      Report · 2019-03-06
      · 2647d
    

Multi-Year Contracts vs. Annual Payments: Why You Shouldn't Count Contractual Payments as Renewals

Enterprise SaaS companies increasingly use multi-year contracts with annual payment terms, creating ambiguity in retention metrics. The article argues that contractual payments should not be counted as voluntary renewals when calculating gross dollar retention, as they represent different types of customer commitment.

6 metrics· Cited 0× in the knowledge base ·Open source ↗

Metrics in this report

Baseline Gross Retention Rate

85%

reference point

For economic modeling of multi-year contract discounts

Gross Dollar Retention - Mixed Contract Terms (Including Payments)

95%

example case

Six customers (three one-year, three three-year) counting payment obligations

Gross Dollar Retention - One-Year Contracts (ATR-based)

83%

example case

Six customers with three one-year contracts renewed

Standard Annual Price Increase

5-10%

range

Built into standard SaaS contracts for price lock negotiations

Three-Year vs One-Year Retention Comparison

0.75 vs 0.73compounded rate

mathematical equivalence

75% three-year retention equals 0.9^3 (90% one-year compounded)

Typical Multi-Year Contract Payment Default Rate

less than 10%

outlier threshold

For companies where most customers honor contractual obligations