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Co-terming refers to combining existing and new services all to the service dates of the original contract. Co-terming is commonly used when adding additional seats, new support packages, or additional services to an existing Annual Agreement.
All new terms are subject to a treatment based on specific periods, dictated by the originating contract. For example, the end date of a co-termed agreement is equal to the end date of the original agreement. The start date of the co-termed agreement will be the date for new services agreed upon by the customer.
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Your initial service or renewal agreements must call out language for co-terming. If you're interested in learning more, feel free to reach out to support@revops.io for language recommendations.
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Generates additional cash flow before next renewal. Supplemental charges are pro-rated to the end of the Original Term from the expansion go-live date, thus enabling larger expansions mid-term. These are great for companies who's value takes months versus days to realize or have lengthy onboarding cycles, usually seen in mandate-ware.
In addition, your Renewals will capture full ARR value with less pricing sensitivity.
As always, provisioning of customer services for coterminous expansions must be completed for revenue recognition to start.
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Let's take for example a new agreement that starts on 12/31/2022 at an initial annual subscription of $35,000. The customer decides to expand their spend on 06/16/2022 for an additional $15,000 per year. The total amount due for the adjustment to the original terms is now $8,219.18 because the order was pro-rated for 200 days of the $15,000 ($15,000/365 days) * 200 days. At renewal, the total ARR, sparing any CPS or additional service items, will be $50,000 per year.
The table below outlines each stage of terms from initial agreement terms to renewal.
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Pro-ration depends on an organization's definition. Some organizations decide to pro-rate per day, per month, or even per quarter. Below we have an example of daily pro-ration for the above exercise.
Building a strong foundation for what happens between annual agreements all depends on the way your revenue operation is built. Adding a process for co-terming is highly recommended to those in the B2B SaaS industry. If you would like to hear more or talk more in-depth about your process today, you're welcome to chat with our team for advice at any time.
