Ramp Deal

What is a Ramp Deal?

A ramp deal is a multi-year contract for a product or service, with pricing, quantity, or discount rates changing between intervals.

A ramp deal in CPQ (Configure Price Quote) is an agreement between a customer and a vendor to negotiate better pricing on future orders. The ramp deal allows the customer to purchase incrementally or to increase their subscription level over time to achieve discounts or to scale as the business grows. Meanwhile, the vendor can benefit from larger orders, longer contracts, and predictable cash flow.

In CPQ terms, this type of multi-year deal is also known as an incremental order commitment (IOC). To set up an IOC in CPQ, customers can choose from various options, such as ordering a certain quantity each month for a fixed period of time or entering into a long-term contract where they commit to a certain volume of product or number of user licenses over several years.

Synonyms

• Ramp up agreement
• Incremental order commitment

Why SaaS Businesses Use Ramp Deals

Ramp deals in software-as-a-service (SaaS) vendors are based on the idea of gradually increasing the price of a subscription over time. They incentivize customers to lock in extended subscription terms and allow businesses to better match their cost structure with their revenue streams.

With ramp deals, vendors can scale the product or service as the customer’s needs change. For example, additional user licenses or additional features can be added over the life of the contract as the customer’s business scales. This helps increase customer retention and maximizes revenue.

Ramp deals are advantageous for both customers and vendors because they provide stability and predictability in pricing while allowing both parties to negotiate cost savings and better rates. For customers, ramp deals often mean lower overall costs per license due to volume discounts, whereas vendors benefit from consistent sales and strong customer loyalty.

Benefits of Ramp Deals

Ramp deals provide improved customer retention, increased revenue and profits, reduced churn rate, better cash flow management, and more. Additionally, ramp subscriptions can help companies predict future revenue and plan for potential growth or changes in demand from their existing customers. 

Predictable Costs for Customers

For customers, ramp deals allow for predictable costs over time by allowing them to pay for a fixed amount of usage over the course of a year or more. This can help budgeting and cash flow planning significantly. Additionally, customers may also receive discounts when they commit to longer-term agreements.

Predictable Revenue for Vendors

For vendors, ramp deals provide an opportunity to increase customer loyalty and revenue predictability. By committing to long-term contracts with their customers, businesses can ensure that they will have recurring revenue streams throughout the duration of the agreement without worrying about fluctuations in demand or pricing pressure from competitors. In addition, ramp deals can help reduce customer churn by providing customers with better pricing options that are tailored to their specific needs. Furthermore, customers with ramp deals are less likely to switch providers since they’ve already invested in a long-term contract. 

Enhanced Forecasting and Planning

Ramp deals can help improve revenue forecasting by giving businesses more data points to predict cash flows. With traditional fixed-rate subscriptions, businesses have only one data point, which makes forecasting more difficult. By using ramp deals, businesses can set up multiple subscription tiers that offer different pricing levels depending on how much usage customers anticipate. This allows companies to predict cash flow accurately and gain insight into customer behavior and preferences by analyzing the different tiers that customers choose.

Types of Ramp Deals

Ramp deals allow customers to gradually scale up their subscriptions over multiple years, often with more advantageous terms and conditions than traditional pay-as-you-go packages. Ramp deals involve discounts or special incentives, such as free trials, special pricing offers, and other benefits. There are several types of ramp deals that SaaS companies can offer to customers.

Discounts

The most common type is a discount on the initial subscription ramp level, encouraging customers to commit to longer contracts. This type of deal is often offered in combination with a loyalty bonus that rewards customers for sticking around and renewing their subscriptions.

Freemium

Another popular ramp deal is a freemium offer, where users can access a limited version of the product for free before committing to pay for full access. This allows users to get familiar with the product and understand its value before subscribing to the full platform.

Tiered Pricing

A tiered pricing structure, which offers customers discounts for committing to longer-term contracts, is another type of ramp deal. This strategy works especially well when SaaS companies offer subscription plans that charge per user per month or year. With a tiered pricing structure, customers can save money by committing to longer contracts and increasing their user count over time.

Enterprise Agreement

Another type of ramp deal is the enterprise agreement, where large businesses make long-term commitments to use specific SaaS products or services in exchange for discounted rates. These agreements typically include additional features such as priority support, enhanced customization options, and early access to new product releases. This type of agreement is often used by larger organizations that require more complex usage requirements than what’s offered in standard subscription plans.

Partner Deals

Finally, many SaaS companies offer referral programs and partner deals as part of their ramp strategy. These types of incentives reward users who refer new customers and partners who bring in new business.

Challenges in Ramp Deals

The challenges that come with managing ramp deals are numerous. One of the biggest challenges is ensuring customer satisfaction over the life of the contract. Customers may often be offered discounts or special offers on long-term contracts but may not adhere to them due to changing market conditions or other external factors. This can lead to business losses if such situations are not managed properly and within the terms of the contract.

