How this calculator works
Software subscriptions are usually priced per seat per month, with a discount for a longer commitment or a larger seat count. Apply the discount to the retail seat price to get the effective price, multiply by seats for the monthly cost, and multiply the monthly cost by the number of months for the total contract value. Annual cost is twelve monthly payments regardless of how long the contract runs, which makes it easier to compare with vendors that quote yearly. The total discount over the term compares the discounted contract with the same seats and months at list price. The reverse modes size a deal to a budget: the seats a target contract value buys at a given term, or the term required at a given seat count.
Formula
Discounted price per seat per month = retail price x (1 - discount). Monthly cost = discounted price x seats. Annual cost = monthly cost x 12. Contract value = monthly cost x term in months. Total discount = retail price x seats x term - contract value. Seats = contract value / (discounted price x term). Term = contract value / (discounted price x seats).
Worked example
A product lists at $50 per seat per month. With a 15% discount the effective price is $42.50, so 25 seats cost $1,062.50 a month and $12,750 a year. A 12-month contract is worth $12,750 and the total discount against list price is $2,250. At the same price and term, a $51,000 target buys $51,000 / ($42.50 x 12) = 100 seats.
Advertisement
Frequently asked questions
Is contract value the same as revenue recognised?
No. Contract value is the total amount the customer commits to pay over the term. Under subscription accounting, revenue is recognised over the period as the service is delivered, so a 24-month contract is not all revenue in the first month.
Why can the seats answer be fractional?
The division does not know about whole seats. A target that is not an exact multiple of the per-seat price gives a fraction. Vendors sell whole seats, so round up to the next seat, which slightly exceeds the target value, or round down if the budget is a hard limit.
Should implementation fees be included?
Include them only if you want the total deal value rather than the subscription itself. One-time onboarding and professional services are usually quoted separately and are not recurring, so adding them to contract value changes the comparison between vendors.