Broadcom Multi-Year vs Annual Renewals
Introduction – The Multi-Year Renewal Dilemma
Broadcom (now the parent of VMware and other enterprise software) heavily promotes multi-year renewal contracts.
Account teams encourage customers to sign three-year deals, promising price stability and larger discounts for longer commitments.
Choosing a one-year renewal is possible, but it’s discouraged – Broadcom may quote steep price uplifts on a 12-month term to make it unattractive.
This leaves IT procurement leaders with a difficult choice: lock in for multiple years to secure predictability, or renew annually to preserve flexibility? Read our strategic guide, Renewing Broadcom Contracts: Strategies to Secure Better Terms & Manage Uplifts.
Each approach has clear trade-offs.
A multi-year agreement can shield you from sudden price hikes and simplify budgeting, but it also locks you in with Broadcom for the duration, with no easy exit if your needs change.
An annual renewal provides maximum agility to pivot or downsize, but it comes with the risk of escalating costs year over year (and constant renegotiation). Let’s break down the pros and cons of each approach and how to negotiate the best outcome.
The Multi-Year Renewal: Pros & Cons
Broadcom’s default stance is to push for multi-year contracts (often 3-year terms). Before committing to a long deal, weigh these advantages and drawbacks:
Pros of Multi-Year Renewals:
- Price Protection: Multi-year deals can lock in rates or cap increases for the duration of the term. You receive cost certainty (for example, a fixed price or at most a 3–5% annual increase), protecting your budget from Broadcom’s notorious yearly price hikes.
- Bigger Discounts: Broadcom offers larger upfront discounts for longer commitments. A three-year renewal typically offers a lower per-unit price than a one-year deal, resulting in cost savings over time.
- Predictable Budgeting: With multi-year pricing in place, you can plan your IT spend for the next few years without unexpected increases. It also means less frequent contract negotiations – one big renewal now instead of facing the vendor every year.
Cons of Multi-Year Renewals:
- Lock-In, Less Flexibility: A long-term contract severely limits your flexibility. You typically cannot reduce license counts or drop products mid-term (no “true-down”), and you generally cannot exit early without penalty. If your usage declines or a Broadcom product underperforms, you’re stuck paying for the full term – potentially wasting money on shelfware (unused licenses).
- Long-Term Uncertainty: Committing to 3+ years carries risk if things change. Your business or technology strategy might shift in that timeframe (for example, you could decide to move away from VMware in year 2). If Broadcom alters or discontinues a product, or if a new competitor offers a better solution, you won’t have the freedom to adapt quickly. Multi-year deals only make sense when you’re confident you’ll need Broadcom’s solution for the entire duration.
The Annual Renewal: Pros & Cons
Annual (year-to-year) renewals offer a different set of benefits and risks.
Broadcom doesn’t favor this route – one-year renewals often come with hefty price tags or other deterrents. If you insist on a 12-month term, consider the following:
Pros of Annual Renewals:
- Maximum Flexibility: One-year terms provide you with the freedom to adjust or exit at any time. Every renewal is an opportunity to reduce licenses, remove products, or switch vendors if needed. You can quickly respond to business or technology shifts – for example, downsizing or migrating to an alternative solution at the next renewal, rather than being stuck for several years.
- Ongoing Leverage: By revisiting the deal annually, you maintain constant negotiating leverage. Broadcom must earn your business each year, knowing you could leave, which keeps pressure on them. They can’t take you for granted as they might with a long contract, and you can frequently benchmark other options to ensure you’re getting fair value.
Cons of Annual Renewals:
- Higher Costs & Unpredictability: One-year deals often come at a premium, and there’s no limit on what Broadcom might charge when renewal time comes again. You could face double-digit price jumps each year. This unpredictability makes budgeting challenging and may result in a higher total spend over several years compared to locking in a multi-year rate.
- Negotiation Overhead: You’ll be negotiating every year, which can strain your resources. Each renewal requires repeating the cycle of internal approvals, usage analysis, and tough vendor discussions. This perpetual negotiation mode can cause fatigue. If timing slips and you miss your renewal date, you also risk Broadcom’s steep penalties for any lapse in coverage – so you must stay vigilant each time.
Negotiation Strategies for Multi-Year Deals
If you opt for a multi-year renewal, build in protections to avoid being trapped by unfavorable terms.
Use tactics like these in your negotiations:
- Cap the Uplifts: Insist on a cap on annual price increases (or fixed pricing) across the multi-year term. For example, agree that fees can rise by no more than 3% per year. This ensures your “great deal” in year 1 isn’t wiped out by big jumps in later years.
