Depending on the circumstances, a Deed of Variation can be a practical way to record the change, particularly where you want to avoid arguments about whether fresh consideration exists.
2. “We’ll Do This For Free” (Then It Becomes A Problem)
Free trials, goodwill gestures, and free extras can absolutely be part of a smart business strategy. The risk is when the boundaries are unclear.
If you want “free” to mean free, you should still document:
- what exactly is included,
- how long it lasts,
- what happens when it ends, and
- what the paid pricing will be after the free period.
This is often managed through customer terms (for example, subscription terms or service terms) that clearly describe the offer and conversion points.
3. NDAs And “I’ll Tell You If You Sign This”
Startups often use NDAs when speaking with developers, potential investors, suppliers, or collaborators. A common question is whether an NDA has valid consideration.
Depending on how the NDA is set up, consideration can be satisfied in a few ways - for example, by mutual promises to keep information confidential, by the disclosure of confidential information, or by giving the other party the opportunity to evaluate a potential commercial deal. In practice, many NDAs are also executed as deeds, which can avoid disputes about consideration.
In many cases, it makes sense to put an Non-Disclosure Agreement in place before you share sensitive information like a product roadmap, pricing, customer lists, or fundraising deck.
4. “We Have A Contract” (But It’s Actually A Quote Or A Chat Message)
In fast-moving businesses, agreements happen quickly - via email, DMs, online proposals, or messages like “Yep, sounds good.” That can still form a contract, but uncertainty tends to show up around:
- what exactly was agreed,
- whether you intended it to be legally binding yet, and
- the payment terms and deliverables.
Most disputes can be avoided by having a consistent process: proposal/quote, acceptance, then a contract (or terms) that clearly states the exchange.
If you want to sanity-check how agreements form in the first place, offer and acceptance explains the basics in plain English.
How To Make Consideration Clear In Your Contracts (Practical Drafting Tips)
If you’re a business owner, you usually don’t need to write the word “consideration” in your contract.
What you do need is a contract that makes the exchange clear, specific, and measurable.
1. Clearly Describe Deliverables (Not Just “Services”)
Instead of “Marketing services”, spell out what that includes:
- number of ad creatives,
- platforms covered,
- reporting frequency,
- consulting hours,
- excluded items (to reduce scope creep).
The clearer the deliverables, the clearer the consideration.
2. Clearly Describe Payment Terms (Not Just A Total Price)
Strong payment clauses usually cover:
- deposit amount and timing,
- milestones and when invoices are issued,
- late payment terms,
- whether expenses are included, and
- GST treatment (where relevant).
This is also where you reduce the risk of disputes about “we thought it was included”.
3. Be Careful When Varying An Existing Deal
Contracts change in real businesses. The key is to record changes properly and avoid “informal variations” that create ambiguity.
As a rule of thumb, if you’re changing any of these, put it in writing:
- price,
- scope/deliverables,
- timeframes,
- ownership of IP,
- termination rights, or
- liability caps.
Depending on how your original contract is drafted, you might need a formal variation document or an updated contract.
4. Use The Right Document For The Relationship
Different relationships create different risks. For example:
- Customers: terms and conditions or a service agreement reduce non-payment and scope risk.
- Suppliers: supply agreements clarify quality standards, delivery, and remedies.
- Co-founders/investors: agreements should cover control, decision-making, and what happens if someone exits.
If your startup has multiple owners, a Shareholders Agreement can help set out what each person contributes (including non-cash contributions) and how the business is run, which reduces disputes as you grow.
5. Don’t Forget Privacy And Data If Consideration Involves Access
Some businesses “pay” with data rather than money - for example, a free app where users provide personal information, or a platform where access is granted in exchange for account details.
Even if the deal feels “free”, your legal obligations around personal information can still apply. If you collect personal data (for example, names, emails, addresses, device identifiers, or health data), having a Privacy Policy is often a key part of your compliance and customer trust.
Key Takeaways
- Consideration in contract law is the exchange of value that generally helps make a contract enforceable in Australia.
- In business, consideration is usually obvious (services for payment), but it commonly becomes unclear when you change the deal mid-project or rely on informal promises.
- Consideration doesn’t have to be money - it can include services, goods, access, or a promise to do (or not do) something.
- Contract problems often arise around variations, “free” extras, NDAs, and agreements formed via quick messages without clear terms.
- Clear deliverables, clear payment terms, and properly documented variations make consideration easier to prove and contracts easier to enforce.
- If your business is growing, using the right agreements for customers, suppliers, and co-founders helps protect cash flow and reduces avoidable disputes.
If you’d like help drafting or reviewing a contract so the consideration (and the rest of the deal) is properly protected, reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
