Definition of Out Clause
A component of a contract that allows the advertiser or merchant to cancel their purchases with a specified notice period.
Out Clause in Depth
An out clause is usually relevant in the context of a display advertising contract. This is typically a section of the IO that indicates the ability of the advertiser to cancel the campaign with specified notice period. For example, a 7-day out clause would indicate that the advertiser can stop a campaign by giving 7 days notice to the publisher.
This applies to the entire length of the contract; an advertiser may give this notice before a campaign even starts delivering, halfway through, or eight days before the campaign is scheduled to end (which would effectively cancel only the last day of the campaign).
Under the IAB standard terms and conditions, advertisers can cancel an order with two week’s notice. The following is taken from the “Cancellation and Termination” section of the terms:
Unless designated on the IO as non-cancelable, Advertiser may cancel the entire IO, or any portion thereof, as follows: i. With 14 days’ prior written notice to Media Company, without penalty, for any guaranteed Deliverable, including, but not limited to, CPM Deliverables. For clarity and by way of example, if Advertiser cancels the guaranteed portions of the IO eight (8) days prior to serving of the first impression, Advertiser will only be responsible for the first six (6) days of those Deliverables.
In other words, if an insertion order doesn’t specify any out clause, the default for all advertising relationships is a 14-day out clause.
The ability of advertisers to exercise their out clause and effectively cancel a committed spend with only a week’s notice is obviously not ideal for publishers. There is, however, little room to get around this option; as mentioned above, it is a component of the standard terms and conditions used in the industry.
The best advice for publishers looking to prevent an advertiser from exercising an out clause is to deliver value. If a campaign is successfully generating clicks and leads, the advertiser is unlikely to pull the plug.
The good news is that out clauses are rarely exercised. Once a proposal is accepted and an IO signed, most advertisers will see through full delivery.
If a campaign or certain line items that make up a campaign are underperforming, it is more likely that the advertiser will seek to “optimize” by shifting impressions to higher performing line items or seeking additional bonus media.