How to Negotiate True-Down Provisions in Broadcom Contracts
Why True-Downs Are Critical
Broadcom contracts are notoriously rigid about license counts. A true-down clause gives you the right to reduce license quantities (and costs) if your usage declines.
Broadcom’s default stance is “ratchet up only” – you can add licenses and pay more, but you generally cannot reduce licenses and pay less mid-term.
If you overestimate your needs or your company’s usage drops, you’ll be stuck paying for shelfware (unused licenses). Read our guide to Maintaining License Flexibility with Broadcom: Co-Termination, True-Downs, and Ramp-Up Pricing.
Business realities change: you might divest a division, migrate workloads to the cloud, or downsize.
All these scenarios can sharply reduce your need for Broadcom software.
Without true-down rights, you end up overpaying for capacity you no longer use. Negotiating true-up provisions is critical to keeping your contract aligned with actual usage and avoiding wasting budget on idle licenses.
How to Structure a True-Down Clause
When pushing for flexibility in a Broadcom agreement, consider these approaches to introduce true-down terms:
- Capped Annual Reduction: Propose a limited percentage reduction each year (say up to 10–20%). Capping the true-down ensures Broadcom that you won’t drastically drop commitments, yet it gives you room to adjust if usage falls.
- Event-Triggered True-Down: Make reductions conditional on major business events. If you divest a business unit or undergo a cloud migration that results in a >10% drop in users, include a clause allowing you to reduce licenses by that same percentage. Broadcom is more likely to accept such a clause since it only triggers for significant changes.
- Renewal-Time Flexibility: If mid-term true-downs are off the table, secure flexibility at renewal. Remove any “minimum renewal” obligation in the contract and state that at term end, you can renew with a lower quantity based on actual usage. Each renewal presents an opportunity to optimize your license usage.
- Shorter Contract Term: If Broadcom won’t agree to any true-down, consider a shorter contract duration (1–2 years instead of 3–5). A shorter deal gives you an earlier chance to adjust license counts at renewal, limiting how long you overpay for unused licenses.
Cost Adjustment Considerations
Winning the right to reduce licenses is only half the battle – you must also determine how pricing will adjust if you utilize it.
Key details to address:
- Proportional Fee Reduction: Ensure costs drop in direct proportion to any license reduction. For example, 15% fewer licenses should mean 15% lower fees.
- Volume Discount Impact: Address what happens to unit pricing if your volume decreases. Broadcom’s tiered pricing means buying fewer licenses could raise the per-license cost. Negotiate price protections upfront – for instance, keep the same discounted rate for the licenses you retain, or agree that any price increase for a lower volume will be minimal. This way, the benefits of a true-down aren’t wiped out by a lost discount.
- No Hidden Charges: Avoid any clause that makes you pay for licenses you’ve dropped. Watch for “minimum commitment” or “price band” language that would charge you as if you still had the higher count. After a true-down, you should only be billed for the licenses you actually use – nothing more.
Negotiation Tactics
Broadcom may push back on true-down clauses, but you can use several tactics to improve your leverage:
- Trade for Flexibility: Offer something in return for true-down rights. For example, commit to a multi-year term or a larger upfront purchase if Broadcom agrees to a true-down clause. Broadcom secures revenue, and you secure the ability to reduce licenses later if needed.
- Use Data & Forecasts: Provide evidence to support why you need this flexibility. If you anticipate a usage drop (e.g., a 20% reduction next year due to cloud migration or reorganization), share that forecast. It signals that without a true-down, you’ll either overpay for idle licenses or purchase far less now, giving Broadcom an incentive to accommodate your request.
- Frame It as Fair Play: Emphasize that a true-down simply aligns costs to actual use. If your business shrinks, your spending should shrink accordingly. Frame it as mutual risk-sharing: you’re committing to Broadcom, and Broadcom in return provides some flexibility if circumstances change. This makes your request sound reasonable, not unilateral.
Fallback Strategies if Broadcom Refuses
If Broadcom absolutely refuses to include true-down provisions, protect your organization through other means:
- Shorter Deal Term: Avoid long lock-ins. Opt for a one-year or two-year agreement so you can realign license counts at the next renewal. A shorter term limits your exposure.
