The Loyalty Loop
Has the EU just killed ARR as we know it?
5-6 minute read
TLDR version: The EU Data Act allows any customer (mainly B2B) to break annual contracts with companies providing data processing services with 2 months notice of intention to switch providers. However, like with all laws, it has its limitations and grey areas.
The End of Predictable Revenue?
ARR has been the staple growth and prediction metric for data-heavy businesses, enabling them to forward predict annual cashflow and revenues, in certain scenarios years in advance thanks to multi-year contracts.
That is no longer the case.
The EU Data Act, which launched on January 11, 2024, came into effect on September 12, 2025. This seemingly has gone under the radar of many providers, as the Data Act affects any company that uses data as part of their core system. So what does this new Data Act do?
"The Data Act is a law designed to enhance the EU's data economy and foster a competitive data market by making data (in particular industrial data) more accessible and usable, encouraging data-driven innovation and increasing data availability. To achieve this, the Data Act ensures fairness in the allocation of value among actors in the data economy."
In short: No more locking customers into systems with data structures that make it near impossible to access or switch providers.
3 Key Highlights
Contracts can be cancelled with 2 months maximum notice when switching
Customers can now cancel an agreement with the intent to switch to another provider. The caveat to that is, you don't actually have to switch to a competitor, you can just leave.
Once the switching period is completed, the contract and payment requirements are considered terminated pending any termination fees.
No switching charges, exit, or access fees
Previously, companies charged "migration fees" when switching providers or obtaining access. Under the Data Act, this data is required to be provided free of charge.
Migration fees will be completely banned from January 2027, with pass-through migration costs being the only cost that is legally allowed to be used up until such time. Companies aren't allowed to try and recover the remaining contract value from early termination as "migration costs", as this could be seen as a switching barrier.
Pre-paid ARR will likely need to be refunded
Long term contracts are naturally still possible, but will be tied more closely to usage and the service that has been provided.
While not explicitly stated in the Act, customers could reasonably expect refunds of unused pre-paid amounts when exiting early. Discounts provided for long term contracts, or additional incentives are likely costs that can be retained by the provider.
Who is affected?
At first glance, this could be viewed as the deathblow to predictable ARR, as many services take upfront payment of contracts and build company trajectory from what was considered stable revenue. But like with any new regulations or laws, there are several grey zones. Firstly, you would have to determine if that company would fall under those regulations.
Three main areas of business are affected:
  • Software-as-a-Service (SaaS) – Software applications
  • Platform-as-a-Service (PaaS) – Infrastructure and core software
  • Infrastructure-as-a-Service (IaaS) – Infrastructure resources such as web storage, server rental, or devices
Note: This affects businesses across a wider scope than covered here, including those working with Internet-of-Things (IoT) devices.
Does this apply to me?
Small enterprises are excluded from most data access and sharing obligations under the Data Act, but if they are providing the services on behalf of another company they may still be affected. Transparency and contract rules will still be in effect.
The definition of small enterprise is annual turnover of less than €10 million and no more than 50 employees.
As a person who has already bought services with data, what should I do?
Firstly, categorise all of your contracts by which one has the closest renewal period. Look over all of your agreement obligations and see what the terms of those contracts are. Check for early termination fees, discounts, training setup fees, etc. that you received and the fee structure of your contract.
Businesses can link penalties to these components and use this to recover some of the proportionate costs if customers exit early. Be ready to negotiate that these terms are not present in your renewal agreements.
As a person about to buy services with data, what should I do?
Carefully look over the full terms and conditions of your contract, and specifically look for early exit, termination, recovery, or cancellation clauses baked in.
If you've already signed an agreement with those penalties in place, legally you can't get out of it.
As a business owner, what can I do?
It's time to get creative with how your contracts are structured. As tempting as it is to add a penalty clause for contract termination proportionate to the value of the agreement, legally that's not going to be enforceable.
Instead, look to link recoverable costs to training, onboarding, upfront investments, and actions taken that could be classified as an actual net loss value. The most common action you can take is a clawback of the discount given as a commitment to longer terms throughout the period the customer has been active.
So is ARR Dead?
Not really, but what it does do is reduce predictability and clear forecasting. Fixed-term SaaS models still remain viable if contracts are carefully drafted to clearly identify recoverable costs and allow proportionate recovery when customers exit early.
Bonus: Does this apply to US companies?
Yes, because the service is being used within the EU and is not dictated by where the vendor is incorporated. These US contracts must comply with EU regulations within the EU market.
This is similar to how GDPR overrides US law for the processing of customer data.
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