Broadcom Step Pricing and Volume Tiers
Introduction – Why Step Pricing and Tiers Matter
Broadcom often employs step pricing and volume tier models in its software licensing agreements to secure revenue. These pricing tactics can quietly inflate costs over time or push customers to purchase more than they need.
Procurement leaders, CIOs, and IT asset managers must understand how these models work to avoid unexpected increases and wasted expenditures.
By grasping Broadcom’s step-up escalators and volume discount tiers, you can anticipate cost increases and negotiate terms that protect your budget. For a full guide, read Broadcom Pricing & Discount Models: Benchmarks, Multi-Year Deals, and Cost Increases.
Step pricing refers to pre-set annual price increases built into a multi-year contract. Broadcom may pitch this as “multi-year price stability,” but it ensures their revenue grows each year. Volume tiers are discounted unit prices based on the quantity purchased.
They reward buying in bulk – for example, the price per license drops once you exceed certain thresholds. Both tactics have pros and cons.
Used wisely, they can offer predictability or savings; used poorly, they can erode discounts and create shelfware (unused licenses). The following sections explain each model and provide strategies to negotiate them in Broadcom deals.
Read how multi-year contracts can impact pricing – Broadcom Multi-Year Pricing Models – How Discounts and Step Pricing Work.
What Is Step Pricing?
Step pricing is a pricing model where the cost rises at agreed intervals (usually annually) during a multi-year contract. Instead of a flat rate for the entire term, Broadcom might set the price to “step up” by a fixed percentage each year.
For example, you might pay $100 in year 1, $105 in year 2, and $110 in year 3 – reflecting a 5% annual increase. This step-up occurs regardless of your actual usage or external factors, such as inflation. Broadcom often positions step pricing as a compromise to avoid unpredictable CPI-based (inflation) increases.
In practice, this means built-in cost escalations: even if inflation is low or flat, your price still increases by the agreed-upon rate.
From Broadcom’s perspective, step pricing ensures revenue growth over the contract term. For customers, however, the risk is compounded by increased costs.
A 5% annual increase might sound small, but it accumulates. By year 3 of a 5% annual step, you’re paying over 10% more than in year 1.
These increases can gradually erode any initial discount you negotiated. It’s essentially paying more for the same product each year. Without careful attention, step pricing can undermine the savings you expected from a multi-year deal.
It’s crucial to scrutinize any “multi-year stability” pitch – often it hides these step-ups that steadily ratchet up your spend.
Negotiating Step Pricing
The good news is that step pricing is negotiable. You don’t have to accept automatic increases of 5%, 7%, or higher without question.
Here are strategies to handle Broadcom’s step pricing proposals:
- Push for flat pricing across the term: The ideal scenario is to lock in a flat rate for all years of a multi-year agreement. If you’re committing to 3+ years, insist that year-2 and year-3 prices remain the same as year-1. Flat pricing provides budget stability and prevents Broadcom from silently increasing your costs mid-term. Broadcom may resist, but emphasize that a multi-year commitment on your side should equal price certainty on theirs. You’re taking on volume and lock-in risk; they should reciprocate with stable rates.
- Cap any annual increases: If Broadcom refuses a completely flat price, negotiate a strict cap on yearly uplifts. Aim for a minimal increase, such as 3% per year at most, and make sure it’s clearly stated in the contract. This cap should be the maximum, not the default – i.e., “no more than 3% increase annually.” Additionally, try to tie the increase to an index, such as the CPI, whichever is lower. For example, “price increases shall not exceed 3% or CPI, whichever is lower.” This way, if inflation dips to 1%, your increase would only be 1%. The goal is to prevent overpaying if market conditions don’t justify a hike.