- Third-Party Support: For any perpetual licenses that become shelfware, consider dropping Broadcom’s maintenance and using a third-party support provider. Not as ideal as a built-in true-down, but at least you’re not paying Broadcom for software you don’t use.
- No Renewal Commitments: Ensure nothing in the contract forces you to renew all your current licenses. If mid-term reductions are off the table, at least secure the right to reduce at renewal time. Strike any minimum renewal clause so you’re free to renew fewer licenses (or none) in the next term.
Read about ramp-ups, Structuring Ramp-Up Pricing in Broadcom Contracts – A Playbook for Phased Deployments.
Sample Clause Snippets
Here are a few example contract clauses to illustrate true-down terms you might negotiate:
- Annual Reduction Clause: “Customer may reduce license counts by up to 15% at each annual contract anniversary, with fees reduced proportionally to reflect the decreased quantity.”
- Event-Triggered Clause: “In the event of a merger, divestiture, or business downsizing resulting in a >10% reduction in users, Customer may reduce the corresponding software licenses by an equivalent percentage without penalty.”
- Renewal Alignment Clause: “Upon renewal, Customer may adjust the number of licenses to match actual usage at the end of the prior term, with no obligation to renew any minimum quantity.”
True-Down Negotiation Checklist
Use this checklist to prepare for and insist on true-down flexibility in your Broadcom deal:
- Audit Usage: Inventory Your Licenses and Usage. Identify shelfware and forecast future needs.
- Define Your Ask: Decide what true-down terms to request (percentage cap, event triggers, or at least renewal-time adjustment).
- Clarify Pricing: Plan how costs should scale if you drop licenses. Ensure the contract includes post-reduction pricing, guaranteeing savings.
- Add Event Clauses: Include clauses for foreseeable events (such as divestitures, migrations, etc.) that would justify a reduction.
- Remove Renewal Locks: Refuse any clause that requires renewing the same quantities. Keep renewal as your built-in true-down opportunity.
- Prepare a Fallback: Have a backup plan if Broadcom won’t budge (shorter contract, third-party support, or walking away if necessary).
Read about co-terming, Co-Terming Broadcom & VMware Contracts: How to Align Renewal Dates for Leverage.
FAQs
Will Broadcom allow mid-term true-downs? Broadcom’s standard policy does not allow mid-term license reductions (only increases). In rare cases (for very large clients), they might make an exception, but you shouldn’t bank on it. It’s wiser to negotiate flexibility at renewal or in specific scenarios instead.
How much reduction is realistic to negotiate? Aim for around 10–20%. Broadcom won’t agree to unlimited cuts, but a 15% cap on reductions (or up to 20% tied to a big event) is a reasonable target if you have justification. The exact number depends on your leverage, but push for a meaningful percentage.
Does a true-down affect my volume discount? It can if you don’t address it. Reducing your license count might shrink your volume discount and raise the unit price. Prevent that by negotiating price protection: for example, insist that your original per-license discount stays in place (or any unit price increase is minimal) if you drop licenses. That way, a true-down actually saves you money, as intended.
What if Broadcom refuses completely? Then create flexibility outside the contract. Agree to a shorter term so you’re not locked in for a long time, and ensure you can adjust at renewal. Also consider third-party support for any unused licenses to cut costs. In short, if Broadcom won’t share the risk, don’t over-commit – keep your options open through contract terms and outside strategies.
5 Tactical Recommendations
Finally, here are five tactical tips when negotiating true-down provisions with Broadcom:
- Always Ask for True-Down Rights: If you don’t ask, you won’t get it – so put true-down flexibility on the table from the start.
- Tie Reductions to Real Events: Link your reduction rights to business changes (divestitures, cloud migrations, etc.) that clearly justify a license drop.
- Clarify Downward Pricing: Don’t just negotiate the ability to reduce licenses – also confirm how fees will decrease so the savings are real.
- Refuse Renewal Minimums: Never accept a contract term that forces you to renew the same number of licenses. Keep renewal terms flexible.
- Leverage Term Length: If you can’t get mid-term true-down rights, negotiate a shorter contract duration. A shorter term keeps Broadcom accountable and limits your risk if your needs change.
Using these strategies, you can push back against Broadcom’s one-way license model and craft a contract that protects your interests. True-down provisions (or well-planned alternatives) ensure you only pay for what you actually need, even as your business evolves.
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