It’s Not Just You. Customers Are Asking for Shorter and Shorter Contracts in the Age of AI

I was at a board meeting for a fast-growing AI + B2B startup that just crossed $100m+ ARR and brought on a VP of Sales. He was exasperated. “The good news? Everyone wants to buy. The bad news? They aren’t sure what they want in AI next year. So no one wants to sign a long-term deal.”

Buyers aren’t stalling. They want to go go go with AI and are willing to sign shorter deals. They just don’t want to be locked in for two or three years when the market leader in their category might look completely different in twelve months.

Even tougher, many are basically planning to reevaluate the competitive landscape in 8 months or so.

If you’ve noticed procurement getting more aggressive about contract length lately, the data confirms it isn’t your deal, your pricing, or your sales team. It’s a structural shift across B2B software, at least for now.

ICONIQ’s State of Go-to-Market 2026, based on a January survey of 150+ B2B software executives, showed:

• Sub-1-year contracts for new logo subscriptions have grown from 4% of deals in 2023 to 13% in 2026 (!)
• Three-year deals have dropped from 28% to 23% over the same period.
• And this is happening at the same time that sales cycles are getting shorter — down from 25 weeks in H1 2025 to 19 weeks in H2 2025.

Buyers are making decisions faster, but committing for less time. It makes sense. You’d do the same.

Many of these products barely existed a year ago. And the rate of improvement, and change, is so fast. Like nothing we’ve ever seen before in B2B software.

This Isn’t Buyer Hesitation. It’s Buyer Rationality.

With the rate of change we are seeing in AI, signing a three-year deal is not a vote of confidence. It’s a risk they are taking on without being compensated for it.

The former CRO of Snowflake, Chris Degnan, put it directly in the ICONIQ report: companies want to give their employees choice in the tools they use, but they are not willing to sign long-term contracts in an AI world where the best solution can change in a matter of months. They want to keep their options open.

This is especially true in categories where multiple credible vendors are spending heavily on product development. If your buyer isn’t sure whether you, a direct competitor, or a platform player is going to win their category by the end of 2027, locking in for three years looks less like partnership and more like a bet they didn’t ask to make.

And do customers even know what to buy for 2027+? Or what to pay for 2027+? If token costs (if not AI model costs net net of usage) keep declining and the competitive landscape keeps shifting, committing to a multi-year contract at today’s prices for a solution that might be obsolete or dramatically cheaper in 18 months is not a great deal. Shorter contracts are how buyers manage that uncertainty without walking away from the purchase entirely.

Consumption Pricing Is Making This Harder. And 48% of B2B + AI Leaders Have Hybrid Models.

The contract length shift is being accelerated by the move toward consumption and usage-based pricing models. When buyers can’t precisely forecast how much they will use a product, they are even more reluctant to commit upfront to a multi-year number.

ICONIQ’s data shows that 48% of companies now have hybrid pricing as their primary model, with pure consumption and outcome-based pricing also rising. The more variable the pricing model, the harder it is for a buyer’s finance team to approve a long-term commitment. Short-term contracts become the compromise: we’ll buy, we’ll use it, we’ll renew when we have real data.

Don’t Fight It. Even If Your Sales Team Hates It.

First, stop trying to fight it with discounts on multi-year deals. Discounting to get a three-year signature from a buyer who fundamentally wants flexibility just creates a customer who resents the commitment by month 18. You win the deal and lose the renewal.

Second, if you are going to offer shorter contracts, make sure your compensation structure reflects it. The ICONIQ data shows that AE comp is already shifting. Net New Recurring Revenue as a comp metric jumped 8 points in one year, from 25% of companies using it to 33%. Net Dollar Retention as a comp metric rose 5 points. Your sales team needs to be rewarded for the quality of what they close, not just the TCV. A 12-month deal that expands 150% is worth more than a 2-year deal that churns at renewal and where usage never scales.

Third, the answer to shorter contracts is better FDEs, better onboarding of agents, and a beter post-sales motion. Not a magically better sales motion. ICONIQ’s data shows that customer success-sourced pipeline wins at 52% — higher than sales (43%), channel (39%), or marketing (27%). When CS owns expansion, when customers can see ROI before the renewal conversation starts, the contract length at signature matters less. You earn the next commitment after the first one, not before.

Fourth, if you are building in a category where the competitive landscape is genuinely uncertain, be honest about it with your buyers. Buyers aren’t naive. Pretending you have certainty about where the market is going in three years, when you don’t, damages trust more than it helps close deals. The vendors winning right now are the ones making it easy to start, easy to expand, and easy to renew — not the ones trying to lock buyers into commitments they don’t want.

The Good News Hidden in This Data: There’s So, So Much More Budget Flowing to AI B2B

Here is what the contract length trend does not mean: buyers are not pulling back from B2B + AI software. You know that:

• Top-quartile ARR growth reaccelerated to 111% for companies under $50M ARR in H2 2025.
• Net Dollar Retention remains at 110% to 123% across revenue bands.
• Customers are buying. They are expanding. They are just doing it on their own terms.

The companies winning in this environment are the ones that have accepted the new terms and built their GTM around them. Shorter initial contracts with strong post-sales expansion is a completely viable business model — arguably a healthier one than long commitments with weak retention. It just requires a different playbook than the one most enterprise B2B companies built in 2018.

Customers are not asking for shorter contracts because they don’t believe in your product. They are asking because they are operating rationally in a market where the best answer to “who wins this category” is genuinely unclear. The right response is to make your product so embedded in their workflow within the first 90 days that the renewal is not a negotiation. It’s a formality.