Multi-Year Deals

Discounts for Multi-Year Deals

Typical discounts for extending beyond a single year:

• 2 year deal: 5% (to 10%) per year
• 3 year deal: 10% (to 20%) per year

How to Increase % of Multi-Year Deals

1. Retire AE quota on average annual contract value.  Pay a SPIF on each additional year. For instance, if year 1 commission is 10%, then SPIF would be between 2.5% and 5% for each of Y2 and Y3.  You can either pay the SPIF on the average annual contract value for each of Y2 & Y3 or on the individual Y2 and Y3 amounts. If you do the latter, then expect reps to want to discount Y1 which may/may not be what you want.
   
2. Have a well-enforced pricing/discount schedule for 1, 2, or 3 year deals
   
3. Require deal desk (or equivalent; not 1st line manager) approval for 1 yr deals
   
4. Provide access to premium features and/or premium support for 2+ year deals
   
5. Provide accelerated quota retirement for 2 yr (ex: 1.1x) or 3 yr (ex: 1.2x) deals.
   
6. If 2+ year deals are the norm, then apply a quota credit reduction (ex: 0.8x) for 1 yr deals.

With any such changes, make sure to model out what your cost of sales would have been previously had the plan been in effect.

Annual Price Increases

Options for contractual annual price increases:

• CPI plus 3% to 5%.
• 5% to 7% or CPI, whichever is greater
• “Our prices can be raised to our current list price”

Usage-Based Pricing (UBP) / Consumption Pricing

Most suitable when:

1. Mission-critical, need-to-have products (tends to be more true for infrastructure “utilities” vs. applications)
2. Solutions where the vendor incurs high variable costs to deliver (i.e. high COGS)
3. Solutions with hard, quantifiable ROI
4. Products with highly variable usage/user patterns

Pricing & Packaging Consultants

(*) = recommended

• (*) Cruxy (boutique firm; based in London)
• (*) Monevate
• (*) Simon Kucher