A "true up" clause is one of the fastest ways SaaS contracts quietly get more expensive.
This guide explains true ups and overages in plain English and gives you a beginner-safe checklist to:
spot risk before it hits your invoice
prevent retroactive surprise charges
cap exposure and restore negotiation leverage
install monitoring so the problem does not return
Quick start
If you only do 3 things:
Find your contract’s true up and measurement language.
Identify whether charges can be retroactive and at what price.
Install a monthly usage check (so you see risk early).
Beginner-safe definitions
True up: A contract mechanism that bills you for usage above a baseline. The baseline is usually seats, usage, or transactions.
Overage: A charge for exceeding a limit (seats, usage, transactions). Overages often happen monthly; true ups often hit at renewal, but not always.
Baseline: The committed quantity (for example, 200 seats). The baseline is what you are paying for whether you use it or not.
Retroactive charge: The vendor charges you for past overage you did not explicitly approve at the time.
List price vs discounted price: Many vendors discount your base subscription, but charge overages at higher rates unless you negotiate otherwise.
The most common true up patterns
Pattern 1: Renewal true up (common)
You pay for a baseline all year.
At renewal, the vendor measures your peak or average usage and increases your baseline for the next term.
Risk: your cost ratchets upward and never comes down.
Pattern 2: Monthly overages (also common)
If usage goes above baseline in a month, you get billed for overages that month.
Risk: silent drift if nobody monitors usage.
Pattern 3: Retroactive true up (high risk)
Vendor bills for overage that occurred earlier, sometimes for multiple months.
Risk: budget shock and weak dispute position.
Pattern 4: Tier cliffs and forced upgrades
You exceed a feature threshold and get pushed into a higher tier.
Risk: a single team action triggers expensive tier jumps.
Pattern 5: Measurement ambiguity (worst risk)
The contract does not clearly define how usage is measured.
Risk: the vendor controls the measurement and interpretation.
The 6 questions that tell you how dangerous the clause is
Answer these from the contract. If you cannot answer, treat it as high risk.
What is the measured unit?
Seats, active users, admins, API calls, storage, transactions, endpoints, projects, or something else?
How is usage measured?
Peak, average, end-of-month snapshot, or vendor-defined?
How often is it measured?
Monthly, quarterly, at renewal, or “at vendor’s discretion”?
Can the vendor bill retroactively?
If yes, for how far back?
At what price are true ups billed?
Discounted rate or list rate?
Is there a way to true down?
Can you reduce baseline if usage drops?
Red flags to look for
These are the phrases that usually cost money later:
“At vendor’s discretion” (measurement or billing)
“May invoice retroactively”
“List price applies to additional units”
“Customer agrees baseline will increase to peak usage”
“No reductions permitted during term”
“Customer must notify vendor of usage increases” (shifts blame to you)
“Usage includes affiliates or contractors” (scope creep)
Beginner-safe negotiation checklist
Use this list. You do not need to be a lawyer to ask for these outcomes.
1) Cap exposure
Ask for one of:
a maximum % baseline increase per term (for example, no more than 10 to 20 percent)
a maximum $ overage per month
a grace band (for example, up to 5 percent over baseline is not billed)
2) Eliminate retroactive billing
Ask for:
no retroactive charges beyond a short window (for example, 30 days)
vendor must notify you before billing overages
3) Lock overage pricing to your discounted rate
Ask for:
additional units billed at the same per-unit rate as baseline
no list-rate overages
4) Define measurement clearly
Ask for:
measurement method explicitly written (peak vs average vs end-of-month)
the system of record (admin console counts)
how disputes are resolved and within what timeframe
5) Add true-down rights
Ask for one:
true-down at renewal based on recent actual usage
ability to reduce baseline once per quarter (even if limited)
6) Require usage visibility and alerts
Ask for:
access to usage reporting and export
notification if usage exceeds 80 and 90 percent of baseline
7) Align with renewal leverage
If the contract also has auto-renew and strict notice windows:
remove auto-renew or loosen notice requirements
ensure you can renegotiate baseline in time
Copy-ready vendor email to clarify true up terms
Copyable template (TEXT)
Subject: Clarification Requested: True Up and Overage Terms for [Tool Name]
Hi [Vendor Contact],
We are reviewing our subscription terms to ensure our internal controls match the contract.
Please confirm in writing:
1) The exact unit being measured (seats, active users, etc.).
2) The measurement method (peak, average, end-of-month snapshot) and the system of record.
3) Whether overages can be billed retroactively, and if so, the maximum lookback window.
4) The pricing basis for additional units (discounted rate vs list rate).
5) Whether we can true down at renewal if usage decreases.
Thanks,
[Name]
[Company]
Monitoring playbook (so this does not come back)
You do not need fancy tooling to monitor true up risk. You need a monthly habit.
Monthly 15-minute check per high-spend tool:
Pull current usage count (seat, active users, whichever is contract-relevant)
Compare to baseline
If above 80 percent, initiate a seat reclaim action
If above 90 percent, open renewal negotiation early and lock terms
If you do not have a seat reclaim motion, install it:
If you do not have renewal leverage, install it:
Example scenario (plain English)
You pay for 200 seats. The contract measures peak assigned seats monthly.
Your team grows and hits 235 assigned seats for two months.