- Ensure escalators are non-compounding: Be very specific about how the increase is applied. Ideally, any allowed increase should be non-compounding, meaning each year’s uplift is calculated on the original base price, not on the prior year’s increased price. For instance, with a non-compounding clause, a 5% cap would mean Year 2 is 105% of the original price and Year 3 is 110% of the original – instead of paying interest on interest. Spell this out: “annual increases (if any) apply to the Year 1 base price.” This prevents a “snowball effect” where a 5% annual increase turns into more than 15% over three years. It keeps the cost growth linear and predictable.
- Limit the term length if necessary: Another tactic is to shorten the contract term if Broadcom insists on steep year-over-year increases. A three-year deal with fixed pricing might be preferable to a five-year deal with compounding escalations. If you can’t get comfortable terms on a longer deal, consider a shorter commitment to avoid locking in escalating costs. You can always renegotiate or switch strategies at the next renewal, rather than being stuck with an unfavorable step-up for too long.
By negotiating hard on step pricing, you signal that your organization won’t accept hidden escalators. Broadcom may start by proposing their “standard” increases, but strong pushback can often reduce or even eliminate these uplifts.
Remember, vendors often bake in step increases, assuming many customers won’t challenge them.
Breaking that assumption can save you a significant amount – potentially millions for large contracts – over the life of a deal.
Predictable costs are key for CIOs and CFOs, so make step pricing a central point of negotiation, not an afterthought.
Read about the VMware pricing increases, VMware Licensing Cost Increases Under Broadcom – What Enterprises Should Expect.
What Are Volume Tiers?
Volume tier pricing is a structure where the unit price of a product decreases as the quantity purchased increases, in defined ranges or “tiers.” Broadcom, like many enterprise software vendors, offers tiered discounts to incentivize larger purchases.
For example, a license might cost $100 each if you purchase a small quantity, but the per-unit price drops if you buy in larger quantities.
This is common in Broadcom’s portfolio (think VMware subscriptions, Symantec security licenses, CA tools, etc.), where bulk buying is encouraged.
Here’s an example tier table to illustrate how it works:
| Licenses | Price per Unit | Notes |
|---|---|---|
| 1–500 | $100 | Base tier (list price) |
| 501–1000 | $90 | ~10% discount per unit |
| 1001+ | $80 | ~20% discount per unit |
In this hypothetical scenario, purchasing up to 500 licenses costs $100 each. Once you hit license number 501, the price per license for all units (or sometimes just those beyond 500, depending on the policy) drops to $90.
And if you reach 1001 licenses, the price per license falls to $80. The “Notes” indicate the rough savings at each level (10% and 20% off the base price, respectively).
How Broadcom applies tiers:
Typically, Broadcom determines your price based on the volume band into which your purchase falls. If you buy 800 licenses, you’d be in the 501–1000 tier, paying $90 each in this example. Volume tiers can be applied per product or per aggregated purchase, depending on how you structure the deal (more on this below).
The principle is straightforward: the more you buy, the cheaper the unit cost. This can yield significant savings if you truly need a high volume of licenses.
However, it also introduces a game of thresholds – being just under a discount tier can feel like you’re missing out, while being just over it might tempt you to overspend to maximize the discount.
Using Tiers Strategically
When approached thoughtfully, volume tiers can be leveraged to your advantage in Broadcom negotiations.
Here are ways to use tiered pricing strategically:
- Squeeze into the next tier if it makes financial sense: If your needs are near a tier breakpoint, analyze the numbers. Sometimes, ordering slightly more licenses than you immediately need can put you in a better price band, which lowers the overall cost. For example, if you plan to buy 480 licenses but the price drops to 500, buying those extra 20 licenses could reduce the unit price for all 500 by a significant margin. In some cases, the total cost for 500 licenses at the lower price might be almost the same as 480 at the higher price – meaning you effectively get 20 extra licenses “for free” or at minimal net cost. This only works if the additional licenses have or will have real usage, so run the math carefully. The key is to optimize volume: purchase enough to maximize discounts, but not so much that you’re paying for completely unnecessary capacity.
