Co-Term

What is Co-Term?

“Co-terming” is the process of aligning multiple contract or subscription end dates so they finish at the same time. It’s common with software subscriptions, service agreements, and other scenarios where multiple contracts are in play, either for different services from the same provider or for the same service across different departments or organizational units.

The primary goal of co-terming is to simplify contract management and renewal processes for multi-contract business engagements. Having a single renewal date makes it easier for the organization to negotiate terms, potentially secure volume discounts, streamline administrative tasks, and maintain better control over budgeting and expense forecasting.

Let’s say a company has multiple licenses for a software product, but they purchased them at different times. They also added extra seats and new support packages. Co-terming would adjust the renewal dates of all their new licenses and support package contracts to coincide with the annual agreement they already have.

This would involve shortening or extending some of the license terms to get them aligned or prorating the new support package agreement. This can be particularly beneficial when dealing with enterprise agreements or when managing subscriptions across various departments or locations within a large organization.

Synonyms

• Co-termination
• Coterminous quote
• Co-term subscription
• Co-term renewal
• Co-term software license

Importance of Co-Terming in Subscription Businesses

Managing several billing cycles for each customer is incredibly frustrating for them and creates an administrative mess for you. It can also create a difficult budgeting and forecasting process, as you’ll have multiple renewal dates spread throughout the year.

Co-terming solves these problems by consolidating all contracts into a single subscription expiration date. There are several benefits to this for both parties:

• Simplified contract management
• Streamlined sales and subscription renewal processes
• Improved customer experience
• Better revenue predictability
• Lower risk of customer churn
• Volume discounting and pricing flexibility
• Fewer regulatory and compliance issues

It’s also worth mentioning businesses can use co-terminating contracts to spot opportunities for upsells and cross-sells. At the time of renewal, businesses have the opportunity to review the customer’s current usage and needs. That’s the perfect time to introduce customers to additional features, products, or services that could benefit them (and boost their lifetime value).

Co-Term Use Cases

Software Licenses

When co-terming software licenses, you’re essentially getting your whole team on the same update schedule. It also makes it easier to track license usage and determine when it’s time to upgrade or downgrade.

You start by assessing all your current software licenses, noting their expiration dates, the terms and conditions, the scope (such as the number of users or volume), and any specific usage rights or restrictions.

From there, you’ll choose a co-termination date. This could be the date when your largest or most critical license is up for renewal, or it could be an arbitrary date that aligns with your budgeting or operational cycle.

For licenses not originally set to expire on your chosen co-term date, you’ll need to adjust their terms. This could involve extending or shortening the term of each license to align with the new co-term date. Doing this normally involves prorated fees (to account for the extension or reduction of the license term).

Subscriptions

B2C subscriptions like streaming services, media memberships, and subscription boxes are usually pretty straightforward. All that’s required is managing individual subscriptions and adjusting volumes and pricing if they need to.

Software subscription contracts are a lot more complicated when it comes to subscription management. They use tiered pricing, plus usage-based, user-based, and product/feature-based variables. And most offer freemium or trial periods.

As such, there are a few additional considerations when implementing co-termed subscriptions in B2B SaaS:

• Pricing adjustments — Prorating subscription fees to accommodate shorter or longer billing cycles during the co-term alignment process.
• User changes — Adding or removing users and adjusting the active subscription costs while aiming for the co-term date.
• Feature access — Ensuring that changes in subscription tiers or features don’t disrupt user access or business operations during the co-term alignment.
• Contract negotiations — Working with vendors to agree on co-term adjustments generally involves negotiating new terms, discounts, and other incentives.

For instance, a tech company with global offices might use a range of SaaS tools from the same vendor across different finance, HR, and sales departments. Co-terming these subscription plans would (ideally) centralize the procurement process and unlock enterprise-level discounts or benefits.

Equipment Leases

For businesses that lease a significant amount of equipment (such as IT hardware, vehicles, machinery, or office equipment), co-terming can be a huge time and money saver. In addition to the standard co-term benefits (like better contract management), consolidating lease expiry dates can also help organizations:

• Avoid overlap. Co-terming prevents you from leasing more equipment than you need. By co-terming your lease agreements, you can easily spot leases that expire soon and decide whether to renew or return the equipment.
• Manage their budget. It eliminates the challenge of tracking multiple future payments with various payment amounts, dates, and terms. Instead, businesses can forecast their lease expenses based on a single renewal date.
• Negotiate better contracts. Co-terming multiple lease agreements gives you negotiating power when discussing terms and pricing with lessors.

When you lease equipment from vendors, consider its lifecycle and possible depreciation. Also keep in mind that market conditions and technological advancements can affect the availability, pricing, and desirability of leased equipment.

Service Contracts

Service contracts (like those in digital marketing, consulting, engineering, construction, and contract manufacturing industries) are tricky because they normally have multiple milestones and service levels. This complicates billing and revenue recognition and adds additional variables when co-terming.

To start, you need to review all your existing contracts and service-level agreements. Look into payment schedules, contract milestones, and early termination clauses. Also ensure your potential adjustments to contract terms do not disrupt the continuity or quality of the services you’re receiving.

From there, choose an optimal co-term date that aligns with your business cycles. Normally, this would be the start of a fiscal year or at the start of a billing period for your other contracts and subscriptions.

Engage with your service providers to discuss the possibility of aligning your contracts to the chosen co-term date. Then, it’s as simple as formalizing agreed-upon adjustments by amending the contracts.

The Advantage of CPQ in Co-Terming

CPQ (configure, price, quote) software plays a pivotal role in co-terming agreements, especially when dealing with complex sales processes and pricing models like those involved in consumption-based and license-based subscriptions.

Primarily, CPQ enables you to align multiple contracts’ end dates without losing control over pricing accuracy and profitability. This offers buyers and sellers significant advantages.

• For sellers, CPQ software facilitates the consolidation of all billing aspects — be it subscription licenses, products, solutions, or services — into a single co-term invoice. Having one billing period per customer simplifies revenue recognition and facilitates healthier cash flow.
• From the buyer’s perspective, it simplifies billing and procurement cycles, making budgeting easier and reducing the risk of service interruption due to expired licenses. It also enables them to upgrade subscription tiers or purchase additional products without worrying about overpaying or messing up delivery schedules.

A CPQ solution can automatically merge an account’s billing components into a co-term invoice and integrate them seamlessly with existing CRM, ERP, and billing systems as well. This reduces the likelihood of license expirations and pricing inaccuracies. Plus, it enhances both parties’ overall billing and payment process by consolidating everything​​.

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Andrew Parker

Andrew is a professional copywriter with expertise in creating content focused on business-to-business (B2B) software. He conducts research and produces articles that provide valuable insights and information to his readers.