A multi-year contract is a contractual agreement between a buyer and a seller that outlines the terms of a product or service for a period of more than one year. Multi-year contracts are often used in the sales of software, hardware, and other technology products.
There are several benefits to using multi-year contracts in sales.
First, they can provide a steady stream of revenue for the seller. This can be helpful for businesses that are looking to grow or expand their operations. Second, multi-year contracts can help to reduce the risk of churn. Churn is when a customer cancels their subscription or service with a company. By locking in customers for a longer period of time, businesses can reduce the risk of losing revenue due to churn. It also helps to lock out the competition for an extended period of time.
In addition to these benefits, multi-year contracts can also provide a number of other advantages for both sellers and buyers.
For sellers, multi-year contracts can help to:
- Increase sales: By offering discounts or other incentives, sellers can encourage customers to sign multi-year contracts, which can lead to an increase in sales and revenue.
- Hit quota faster: Larger deal sizes can help reps hit their quota attainment faster
- Boost expansion: Since companies are committed to longer terms with the vendor, they will be more likely to add users throughout the length of their contract.
For buyers, multi-year contracts can help to:
- Get discounts: Usually, companies will offer discounts for signing up for multi-year contracts.
- Get peace of mind: Multi-year contracts can provide peace of mind for buyers. This is because they know that they will have access to the product or service for a set period of time. This can be helpful for businesses that need to use a particular product or service on a regular basis.
Overall, multi-year contracts can be a valuable tool for both sellers and buyers. By understanding the benefits of multi-year contracts, businesses can use them to grow their sales, improve customer retention, and reduce costs.
How to use your sales compensation plans to drive mutli-year deals:
- Encourage account managers to upsell multi-year renewals by paying higher commission rates on those that do
- Offer SPIFs to your sales reps when they sell multi-year deals
- Pay higher commission rates or bonuses on multi-year new business