- Aggregate volume across the enterprise: Broadcom’s default approach might be to calculate tiers per contract, product line, or business unit. Don’t let artificial divisions cost you money. Consolidate your purchasing volume across all divisions, regions, or product families whenever possible to reach higher tiers of suppliers. Negotiating one enterprise-wide agreement for 1,200 licenses is far more cost-effective than signing three regional deals of 400 licenses each (which might all stay in a higher-priced tier). Ensure that Broadcom applies volume discounts based on your total enterprise license count, not siloed counts. This may require aligning renewal dates or bundling multiple software titles together in one negotiation, but the payoff is better pricing. It also gives you more leverage – Broadcom will view you as a significant deal and may offer larger concessions.
- Secure true-down and flexibility in tier commitments: One of the biggest risks in volume deals is over-committing and then being stuck with unused licenses. To use tiers wisely, negotiate the right to adjust your volumes downward (true-down) over time without losing your achieved discount level. For instance, if you purchase 1,200 licenses to reach a top tier, request contractual permission to reduce the quantity in later years if your actual usage is lower, while still retaining the discounted price on the remaining licenses. Similarly, push for flexibility to reallocate or repurpose licenses across subsidiaries or product lines. Broadcom is often reluctant to allow reductions or transfers (they prefer you commit and stick to it), but it’s not unheard of to get at least some true-down protection. Even a clause allowing for an annual reduction of, say, 10% of licenses without penalty can save you from paying for shelfware in the event of downsizing or mergers. Using volume tiers strategically means coupling big buys with safety valves so you’re not overexposed if circumstances change.
Read about bundling and discounts, Broadcom Volume Discounts and Bundling – How to Maximize Savings Without Shelfware.
Cautions with Volume Tiers
Volume discounts can be valuable, but they come with pitfalls.
Be mindful of the following cautionary points when dealing with Broadcom’s volume tiers:
- Don’t overbuy just for a discount: It’s easy to get enticed by a cheaper unit price and purchase far more than you need. Overbuying “just to hit the next tier” can backfire if those extra licenses sit unused. The cost of unused licenses (also known as shelfware) is wasted budget. Ensure that any volume-driven purchase aligns with a realistic consumption plan. If you have to massively overspend now to maybe save later, the math probably doesn’t truly work in your favor. Always calculate the total cost of ownership, not just the unit price, to determine if the discount justifies the additional expense.
- Beware of Broadcom’s flexibility (or lack thereof): Broadcom contracts often restrict your ability to scale down or reassign licenses. Suppose you commit to 1,000 licenses in an enterprise license agreement (ELA). In that case, you typically cannot reduce that count until renewal, nor can you convert them to a different product if you bought too many of one type. This rigidity means any licenses you overbought will remain idle. To mitigate this, as noted above, try to negotiate true-down clauses or license portability. But if Broadcom won’t budge, tread carefully on volume commitments. It’s better to miss a discount tier than to be stuck paying for 200 extra licenses you never deploy.
- Clarify the scope of the tier pricing: Always confirm how the tier thresholds are calculated. Is the tier based on a single order? Cumulative spend across a year? Across the entire contract term? Is it per product family or across all products in the deal? Broadcom might apply separate tier structures for different product lines (e.g., VMware vs. security products) unless you push for a unified volume count. Also, verify whether the discounted rate applies to all licenses or only to the incremental ones above the threshold. These details matter. Make sure the contract language explicitly states, for example, “tier discounts apply to the total volume purchased under this agreement, across all covered products, at the enterprise level.” Without clear terms, you might assume you’re getting a better price on all units, only to find it was only on the last batch added.
In short, volume tiers are a double-edged sword. They can reduce your per-unit costs, but they can also tempt you into unfavorable buying patterns.
A savvy buyer uses tiers as one tool in the toolbox – not as a trap. Always align tier-based purchases with genuine business needs and retain as much flexibility as possible.
