The average company juggles 110 SaaS applications throughout the year. And the SaaS market isn’t showing signs of slowing down: Gartner predicts that companies will spend almost $172 billion on SaaS purchases in 2022. With hundreds of SaaS contracts to manage, costs can quickly grow out of hand. How do you negotiate SaaS contracts to set yourself up for long-term success?
First things, first: to get a handle on your SaaS spend, first complete an inventory review. Once you know which vendors you want to keep, it’s time to start negotiating SaaS contracts. Here are our top 10 SaaS contract negotiation essentials for securing favorable pricing and contract terms.
Always negotiate your SaaS contracts
Companies are in a strong position to ask for more from their vendors during contract negotiation. Taking your vendor agreement from an online click through agreement, to a more formal contract negotiation can secure you a number of concessions from your vendors.
Most SaaS vendors measure their revenue either monthly or as annual recurring revenue. This makes it much easier for them to report earnings to investors and other stakeholders. Sales reps are willing to give concessions in order to keep your annual contract. These can include discounts, redlined contract terms, and tiered pricing.
When is the best time to negotiate?
The earlier you can begin negotiations with your SaaS vendors, the better your end result will be. To avoid paying for two of the same services, you’ll want to plan your new agreement with a new vendor to start when your existing agreement with your old vendor runs out.
Your renewal can be leveraged in negotiations every time it comes around. For example, if you know that you want to purchase significantly more licenses from your CRM vendor for the upcoming year, discuss this with your sales rep early. In fact, your sales rep wants to speak to you at least a few months before your contract renewal date.
Here are a few key details you must know well before any renewal conversation:
- Renewal due dates and whether it’s an auto-renewal
- Cancellation period
- Who owns the contract at your company
- Employee sentiment
How to Negotiate SaaS Contracts: 10 Essentials
Even small startups have levers they can pull to get more value out of your vendor contracts. Here are our top 10 contract negotiation essentials to negotiating a new SaaS agreement.Even small startups have levers they can pull to get more value out of your vendor contracts. Click To Tweet
Always negotiate price. You may not get exactly what you asked for, but most SaaS vendors have discounting and promotional deals that benefit both parties. What’s the purchasing unit for your vendor? This could be users, number of transactions, or total data usage, to name a few.
Ask if there are bulk discounts if you purchase a large number of units. If you know you’ll need more units in 6 months, ask to lock in a good rate now.
Find out about any additional fees involved. You may need to pay extra for implementation services, training, support packages, or integrations. It’s possible that you’ll need to purchase from a third party also to flesh out the features in your platform.
You can’t always eliminate these fees, but you can negotiate your way into cheaper enablement services, for example. The goal is to avoid spending more money than you initially agreed to because of unexpected fees.
If you are purchasing a package or a product tier, ask which support services are included. You may have access to email or chat support. Find out what their response time policies are, especially for emergencies. If you pay for a premium support package, you could have a dedicated support rep or customer success manager.
Know what your options are if you need to cut spending or downgrade to less users or a lower package. Some companies are willing to spread out your initial contract amount over a longer commitment term. For example, you can reduce your spend for this quarter by agreeing to sign a new 18 month agreement for the same total amount.
Duration and termination
Vendors like long term contracts because they’re easier for forecasting their revenue for the year. Contract length can be one month, one year, or even three years + commitments. Be clear on how to terminate these agreements including how far in advance of a renewal date to give notice of termination and how long you are locked in for. Ask if your renewal is for the same duration as your current agreement.
If you can’t (or don’t want to) commit to anything long term, find out if they offer pay-as-you-go or month to month contracts. They’re usually more expensive, but you can get out of the contract easily without any penalties.
Change in Control
A Change in Control provision covers what happens if there is a change in management or ownership of the other party. For example, if your software vendor is acquired by another company, your agreement should allow your company to terminate the agreement without paying any fees or other costs.
Indemnity clauses are part of many types of contracts. Often, a vendor will have a section in their agreement that protects it from third party claims, like being sued due to the actions of one of their customers.
You can also include an indemnification clause to protect your business in case you are sued due to a data breach of your customer information, that was the fault of your vendor. The vendor would need to reimburse your company for recoverable damages due to third party claims.
Service level agreements are commitments that your vendor is contractually obligated to provide, such as:
- Data storage limits
- Uptime (usually 99.9% guarantee)
- Data sync frequency
You can negotiate concessions if these service levels are not met. For example, if there’s a bug that cripples your platform for any amount of time, and restricts your ability to conduct business, you can demand prorated billing, additional discounts, or even a cancellation.If the SLA breach caused your business to suffer any loss, ask for compensation to gover that lost amount.
Data and security
Data security is paramount and SaaS providers have to follow standard regulatory compliance measures to protect your data. Double check the details before you sign. Many tools aren’t HIPAA or PCI compliant – confirm your needs to avoid legal trouble.Data security is paramount and SaaS providers have to follow standard regulatory compliance measures to protect your data. Double check the details before you sign. Click To Tweet
If there is a data breach, and private information is exposed, make sure that the vendor doesn’t push all liability onto your company. You can also demand an out-clause for egregious security breaches.
Backups and recovery
If you choose to terminate your contract, what happens to your data? Some vendors don’t make it as easy for their customers to access and download their data when they’ve ended a contract. Be aware of how the vendors give you access: can you download your data yourself? Can you erase it? Or do you need to pay for a data report? Is the cost prohibitive?
In the rare case of a major technical issue that deletes your most recent data, you also need to know how and where backups are stored. Find out where the data is being backed up. Is it in the same data center as your live production data or a different one in another region?
There might be limitations built into your pricing tier that can halt your business, or result in an unexpected bill. For example, your package may include up to a certain number of API calls or guarantee low rates for VOIP calls to anywhere in the US. A tier may also have a user limit like 100 users, what happens when you need 101 users? Can you add-on or does that push you into a more expensive tier?
Early notice of non-renewal
Some tools are so embedded into your business processes that pulling them out and replacing them is out of the question. If there are any significant concerns, like low adoption or too high of a price, Your sales rep will appreciate an early heads up. Their job is to keep your business so you may secure heavy discounting or free training.
Get the most out of your SaaS spend
Managing dozens, or even hundreds, of SaaS applications and their contracts can be an overwhelming task. Avoid disadvantageous contractual and economical obligations by taking the time to negotiate every larger contract.
Your vendors are open to partnering with you and it’s likely you can negotiate some favorable concessions in your contract if you are upfront about your needs. We can make it even easier. If you’re a premium Quolum customer, we’ll assist you in managing these contract negotiations.