In our modern, cloud-based business environment, Software-as-a-Service (SaaS) tools are essential for meeting your enterprise software needs.
The subscription pricing models of SaaS platforms like Salesforce and Hubspot allow businesses to scale up their software stack as their business grows and avoid the upfront cost of traditional software tools.
However, while adopting SaaS tools can bring many benefits, it also comes with its own set of challenges. A crucial aspect of this is negotiating the right pricing.
Price negotiation is a critical step in any SaaS agreement, as it determines how much you will pay for the service and dictates the ROI you’ll see from its deployment.
At Smartcost, we work with businesses to negotiate better deals with their software providers. Our expertise can help you save thousands on your SaaS contract spend.
In this blog post, we'll take a closer look at SaaS pricing negotiation and provide you with the knowledge and strategies you need to negotiate the best possible deal for your organization.
What is SaaS Contract Negotiation? Can SaaS Contracts Be Negotiated?
SaaS contract negotiation is the process of discussing and agreeing on the terms of enterprise SaaS deployment.
Cloud-first businesses tend to spend big on their SaaS stacks. This can often lead to spirling software costs, especially for those businesses that rely on enterprise tools like ERP and CRM platforms. Often, businesses fail to review their contract terms and will end up paying for licences and subscriptions they don’t need.
In fact, businesses only tend to use 60% of their provisioned SaaS licences and resources - leading to thousands of dollars of wasted spend every year.
Why do so many organizations suffer from poor SaaS contract optimization?
The simple truth is: many companies don’t realize that you can negotiate the price of SaaS licenses far more than you think. Most software providers publish their pricing plans online, but there are plenty of factors you can use to bring down your software costs.
What are some key terms and elements of a SaaS contract to negotiate?
Price
First and foremost, we need to negotiate on price. As mentioned before, many SaaS customers don’t know they can negotiate the price they pay for their software.
The following tips will help you get the best price on your SaaS contract:
Understand a SaaS tool’s pricing tiers fully: SaaS providers love to split their pricing plans into tiers. From their perspective, this is a brilliant way to segment their customers based on the resources they find important.
Consider closely which tier matches your needs - and don’t blindly upgrade your pricing tier without exploring whether add-ons provide the functionality at a lower cost.
Explore discounts: SaaS vendors often provide discounts to convince customers to ‘seal the deal’. These are commonly found as volume discounts or loyalty offers. It can be quite difficult to find discounts, especially for enterprise SaaS products. That’s why a negotiation service is so important. Smartcost has a database of known discounts for popular SaaS tools. We'll use our connections in the industry to uncover the best price for your business!
Billing Terms & Contract Length
The duration of your contract and how often you’ll pay can often make a big difference to the overall cost of a SaaS deployment.
For vendors, long-term contracts make forecasting their revenue easier - and they offer discounts for committing to long-term spending. In fact, many SaaS providers advertise annual plans with big savings over their monthly alternatives.
We recommend making it clear in a SaaS contract how to terminate an agreement if you need to stop using the product. This may lead to less favorable prices, but avoiding vendor lock-in by adding a termination clause is an extremely important contingency step.
Service Level Agreements (SLAs)
A service level agreement or SLA is a document that sets out what a SaaS vendor is legally required to provide you throughout the term of your contract.
SLAs often cover:
The level of customer support you expect from the vendor if things go wrong
The minimum expected uptime of the tool (vendors often advertise 99+ uptime)
The response times to customer support requests
The process for handling feature & functionality requests
Negotiating strong service level terms will help hold a SaaS vendor to account, especially regarding costly operational downtime.
The most useful SLAs set out a strong penalty or release clause if the terms are broken. For example, Slack offers its enterprise customers 100 times the amount they paid during the time the service was down, paid in Slack credits.
SLAs are commonly reserved for enterprises that use them as negotiating pawn to protect their SaaS investments. Very few vendors will publicly advertise an SLA - and so a negotiation service like Smartcost is often required to get the best promises and terms from a SaaS provider.
