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Every RISE business case we have reviewed models years one to three carefully and years four onward hardly at all. Which is unfortunate, because the single largest hidden cost in the contract lives in year four. The conversion credit that makes the early years look attractive covers years one to three, typically at fifty to seventy percent of the residual value of your perpetual licences, and then it drops to zero. Not tapers.
Drops. And the business case that got board approval usually stops one year before that happens. Claire is going to put the arithmetic on it, because the shape of it surprises people.
Take the illustrative seven year model from our RISE private cloud work. Through years one to three the credit produces an annual saving of roughly nine hundred thousand dollars against the legacy run rate. From year four, with the credit at zero and the subscription escalating, the same estate is running seven hundred thousand to a million dollars a year of overspend. The sign flips.
And I want to be careful with that figure: it is a worked example of the mechanic, not a market rate for your estate. Your numbers will differ. The shape will not, because the shape is written into how the credit is structured.
And it is easy to miss because the credit does its work inside the number everyone looks at. Across the deals we reviewed, migration credits masked ten to eighteen percent of the steady state cost in the year one figure. So the headline you compare against your current spend is not the run rate, it is the run rate minus a temporary subsidy, and nobody misrepresented anything to achieve that. It is simply what a credit does.
The defence is procedural rather than adversarial: insist on seeing the year four and year five figures on the same page as year one, with the credit shown as its own line.
So the protection is a renewal uplift cap on year four, and the timing of it is everything. It anchors at signing or the cliff arrives unprotected. There is no second opportunity, because at the point year four arrives you have already terminated your perpetual entitlement, already re-platformed, and already told your organisation this was the strategy. Your negotiating position at that renewal is the weakest it will ever be, and both sides can see that from here.
Which is precisely why the cap costs so little to obtain now and cannot be obtained then. Most buyers optimise the first three years and never negotiate the fourth.
There is a second, quieter tail. The legacy maintenance bridge. Left alone it defaults to five years at full price, covering the old estate across the transition, which means paying the full legacy run rate on systems you are actively decommissioning. Nobody hides this either.
It is just that the bridge is drafted by the party who benefits from it being flat. And it is very negotiable: a step down cap tied to a measured migration run down cut that tail by fifty to seventy five percent over the term. This one is won with a schedule, not with a rate. The ask is a declining commitment matched to migration milestones.
Which gives you the priority order for the whole negotiation. Spend your leverage on the out years rather than on year one. A point of discount in year one is worth one year. A capped escalator, a bounded year four renewal, a step down bridge and a price hold on growth are worth every year of the term and usually the term after it.
And they are structurally easier to win, because they cost the account team almost nothing against the metric they are measured on this quarter. Year one discount comes out of the number they report. Year four protection does not.
Here is the move. Extend your model to seven years and put the conversion credit on its own line so the cliff is visible on the page rather than hidden in a total. Then open the negotiation on the out years: the year four renewal cap, the annual escalator, and the step down schedule on the legacy bridge, before anybody discusses the year one rate. If you are told those are unusual asks, they are not, and the ease with which they are granted is itself the tell that they were expected.
Next time, Tom and Claire take the door: what it costs to leave, and why that number belongs in this contract.
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