Why software vendors push multi-year deals—and why you should be cautious

Have you ever been offered a discount by a software vendor in exchange for signing a multi-year deal? If you're satisfied with the software, the discount might seem enticing. But before jumping in, have you considered why they're offering this deal?

If you’re happy with their product, why would a vendor willingly reduce their revenue and a salesperson settle for lower commission just to lock you into a long-term agreement? The reasons often run deeper than generosity or customer loyalty. Here are the two main motivations behind this strategy:

1. The vendor is planning to sell the business.
2. They face technical challenges or stiff competition, making customer retention a priority.

The Selling Strategy: Increasing Business Value

When software businesses prepare for sale, consistent and predictable revenue streams significantly boost their market valuation. Moving customers to multi-year agreements ensures reliable income, even if the vendor takes a short-term hit by offering discounts. This makes the business more attractive to buyers.

However, the new owner—having paid a premium for the acquisition—will likely seek to recoup their investment quickly. This can result in price hikes and other cost-driven decisions that may impact customer satisfaction. If a vendor aggressively pushes long-term contracts, it's worth treating this behaviour as a potential red flag.

Falling Behind: The Technology Challenge

Some vendors fail to anticipate major shifts in technology until it’s too late, leaving their products outdated or incompatible. For example, several email management solutions have struggled to adapt to the latest capabilities in Microsoft’s New Outlook. In some cases, their products are rendered unusable.

Faced with dwindling relevance and shrinking revenues, vendors often attempt to secure long-term agreements to lock in customers and delay their migration to alternative solutions. If a deal seems too good to be true, pause and dig deeper.

Ask the Hard Questions

While multi-year discounts can be tempting, remember: the world—and the tech landscape—is unpredictable. By signing a long-term deal, you might limit your ability to pivot if better options emerge or unforeseen circumstances arise.

Before accepting such offers, take a moment to reflect, investigate, and ask tough questions about the vendor’s motivations and future plans. Staying flexible in today’s ever-changing environment could save you from potential headaches down the line.