Best Practices to Leverage Step Pricing and Tiers
To successfully navigate Broadcom’s step pricing and volume tier tactics, consider these best practices:
- Run the full math on multi-year costs: Don’t evaluate deals on year-1 pricing alone. If there’s a step increase, project the total cost over the contract term. Sometimes, a deal with a slightly higher Year-1 price but no annual increases is actually cheaper by Year-3 than a lower upfront price that increases by 5–7% each year. Always compare scenarios (flat vs. step-up) to see which yields a lower total cost of ownership. This analysis arms you with data to make the case for flat pricing or to justify any concessions in negotiations.
- Model different volume scenarios: Similarly, model your costs at various volume points. Understand the breakpoints in Broadcom’s pricing. What if you bought 10% more licenses – do you hit a bigger discount and actually pay less overall? Or if your usage might drop, how much would you be overpaying at the current tier? By modeling volume scenarios, you can determine the optimal quantity for your purchase. This also helps when negotiating – you can say, “If we consider purchasing X more, we need Y price,” using data to push for an optimal tier.
- Consolidate deals where possible by leveraging enterprise-scale bargaining. Instead of separate deals for each division or product, consider co-terming and bundling them into a single negotiation. Bringing more spend to the table at once not only helps reach higher volume tiers but also gives you more importance as a customer. Broadcom is more likely to grant favorable pricing or terms when a lot of revenue is at stake in a single deal. Internally coordinate so that all business units’ needs are included – you want Broadcom to see one big contract, not five small ones.
- Include flexibility clauses in contracts: A well-negotiated contract will have built-in protections that provide flexibility. Ensure that your multi-year deals contain price increase caps or freezes, and your high-volume deals include usage flexibility (such as true-down or the ability to transfer licenses within the company). If Broadcom’s standard terms lack these, explicitly add them. It’s much easier to negotiate flexibility before signing than to plead for exceptions later. For example, add a clause that “unused licenses may be swapped for other equivalent Broadcom products or credit” if possible, or at least that you can reduce quantities at renewal while keeping the achieved discount bracket.
- Align tiers with actual consumption plans: Don’t let the tail wag the dog. Your licensing quantities should be based on genuine IT and business forecasts, rather than chasing arbitrary discount tiers. Always ask: Does this tier purchase align with our roadmap? If you plan to deploy 1,000 new VMs next year, going for the 1001+ tier on VMware licenses makes sense. If not, don’t spend future budget on licenses gathering dust. By aligning purchases with realistic growth or usage projections, you can utilize volume tiers to your advantage rather than falling victim to overcommitment.
Following these best practices will help ensure that you, not Broadcom, stay in control of the deal structure. The theme is proactive planning and diligent negotiation.
Broadcom’s pricing models are sophisticated, but with the right approach, you can convert them from a potential liability into an opportunity for savings and predictability.
FAQs
Q: What is Broadcom’s “step pricing”?
A: It refers to Broadcom’s practice of building in automatic yearly price increases in a multi-year contract. Instead of a flat renewal price each year, the cost “steps up” annually by a set rate (e.g., 5% per year). Broadcom often proposes step pricing to ensure its revenues grow during the contract term. For the customer, it means paying more each year for the same licenses. It’s important to identify these clauses and negotiate them down or out to avoid compounding cost increases over time.
Q: Can I negotiate flat pricing in a multi-year Broadcom deal?
A: Yes, absolutely. Broadcom might initially push for step increases, but many customers have negotiated flat pricing for the entire term of a 3-year deal (or at least kept any increases very low). You should argue that a multi-year commitment warrants price stability. If completely flat pricing is not attainable, negotiate a cap (e.g. “no more than 3% increase annually”) and tie it to a reasonable metric like inflation. Broadcom may agree to fixed pricing for years 1 and 2, with only a small increase in year 3, for example. The key is to not accept their first offer as final – multi-year deals, especially large ones, have room for pricing concessions if you insist.
