I see. So let’s assume your service is normally $1k/month, and you want to give them 2 months free. The preferred way to handle that would be with a 12 month term, and then applying a one-time discount equal to the cost of two months.
In a 12 month term, you’d quote 12x$1000 = $12,000 and then add a $2000 one-time discount, which makes the “sell-price” $10k. You can generally recognize the full $12k as ARR however (you have to define that with Finance and your accounting rules must be consistent). The renewal price would be $12k at the end of that term, no more one-time discount. In past companies I’ve been a part of, such one-time discounts, as long as they are reasonable and you have evidence that they aren’t perpetual discounts (i.e. you have to keep giving 2 months off in future years), are not impacting ARR/ACV.
Important consideration: your finance team may not agree with that approach and instead require something else. It’s really a matter of how they define ARR/ACV at this point. This can be different for different company stages as well. Public companies still have some discretion in the definition (but must disclose that definition in their financial reports), but generally have less flexibility given GAAP rules and the various public accounting standards. Earlier stage startups usually have more flexibility with how they define ACV.
Garima G., I hope that helps, it might be best to talk to have a conversation with Finance if you haven’t done so already.
