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Subscription co-terming is a practice that aligns the expiration dates of multiple subscriptions to the same renewal date. This approach is valuable for all ecosystem participants – vendors, distributors, sellers, managed services providers and end-customers. By co-terming subscriptions, businesses can reduce billing administrative hassle, better predict cash flow, and improve customer satisfaction.
What is Subscription Co-Terming?
Subscription co-terming involves adjusting the renewal dates of different subscriptions, so they renew on the same date. This can be particularly useful for businesses and customers who manage multiple subscriptions. Co-terming can be achieved in several ways:
- Prorated Billing: The service provider calculates the cost of the subscription for the remaining period until the next renewal date and charges the customer accordingly.
- Extended Initial Term: The initial term of a new subscription is extended to match the renewal date of existing subscriptions.
- Immediate Renewal: New subscriptions are set to renew immediately, aligning with the next renewal date of existing subscriptions.
Examples of Subscription Co-Terming
Example 1: Software as a Service (SaaS) Company
Imagine a company that provides multiple SaaS products to a business. The business subscribes to different products at different times of the year, resulting in varied renewal dates. By co-terming these subscriptions, a SaaS company can synchronize the renewal dates, making it easier for the business to manage its budget and predict revenue.
Before Co-Terming:
- Product A: $100/month, renews in January
- Product B: $150/month, renews in March
- Product C: $200/month, renews in June
After Co-Terming (all renew in January):
- Product A: $100/month, prorated for remaining months until January
- Product B: $150/month, prorated for remaining months until January
- Product C: $200/month, prorated for remaining months until January
Example 2: Managed Services Provider (MSP)
A managed services provider offers various security services to its customers. A customer subscribes to firewall management, endpoint protection, and network monitoring at different times. By co-terming these subscriptions, MSP can provide a single invoice with a clear renewal date, reducing administrative burden.
Before Co-Terming:
- Firewall Management: $500/year, renews in February
- Endpoint Protection: $700/year, renews in May
- Network Monitoring: $600/year, renews in August
After Co-Terming (all renew in February):
- Firewall Management: $500/year
- Endpoint Protection: $700/year, prorated for remaining months until February
- Network Monitoring: $600/year, prorated for remaining months until February
Impact on Financial Management
Co-terming reduces the complexity of managing multiple invoices with different due dates. For example, instead of processing 7 separate invoices at different times, businesses can manage a single consolidated invoice.
Handling fewer invoices reduces administrative costs for both sellers/service providers and customers. This results in cost savings, allowing businesses to allocate resources to other critical areas.
Also, this can lead to higher customer satisfaction and retention rates. A customer receiving a single, comprehensive invoice is more likely to appreciate the transparency and convenience.
By aligning renewal dates, businesses can better predict their cash flow. For instance, a business can anticipate a larger expense at a specific time of the year rather than sporadic payments.
Co-terming can lead to more stable and predictable revenue streams. This stability is crucial for financial planning and can improve investor confidence. By knowing when significant revenue will be received, companies can better manage their resources and investments.
Book a meeting to see how co-terming and other great subscription billing features work in the AppXite platform.