Q: Do Broadcom volume tier discounts apply globally or only per region/product?
A: By default, Broadcom often calculates volume discounts on a per-contract or per-product basis – which might mean per region or per business unit if you negotiate separately. However, you can negotiate to have volume tiers applied enterprise-wide. This means all licenses you purchase across the entire organization count toward the tier thresholds, maximizing your discount. For example, if you have 300 licenses in Europe and 300 in North America, neither separately reaches a higher tier, but together, 600 licenses could qualify you for a better price. You should explicitly request contract language that aggregates volume across all affiliated entities (or across all the products in the deal, if you’re bundling multiple product lines). In short, unless you unify the deal, Broadcom might not automatically give you the benefit of your total volume – you have to demand it in negotiations.
Q: What if our usage drops after we’ve committed to a high volume?
A: This is a common concern. If you sign up for, say, 1,000 licenses to get a big discount and later find you only use 800, you risk paying for 200 unused licenses. Broadcom’s standard contracts don’t allow refunds or reducing the count mid-term. That’s why it’s critical to negotiate true-down rights upfront. True-down means you can adjust the quantity down (usually at specific intervals, such as annually) without incurring severe penalties or losing the discount on the remaining licenses. If Broadcom won’t allow true-down within the term, at least plan for the end of the term – make sure the renewal doesn’t reset you to a higher price because you used fewer licenses. You might negotiate that any price tier achieved will carry over to renewal, even if volume drops. Always communicate your need for flexibility due to uncertain forecasts. Suppose Broadcom truly wants the initial sale to be substantial. In that case, it might consider offering concessions, such as a one-time reduction or providing credits for unused licenses that can be applied to other Broadcom products.
Q: Is step pricing ever justified from the customer perspective?
A: In general, step pricing benefits the vendor more than the customer. However, there are scenarios where a modest step (with limits) might be acceptable. For example, if your own user base or consumption is expected to grow year over year, a pricing ramp-up aligns with a corresponding increase in value. Sometimes customers agree to slight annual increases in exchange for deeper upfront discounts or additional concessions elsewhere. If you do accept step pricing, ensure it’s capped and predictable (e.g., 2-3% max) and ideally tied to something concrete (like new feature releases or support enhancements) rather than just paying more for the same product. Even then, you should only accept it after trying flat pricing first, and only if the overall deal still makes financial sense compared to alternatives.
5 Actionable Tips for Step Pricing & Tiers
- Reject steep step-ups – Don’t accept multi-year price escalations unless they are very limited (capped at a low single-digit percentage and non-compounding). Push for flat rates to protect your budget.
- Demand price protection – Insist on rate caps or freezes in your Broadcom contracts. Any multi-year agreement should explicitly prevent mid-term price hikes. No surprises in year 2 or 3.
- Use volume discounts wisely – only pursue a volume tier if it aligns with your actual needs. Avoid buying licenses you won’t use just to get a nominal discount. The best savings come from discounts on licenses you fully consume.
- Consolidate to maximize tiers – Whenever possible, combine purchases across your whole enterprise. Larger, consolidated deals unlock better pricing tiers and provide you with more negotiating leverage than fragmented purchases.
- Built-in flexibility – Negotiate true-down rights and license portability in any high-volume deal. Ensure you can adjust down or reallocate licenses if your situation changes, without forfeiting your discount level. This safeguard turns volume commitments into a safer bet.
By following these tips, you can navigate Broadcom’s step pricing and volume tier strategies with a clear head. The goal is to achieve predictable costs and real savings – not fall into the traps of automatic price increases or unnecessary purchases.
Stay strategic, question defaults, and craft contract terms that serve your organization’s interests. Broadcom’s pricing playbook may be aggressive, but with knowledge and preparation, you can secure a fair deal that keeps your IT spend under control.
Read about our Broadcom Negotiation Service.
