SaaS Contract Management: What to Negotiate, And Why

7 min read Mansoor Ahmed

SaaS offers the convenience of getting powerful software into your hands quickly. Some see the need to “click-through” an unfavorable agreement as to the cost of that convenience, but the truth is that you have options. The companies that are most successful at managing IT spend also engage in SaaS contract management.

The increasing rate of adoption of subscription software and cloud environments has left companies with hundreds of SaaS contracts and SaaS agreements. But without efficient invoice and SaaS contract processing workflows, the situation quickly becomes a nightmare. When you learn to manage the process of negotiating, tracking, and renewing contracts more efficiently, it becomes the kind of thing you can do in your sleep.

What Is SaaS Contract Management?

SaaS contract management is an offshoot of the SaaS management workflow that deals specifically with negotiations, contracts, and service agreements. 

It can be difficult to manage, maintain, and negotiate an organization’s many contracts at once, which is why the process must be performed intentionally by the appropriate decision-makers. The IT and finance departments must be aligned to ensure each SaaS contract serves business goals. The benefits of SaaS contract management are most apparent upon comparing the purposeful negotiation of contracts to click-through agreements.

Enterprise Contracts Vs. Click Through Agreements

You can typically buy a SaaS solution in one of two ways:

  1. An employee completes a click through agreement. This might be how it happens for SaaS that only a few employees will use, and is almost always the case for shadow IT that does not go through proper channels.
  2. An executive or a qualified member of the IT department negotiates an enterprise contract with the SaaS provider.

The second of these two options is highly preferable for the business purchasing SaaS. Intentionally negotiating a contract instead of accepting the click-through agreement provides numerous benefits.

Benefits of Enterprise SaaS Contracts

When was the last time you read all 17 pages of a privacy agreement when you opened a new SaaS account? Most privacy policies exceed the college reading level, and people figure there is nothing they could do about unfavorable terms anyway, so they may as well skip to the bottom and click “Agree.” And while it may be true that individuals have relatively little bargaining power, enterprises have significantly more.

An enterprise-sized organization can leverage its pull to get a contract significantly better than the agreement offered to individuals. Even if the software will only be used by a few employees, it is worth having an attorney and/or procurement take a look, because click-through terms are enforceable, and a single employee may inadvertently create consequences for the entire organization. 

For example, an individual employee might not consider how agreeing to a click-through agreement might allow the SaaS provider to access and store business data. This could expose the business to cybersecurity threats or throw the organization out of regulatory compliance. Take Skype or Zoom as examples. There are HIPAA-compliant versions, but the free versions do not comply with HIPAA regulations, so any healthcare employee that signs up for a free version is creating potential problems for their organization.

Benefits of Click-Through Agreements

There are many benefits of click-through agreements for SaaS providers (eliminate the negotiation process, set terms and conditions of your choosing, get user consent to the privacy policy, etc.). For users, there is really only one benefit of accepting the click-through agreement: it is easy. Negotiating an enterprise contract takes time and effort, while simply clicking “I Agree” allows employees to start using an app in seconds. Though you may sacrifice some convenience to manage your SaaS contract, consider the benefits of negotiating various aspects of the contract to see the benefits.

What Can (Often) Be Negotiated With SaaS Companies

Almost everything in life and business is negotiable. When a SaaS client gets experts from finance, cybersecurity, and law involved, those leaders can determine what needs to be negotiated to protect the company’s interests. Some businesses may have the need to negotiate very niche details in the contract, while others will find that focusing on the following general categories gets them enough protection:

  • Net Price. The organization may be able to receive bulk discounts by purchasing a large number of seats, while also negotiating the same rate for any future seats needed. It is not especially hard to see why negotiating price is important: It keeps SaaS costs down for the organization.
  • Fees. Given that the entire enterprise will be using a single contract, it may be possible to eliminate some fees that are normally charged for each individual user (such as platform fees or implementation fees), generating additional reductions to the gross price. Like negotiating on net price, addressing the fees in the contract is a good way to control SaaS spending.
  • Support Costs. There is yet another opportunity to reduce costs down the line by negotiating lower rates for support or getting some support boiled into the net price. This is important because it can help you avoid getting into a conflicted situation where you are afraid to ask for the support you need because it would cost too much.
  • Length of Term. The contract start date, end date, renewal date, and automatic renewal terms, and cancellation policies may be negotiated. For example, an enterprise may request that certain departments be notified in writing before a renewal is processed. Negotiating the length of term will make it much easier to manage SaaS renewals.
  • End of Term Renewal. Salesforce, for example, has been known to force a 15% price increase upon renewal, but enterprises may be able to seek more favorable SaaS renewal terms when negotiating large contracts. If you negotiate how the renewal works, you will be able to control costs more effectively over time.
  • Service-Level Agreement (SLA). The SLA may be kept separate from the contract in some cases (which allows it to be reviewed and revised on a different timeline without creating the administrative burden of reviewing the entire contract). In either case, the SLA might be used to require certain levels of reporting, an increased storage limit, or that the service must be operational 99% of the time lest the price be prorated. This is worth negotiating because it makes the SaaS provider contractually obligated to meet your expectations.
  • Data Breach Response. Enterprises can ensure that their cybersecurity needs are met in terms of improved data breach handling or other increased regulatory compliance measures as necessary. Make sure to address this in your negotiation so your business data will be safe and your organization can meet all applicable compliance regulations.

Information about data access is critical for modern businesses, and must not be overlooked in SaaS contracts and agreements.

A Note on Data Handling in SaaS Contracts and Agreements

97% of companies claim that proprietary data is “very valuable” or “quite valuable” when it comes to differentiating their business from competitors. Data is a valuable business asset and the stakes are even higher thanks to increasingly strict regulation. Companies beholden to HIPPA, GDPR, SOC 2, CCPA, and other compliance standards may be especially sensitive to how SaaS companies protect their data.

One of the biggest things that separate some SaaS providers is how they handle data. It may be helpful to negotiate who can access your data and how they can retrieve it. It is helpful to get something in the contract about what happens to the data after the contract ends. Furthermore, the contract can stipulate how long the enterprise can access data via the SaaS provider after the contract ends. That is, if the data is to be deleted, how long should the provider wait before doing so?

When to Negotiate SaaS Contracts

The earlier you can negotiate your contract, the easier it is likely to be. If you work with a sales rep early in the process, they will be motivated to meet your needs and win your business. Once the contract is already in effect, you have lost some of your bargaining power and negotiations become more difficult (but still not impossible). The next easiest time to negotiate a SaaS contract is before your renewal date comes up.

Features That Make SaaS Contract Management Easier

Using the right tool can simplify SaaS contract management:

  • To start, holistic app discovery makes it possible to discover when employees sign up for apps on their own, and these agreements can be consolidated under an enterprise contract.
  • Once everything has been brought into the proper channels, historical spend data makes it easier to see sudden spikes or other trends that may indicate an issue.
  • Usage data, too, can give you a better idea of what your needs are and how you can “right size” your contracts.

Contact us to learn how Quolum’s invoice and SaaS contract processing workflows can simplify your SaaS agreement management.

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