As the world becomes increasingly digital, businesses of all sizes are finding it difficult to keep up with the latest software and technology. While renewing term subscription agreements, the primary concern usually revolves around pricing and minimizing any year-over-year price increases, especially in challenging inflationary times like these. However, we’ve recently noticed that there may be additional potential for cost savings, specifically in minimum commitment agreements where subscription fees are usage-based.
Clients, especially those experiencing growth, are often enticed to commit to minimum monthly, quarterly, or annual quotas in order to take advantage of more significant discounts offered by vendors. When these minimum usage thresholds are met, both the vendor and client can benefit from the mutually agreed-upon arrangement.
Occasionally, the Client may find that the minimum usage they committed to is too ambitious, resulting in a sizable “true-up” payment to make up for the difference between their actual usage and the committed amount. This cost can greatly outweigh any advantages gained from the vendor’s discounted promotional price, which was offered in exchange for the Client’s minimum commitment.
Therefore, we suggest that businesses undergoing the process of renewing their subscription agreements should carefully evaluate their current usage versus the minimum requirements. This assessment is crucial to guarantee that they are truly reaping the intended advantages as stipulated in their original commitment to the vendor.
It is highly recommended that you consider “right-sizing” your minimum usage commitment instead of continuing to make “true-up” payments for actual usage that falls short of the committed usage. Even if this means paying a slightly higher base price, vendors have been known to not increase pricing as much as expected after “right-sizing”. This is because they may anticipate the possibility of growth that could result in returning to prior commitment levels.
During periods of economic uncertainty, like the one we are currently facing, it may be wise to reconsider your minimum commitment levels, even if you have been meeting them consistently over the past year or two. You should assess usage scenarios and potentially make adjustments to “right-size” your commitment until you have a clearer understanding of your projected future usage.
In conclusion, finding a minimum commitment that is appropriately sized can benefit both parties involved. Nevertheless, committing to too much can lead to an excess of capacity and result in a situation where the price is appealing, but the deal itself is unsatisfactory.
When it comes to managing software licenses, don’t tackle it solo. Trust in the reliable and esteemed services of SCS, a provider that delivers top-notch software license utilization reviews and customized alignment services that align costs with actual software usage. By choosing SCS, companies can steer clear of incurring any unwanted expenses or financial strains and can minimize potential risks. Additionally, SCS is dedicated to going above and beyond to offer the highest quality of customer service to all of its clients.