- Get True-Down Rights: Negotiate the right to reduce licenses or spending if your usage drops at annual intervals. Broadcom’s standard contract forbids reductions mid-term, so push to carve out some flexibility. Even a modest allowance to decrease license counts (if, say, your company downsizes) will protect you from paying for completely unused capacity in a long-term deal.
- Include Escape Clauses: Consider including early termination or adjustment clauses for major changes. For instance, if your company is acquired or divests a business unit, you should be allowed to scale down or cancel the affected portion of your contract without massive penalties. Having at least one “escape hatch” for extraordinary events is important when locking in a multi-year commitment.
Negotiation Strategies for Annual Deals
If you prefer the flexibility of renewing yearly, you’ll need to mitigate Broadcom’s tendency to raise prices on short-term agreements.
Consider these approaches for one-year renewals:
- Limit Year-over-Year Hikes: Push to cap next year’s price increase (e.g., no more than 5%). Broadcom may resist, but even raising this demand sets a baseline and might earn you a written limit.
- Seek Short-Term Discounts: Don’t assume a one-year term means no discount – make it clear that an exorbitant price will push you to explore alternatives. Broadcom might offer a better rate if it senses a real risk of losing your business, so it pays to ask.
- Leverage Alternatives: Each year, benchmark the competition and notify Broadcom of your efforts. Solicit quotes from other vendors or consider cloud solutions. The credible threat of moving off Broadcom next year is your strongest bargaining chip – if they want to keep you, they need to stay competitive every time you renew.
When to Choose Multi-Year vs Annual
The best renewal strategy depends on your organization’s priorities and plans. Here are some guidelines on when each approach makes sense:
- Choose Multi-Year if… You expect to use Broadcom’s product (e.g., VMware) for years to come and value price stability. If usage is steady and the software is mission-critical (with no major changes ahead), a longer-term deal with locked pricing secures discounts and ensures continuity.
- Choose Annual if… You anticipate change or uncertainty in your needs. If usage might drop, you may switch platforms soon, or your organization requires yearly budget approval, a one-year renewal keeps your options open. In these cases, the ability to pivot quickly outweighs the lure of a multi-year discount.
- Consider a Hybrid Approach: It doesn’t have to be all or nothing. For example, a 3-year contract with an annual opt-out provides the benefit of a longer term, while also offering the option to exit each year if needed. This hybrid tactic strikes a balance between cost savings and flexibility.
Leveraging alternatives in your renewal negotiation, Leveraging Alternatives in Broadcom Renewals – Third-Party Support and Competitive Options.
FAQs
Q: Does Broadcom force multi-year renewals?
A: Not officially, but Broadcom will do everything to steer you into a multi-year deal. They often make one-year renewals either unavailable or price them so high that it’s not practical. You can request a one-year term, but expect the sales team to push hard for a 3-year commitment using these tactics.
Q: Can I negotiate a cap on annual price increases if I renew yearly?
A: Yes – always attempt to negotiate an uplift cap on a one-year renewal. For example, have Broadcom agree that next year’s renewal price won’t increase by more than 5%. They may be reluctant to put this in writing, but pushing for it shows you won’t accept unchecked hikes.
Q: What’s the risk of a multi-year deal without true-down rights?
A: The risk is paying for software you no longer need. If your usage drops (for example, if your company downsizes or moves some workloads off VMware), you must still pay for all the originally contracted licenses until the term ends – essentially wasting your budget on unused licenses. And because you’ve effectively prepaid for those years, you’ll be stuck overpaying until the contract expires if you have no way to adjust down.
5 Actionable Renewal Tips
To wrap up, here are five actionable tips to protect your interests in Broadcom renewal negotiations:
- Don’t accept a multi-year contract without caps and flexibility. If you opt for a multi-year plan, consider locking in rates (or setting a low ceiling on increases) and including true-down and exit rights. This prevents runaway costs and safeguards you if your needs change mid-term.
- Cap price increases on one-year deals. Even for a single-year renewal, negotiate a hard cap (e.g. 5% maximum) on the next year’s rate. That way, Broadcom can’t punish you with an excessive hike for choosing a shorter term.
- If your usage is decreasing, consider sticking to annual terms. Avoid getting stuck in a long contract as your requirements change. With annual renewals, you can adjust quantities down each year and avoid overpaying for unused capacity that would be locked in under a multi-year agreement.
- Time negotiations for leverage. Engage Broadcom at the end of its quarter or fiscal year when they’re eager to close deals. Vendors tend to be more flexible on pricing and terms when sales deadlines loom – use that timing to extract better concessions.
- Get promises in writing. If a sales representative offers you any special assurances (on pricing, future flexibility, product roadmap, etc.), insist on having them included in the contract or an official email. Verbal promises often won’t hold up later, so ensure that every important commitment is documented.
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