Harborline is fictional. The customer, the prices, and the numbers are made up, from the recording of me working it in my own Salesforce dev account.
What they pay today
Prices on this deal are monthly. The list price is $425 a seat, and Harborline pays $318.75, which is 25% off. Seats times that price is the monthly recurring revenue (MRR). MRR times 12 is the annual recurring revenue (ARR).
| Line | Quantity and price | MRR |
|---|---|---|
| Platform seats | 250 × $318.75 | $79,687.50 |
| Compute credits | 120,000 × $0.85 | $102,000.00 |
| Premier Support | 10% of seat fees | $7,968.75 |
| Total | $189,656.25 |
That’s $2,275,875 a year and $4,551,750 over the two-year term.
What they’re asking for
I opened a sheet and priced the ask the same way. 225 seats at the $283.33 competitor price, 70,000 credits at $0.80, and support at 5% of seat fees.
| Line | Quantity and price | MRR |
|---|---|---|
| Platform seats | 225 × $283.33 | $63,749.25 |
| Compute credits | 70,000 × $0.80 | $56,000.00 |
| Premier Support | 5% of seat fees | $3,187.46 |
| Total | $122,936.71 |
That’s $1,475,240.55 a year, and $4,425,721.65 over the three years they want. Three years of the ask is less money than the two years they pay today.
From $2.28M down to $1.48M is about $800,000 a year, or 35%. That’s the number that decides how I handle the whole deal.
The written request is a ramp: 220 seats in year one, 260 in year two, 300 in year three. I priced a flat 225 on the sheet because it shows me the size of the drop in a minute. Priced as the ramp, the three years come to $4,800,567.24, or about $1.60M a year. That’s still 30% below what they pay today, and it’s the number the renewal opportunity carries.
What the discounts really are
- Seats: 25% off today, 33% off at $283.33.
- Credits: 15% off today, 20% off at $0.80.
- Support: 10% of seat fees today, 5% in the ask.
On their own, those discounts aren’t crazy. The problem is that everything gets re-rated down at the same time while the quantities drop too. Fewer seats, fewer credits, a cheaper unit price on each, and less on support.
The 7% cap
Their contract says I can’t raise the seat price more than 7% at renewal: $318.75 × 1.07 = $341.06. There’s no condition on it, no minimum spend, so even if they dropped to 25 seats I couldn’t charge more than $341.06. That’s flexibility for the customer. I like to turn the customer’s flexibility into my leverage. The same math on credits is $0.85 × 1.07 = $0.91.
My first-pass counter was 225 seats at that capped price for three years, with better pricing as they grow into more seats. Then the sheet told me the real size of the drop, and I stopped modeling the 7% increase. When there’s a competitor bid at $283.33 on the table, it’s not the conversation anymore.
The competitor bid
The request names the competitor, but nobody has shown me the bid. It could be made up. Still, a bid that low is probably legit. There’s plenty of cushion in our pricing, and if this were a new logo, going from 25% off to 50% off would be on the table.
The margin check
Next I’d compare the margin on what they pay today to the margin on the ask. SaaS companies average about 85%, and I don’t like to go below 80% outside of rare exceptions. I didn’t run it in the video because I don’t have a real price book, it’s all made up. But I wouldn’t sign off on a deal this size without it.
What it changed
Without the sheet, I was working off the wrong size of deal. With it, I know this is going to leadership, and I know the first move is still pushback. I also have everything laid out to hand them, because their time is valuable and I’m not going to make them dig for it.