What Is a True-Up (and a True-Down)?
A true-up reconciles actual usage above a committed licence count and bills the difference. A true-down does the reverse, and is far less common.
One mechanism is in almost every contract. Its opposite usually is not.
I spent years on the vendor side of enterprise software, and a true-up is a contractual mechanism that reconciles actual usage against a committed licence count, typically requiring the customer to pay for any usage above what was originally licensed. A true-down is the reverse, adjusting the commitment downward if usage falls below what was licensed, though this right is included far less often.
Why usage only moves the bill in one direction
True-up
Usage above the commitment is reconciled and billed. Present in most agreements by default.
True-down
Usage below the commitment adjusts the cost downward. Rarely included unless it was negotiated in.
A team that grew and then shrank keeps paying for the peak until the term ends, unless the contract carries the second mechanism as well as the first.
What this looks like from the vendor side
True-up mechanics are common and generally favour the vendor by design. If you exceed your licensed count, you owe more, usually reconciled annually or at renewal. True-down rights, letting you pay less if usage drops, are a meaningfully less common contract term, and one that is easy to overlook entirely if it is not specifically negotiated in.
Why this asymmetry matters
Without true-down rights, usage can only move a contract's cost in one direction over time: up. A team that grew and then later shrank still pays for the peak commitment until the contract term ends, unless true-down flexibility was built in from the start.
How to spot it in your contracts
- Check whether your contract includes true-up language, and confirm how and when it is reconciled
- Specifically check whether true-down rights exist, rather than assuming they come with true-up
- If negotiating a new or renewed contract, consider asking for true-down rights explicitly, since they are rarely offered by default