Furthermore, managing customer payments on these long-term contracts can often be challenging since there could be delays or discrepancies due to an array of reasons, such as cash flow issues on the customer’s side or simply a lack of communication between the two parties. Such challenges must be carefully monitored and addressed for companies to maximize their revenues from ramp deals.

In addition to these challenges, companies face difficulties negotiating ramp deals and managing them within their CPQ and billing platforms.

The Complexity of Negotiating Ramp Deals

Negotiating ramp deals can be complex because vendors must consider multiple factors, such as the cost benefits of each party, contractual obligations, pricing structures, and service level agreements. In addition to the difficulty of negotiating ramp deals, there are legal and financial considerations regarding ramp deals. Companies must clearly understand their total commitment when entering into such an arrangement. This can be especially complex given that ramp deals often involve multiple parties and changing customer needs over time.

Moreover, there is the complexity associated with deciding how much risk should be taken on by each side and what provisions should be included to avoid any potential disputes or misunderstandings in the future. For example, some ramp deals include clauses specifying payment terms, service levels, support requirements, and intellectual property rights-related issues that must all be negotiated before an agreement is finalized.

Managing Periods and Intervals

Managing ramp intervals and levels can be challenging for businesses that offer multi-year ramp contracts. Ramp levels refer to the different stages of a ramp deal’s maturity. 

They generally include introductory offers, early adopter terms, growth targets, and renewal thresholds. At each stage, customers must meet certain milestones to qualify for further discounts or additional benefits. Intervals are the time between each ramp level; depending on the agreement, this could range from weeks or months to years. 

Therefore, knowing how to plan and manage these intervals accurately is essential for a successful ramp deal.

Managing Ramp Deals

Due to the complexity of multi-year deals, vendors often have special teams and software to manage these agreements.

Deal Desk

The role of a deal desk in managing ramp deals is crucial for businesses to ensure that they offer their customers the right deal. Ramp deals refer to arrangements between a vendor and buyer where the purchaser pays an upfront fee and then gradually ramps up how much they pay and/or how much service they receive over time.

For these ramp deals to be successful for both parties, the deal desk must manage them carefully. This includes setting up ramp levels and determining how much each payment should be at each interval. The deal desk will also need to work with vendors and buyers to make sure there are no misunderstandings or issues that could arise from the agreement.

To help ensure that ramp deals proceed smoothly, deal desks can employ various methods such as price protection clauses, which safeguard buyers from any unexpected increases in prices for products or services during their payment period; escalator clauses, which allow buyers to set a threshold price increase at which point payments will go up accordingly; and discounts for paying early or on-time payments.

Furthermore, a well-managed deal desk should have protocols in place in case of defaulted payments or disputes between vendors and buyers. This includes having contingency plans allowing them flexibility if issues happen down the line. They should also stay ahead of industry trends by continuously monitoring regulation changes or market conditions that could affect how a ramp deal is managed or its outcome.

Ramp Deal Software

Sales operations teams rely on robust software to sell and manage ramp deals. These can be all-in-one solutions or separate integrated software that manage parts of these contracts.

CLM

Contract lifecycle management (CLM) software offers a variety of tools and features to support the management of multi-year ramp contracts. A CLM software platform or contract management feature of CPQ software provides businesses with automated tools that streamline how they manage ramp deals, including automated approvals, notifications, and redlining. In addition, it integrates with billing software to set up payment schedules to ensure accurate invoicing and keep records of all agreements in one secure location.

CPQ

CPQ software is designed to streamline how businesses manage ramp deals. CPQ software allows businesses to efficiently configure and quote their products while providing the ability to structure and approve ramp deals with ease.

The quoting process begins by selecting the customer, product, renewal terms, and pricing guidelines for the deal. Then the software allows sales reps to set up the parameters for customer discounts at each quantity level of the product being purchased. The system also handles bundles and creates custom pricing rules. Sales reps can then quickly generate quotes with these discounts already applied to expedite the sales process.

Billing

Ramp deal structures involve how much a customer pays upfront, how many payments follow, how frequently they are due, and the amount of each payment. Tracking and accurately billing customers for this deal structure can be difficult. Billing software solutions can help businesses manage the invoicing and payment aspects of these complex deals.

The right subscription billing software solution will make it easy to keep track of customer ramp levels for multi-year subscriptions and the corresponding price so customers are billed accurately and at the right frequency. The software should also allow businesses to easily change the payment schedule if necessary or even cancel an existing payment schedule on behalf of customers.

Billing software can also be used to put limits on how many items can be purchased per customer or even how often they can purchase items with a ramp deal agreement. This helps protect businesses from losing out on potential profits due to overly generous discounts offered too frequently or without limits. Additionally, billing software can help reduce time-consuming administrative tasks such as manually calculating discounts or processing payments associated with ramp deals.

Businesses should also look for a billing solution to alleviate revenue recognition issues arising from multi-year ramp contracts and ensure compliance with ASC-606 and IFRS 15.

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