This illustration shows how step-up pricing is calculated for a server product. Customers will rarely have to calculate the cost of a step-up purchase themselves—they will be able to consult a table for the applicable price for their product and the number of years remaining in their license agreement—but this illustration shows how Microsoft creates the table. The illustration assumes the following:

• The Standard Edition of the product costs US$1,000
• Software Assurance on the Standard Edition costs US$250 each year
• The Enterprise Edition of the product costs US$4,000
• Software Assurance on the Enterprise Edition costs US$1,000 a year
• The customer purchases the step-up SKU at the beginning of the second year in a three-year license agreement
• The customer is spreading the license payments over the three-year term of the contract.

Every year the customer pays one third of the cost of the Standard license, or US$333, plus the annual SA fee of US$250 for the Standard license, for a total of US$583 each year.

Starting in the second year, the customer needs to pay the difference between the cost of the Enterprise Edition and the cost of the Standard Edition. The Enterprise Edition is US$3,000 more expensive, and annual SA payments on the Server Edition are US$750 more expensive. Because only two years remain in the contract, these additional costs must be paid over the course of the next two years. Thus, in addition to the US$583 that the customer pays each year for the Standard Edition, over the remaining two years of the agreement the customer will pay an additional US$1,500 each year for the Enterprise Edition license and an additional US$750 each year for Software Assurance on that license, totaling an additional US$2,250 each year. Thus, annual payments will total US$2,833 in the second and third years.

Back to associated article: Step-Up Licenses Offer Product Upgrades for SA Customers