Best Practices for Mastering SaaS Contract Negotiation
Now that we’ve covered the main terms you’ll need to consider when negotiating your SaaS contracts, let’s explore some important tips for scoring the best deal with software providers.
Negotiate expansions, extensions, and renewals of existing contracts
A common misconception is that you can’t improve your SaaS contract terms if you’re an existing customer.
However, negotiation is just as important when you’re renewing or even under contract as it is for new purchases. Here’s how the negotiation process may differ depending on your contract situation:
Renewal
A contract renewal is often the most favorable opportunity for existing customers to negotiate better terms. You’ll need to prepare well in advance of your renewal date.
Here are a few things to watch out for:
Check if you have an auto-renewal clause: Many vendors add in auto-renewal clauses to ensure that customers keep paying after their initial contract period is up.
Watch out for your contract’s renewal deadline: For contracts with auto-renewal clauses, you’ll want to take note of your renewal deadlines - i.e. that last date when you can cancel or change your contract. If you miss this, you’ll be forced to continue with the same terms.
Use your SaaS reports to figure out your usage: Understanding how often you use a software tool and which features you find most useful can help you figure out how to optimize your SaaS pricing plan. Dig into your usage reports and study how much your team uses the product. Are you using all the resources afforded to you in your plan? Does your usage change over time? Has your needs changed since you first signed the contract?
Under contract
If you’re well within your contract period, you have a couple of options for renegotiating your SaaS agreement. These are:
Extensions: As SaaS vendors value predictable, recurring revenue, they may accept a lower fee or better terms if you’re willing to sign a longer contract. Confident you’ll be using the product for longer than your current contract period? Offer an extension.
Expansions: Has your usage changed dramatically since you signed your initial contract? Are you planning to use more of the product’s resources and features in the near future? If your business’s needs change, so should your contract.
Negotiating when under contract is a difficult endeavour. We strongly recommend working with a SaaS contract negotiator like Smartcost to put your best foot forward. This process involves tracking industry prices and spotting when SaaS vendors offer lucrative discounts to other customers.
Plan out the resources and features you’ll need before negotiating
A common pitfall that many businesses face is not understanding how much or how little they’ll use a SaaS product. It’s vital that you identify your business needs and study how the software product can be used to meet them.
For this, you should undergo a software audit. This involves:
Identifying your business goals
Considering how your current vendor contracts meet these needs
Examining which areas of your business aren’t engaging with the product
Finding out where resources are being wasted or underutilised
Using industry insights to forecast your future usage after deployment
Work with a SaaS contract negotiation service
SaaS negotiation is a tricky and delicate process. It requires a great insight into your own software usage and how vendors price their products to different customers.
SMBs often lack the industry knowledge to get the best prices and terms in their SaaS contracts. That’s where a SaaS contract negotiation service is so useful.
Furthermore, negotiations take hours of research. This takes time away from your business. By bringing in a 3rd party expert you can obtain the best prices while focusing on your day to day business.
Smartcost is run by SaaS experts who have the inside information on how to find value and identify fair prices for software. Our experienced team will work with vendors to lower your price and secure the best possible terms.
Our proprietary database of software prices and extensive industry network gives us access to the discounts available in the markets, and how much you can save.
We handle new purchases, implementation, and renewals, and even negotiate existing contracts, so you can focus on your business. Our clients save an average of 30% off their SaaS agreements, and we don’t charge you if we can’t lower your annual spend.
Master SaaS Contract Negotiation with Smartcost
With so much of modern business relying on software and cloud tools - such as CRMs and ERP solutions - it’s so important to get the best terms in your SaaS contract.
The negotiation process is an arduous one, but by planning out your resource usage and understanding how vendors draw up contracts, you can reduce your software spend and secure better contract terms.
The easiest way to guarantee savings is to work with a negotiation service. Our team at Smartcost will audit your software needs, help you draw up a spending plan and will negotiate with vendors for you.
Our clients save an average of $30-80k a year. Our fee is based on how much you’ll save, and we’ll refund you if we aren’t able to lower your software spend.
Ready to start negotiating better SaaS agreements? Get in touch with us today and see how much you can save!
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