How Do We Handle Customer Co-Terming Requests?

Honoring customer sourcing preferences sometimes runs counter to protecting partner relationships.

At Channelnomics, we field questions about best practices, partner strategies, and channel programs every day. In the “Ask Channelnomics” series, we answer the questions we receive most often from vendors.

Question: We are a SaaS vendor working with partners whose customers want to expand their licenses under contracts with different start and end dates and then co-terminate those agreements. In some cases, a second partner is selling licenses for the same product to an account already owned by another partner and the customer is requesting that all licenses be co-terminated. What best practices are vendors using to manage co-termination requests while minimizing partner conflict?

Answer: The co-termination of out-of-sync contracts isa common challenge for SaaS vendors, especially when two or more partners are selling into the same account. Co-terming allows customers to combine multiple service or software subscriptions with different start dates, purchased from different solution providers, into a single contract with one renewal date. While it offers a number of benefits — simplifying contract management, budgeting, and billing for both resellers and customers — it also introduces conflicts, including those with channel partners.

Here's an example:

Partner A signs a three-year contract with a customer for $150,000($50,000 per year) of a product. One year into the deal, Partner B sells$100,000 of the same product to the same customer, which wants to co-term both purchases.

The product vendor has several options.

• Defer to Partner A, the partner of record, notifying it of the third-party purchase.

• Give Partner B the co-termed deal, including both Product A and Product B, effectively cutting out Partner A.

• Give Partner B a portion of the deal to satisfy the sourcing request.

• Allow the customer to decide which partner to work with.

• Allow Partner B to complete the sales transaction but decline the co-terming request.

Whatever way the vendor handles this, there’s going to be a trade-off. When co-terming forces a choice between honoring the incumbent partner and granting advantage to a challenger, any benefit to one is perceived as a loss for the other.

Deferring to the partner of record protects renewal predictability, preserves discount integrity, and mitigates channel conflict. Allowing the challenger to assume ownership of the co-termed contract may satisfy customer sourcing preferences, but it introduces disproportionate downside risk by undermining incumbency protections and eroding partner trust. In zero-sum terms, protecting the incumbent produces the least destabilizing outcome — yielding the lowest aggregate risk and avoiding negative outcomes.

Co-termination disputes aren’t a question of fairness but of risk management. Vendors are choosing between lower-risk governance and higher-risk accommodation. A game theory-based risk-reward analysis illustrates how each option redistributes risk, control, and incentives for the vendor, partner of record, challenger, and end customer.

Given this analysis, it’s incumbent on a vendor to defer to the partner of record unless there’s a compelling reason not to do so.

Ultimately, customers are free to source software and services through the partners of their choice, and vendors reserve the right to set the terms and conditions for how partners are treated. While a vendor can’t prevent a non-incumbent partner from selling to a customer, it isn’t obligated to price that sale competitively. Incumbency protection gives a partner of record preferred pricing, and a vendor can allow that partner to submit a more competitive bid.

Another thing to bear in mind: A customer request for co-terming creates an opportunity for quality control. Is the customer sourcing from a different reseller to diversify risk? Or does the change signal dissatisfaction with the incumbent, which could lead the new partner to take over the account when all the licenses co-terminate? Vendors should consider coming up with rules that give them the authority to adjudicate quality issues —from service delivery to customer experience — and partner reassignment.

*****************************************************************

Have more questions? Our analysts have answers. Send your inquiries to info@channelnomics.com and check out our other Ask Channelnomics installments at Insights | Ask Channelnomics.