Businesses, like people, are creatures of habit. Once you’ve found the right SaaS tool for your specific needs, you’ll likely want to stick with that vendor.
SaaS companies understand this inertia and have rigged the SaaS renewal process to maximize the value of renewals.
In the rush to maintain continuity, many businesses inadvertently fall into common renewal traps. From unwittingly auto-renewing into less favorable terms to missing out on opportunities to negotiate better deals, it’s easy to lose out.
However, once you understand the art and science of SaaS renewal management and take some easy steps to renegotiate contracts, you can use this process to optimize your spending or even gain access to new perks and features.
In this article, we'll highlight the nuances of the SaaS renewal arena, guide you through its potential traps and show you how to turn these renewals into strategic wins. Let’s go!
Why should businesses be concerned about how SaaS contracts are renewed?
In the modern corporate playbook, SaaS tools are core drivers of efficiency, innovation, and productivity. Yet, when it comes to renewing these tools, many businesses approach the process with a surprising level of complacency.
At face value, a renewal might seem like a standard cost of doing business. However, without scrutiny, businesses can end up locked into less favorable terms. SaaS providers know this and often sneak price hikes into out-of-contract or renewal deals.
Over time, these seemingly minor oversights can aggregate into significant financial burdens, especially when multiplied across multiple SaaS tools.
Each renewal is a chance to negotiate. Whether it's better pricing or adding new features and perks, a proactive approach to renewals can yield some useful benefits.
Finally, the renewal process is a brilliant opportunity to take a deep dive into usage metrics and actual needs and optimize spending. By doing so, businesses can identify and scale down underutilized resources, ensuring that they're only paying for what's genuinely beneficial.
According to Nexthink, almost half of all software licences go unused. Contract renewal is the perfect time to shed some of this wastage.
What are the different types of SaaS Contract Renewals?
Before we take a look at the renewal process in detail, let's talk briefly about the different forms of renewal clauses.
Automatic Renewals
Automatic renewals mean that a contract or subscription will automatically continue for a specified period unless explicitly cancelled by the subscriber or user before the renewal date.
Essentially, unless action is taken to end the contract, it will keep renewing, usually under the same terms and conditions as the original agreement. This is the most common default renewal clause in a SaaS contract.
Why? It takes advantage of a customer’s tendency to forget to cancel or renegotiate at the end of the contract term.
We don’t recommend opting for automatic renewal. Here’s why:
Lose the leverage to negotiate: The final few moments of your contract are when you hold the most negotiating power. With an impending renewal, vendors are often more willing to offer concessions, whether it's in pricing, additional features, or flexible terms.
Increased likelihood of vendor lock-in: Automatic renewals, especially if they come with long-term commitments, can lead to a sense of being trapped with a particular vendor. It can inadvertently promote a "set it and forget it" mentality. This can mean you lose the chance to weigh up other options or explore different products with the same vendor.
Risk of falling victim to hidden terms and clauses: Not all auto-renewal agreements are created equal. Some might embed less favorable terms into the renewal clause, which businesses may overlook without a thorough review. A manual renewal process allows you to check over the terms before pushing ahead.
There are of course some benefits to auto-renewal. It’s just plain easier as users don’t need to go through the renewal process manually. This also avoids interruptions to service if you forget to manually renew.
Businesses can also forecast their expenses more accurately, knowing certain contracts will continue unless they decide otherwise. Sometimes a certain deal is better than a better one.
Manual Renewals
The inverse is of course manual renewals. In contrast to automatic renewals, manual renewals require explicit action from the subscriber or user to continue the service beyond the original contract period.
As discussed above, the manual process allows businesses to evaluate the effectiveness of a SaaS tool and decide whether to continue or switch to a different provider. There's no risk of inadvertently continuing a service that's no longer desired or beneficial.
With this increased control comes the responsibility of tracking and managing renewal dates to prevent unintended service lapses. However, for proactive businesses, we think this is worth the hassle!
The SaaS Renewal Process: Step-by-Step
Navigating the SaaS renewal landscape might seem daunting, but breaking it down into manageable steps can streamline the process.
Here's a comprehensive step-by-step guide to the SaaS renewal process:
Step 1: Review your current contract
The first step in the SaaS renewal process is crucial: you need to know the ins and outs of your current agreement.
What should you be looking out for?
Duration and Key Dates: Understand the start and end dates of your contract, and pinpoint any other significant milestones within it.
Notice Period: This is the timeframe within which you must inform the vendor whether you plan to renew, renegotiate, or terminate the agreement. This could be anywhere up to 60 or 90 days before the contract's end date. Don’t fall into the trap of being too late to negotiate!
Termination Clauses and Penalties: It's crucial to know what happens if you want to exit the agreement early. Are there fees or penalties? What's the process?
Data Access and Portability: How easy is it to access and move your data if you decide to switch to a different provider?
With a decent understanding of your current agreement, you're set to make informed choices during the renewal process.
Step 2: Perform a Software Audit
After understanding your current contract, the next logical step is to assess the software's actual use and value within your organization.
Evaluate Utilization: Check how often and by whom the software is used. Are there features that remain untouched or users who rarely log in? This can highlight areas of inefficiency.
Compare to Business Needs: Does the software still align with your business objectives and requirements? Perhaps your team only uses a fraction of its features, or maybe the business has outgrown its capabilities.
Gather End-User Feedback: Collect input from the software's primary users about its performance, usability, and any challenges they face. This feedback can be invaluable when renegotiating or considering alternatives.
Check for Overlaps: Other tools or software solutions in use within the organization may have overlapping functionalities. If two tools serve the same purpose, it might be more cost-effective to choose one over the other.
Simply put, if you understand the SaaS tool’s true value to your organization, you’re far more likely to reach a favorable contract deal.
Step 3: Decide Whether to Renegotiate or Look for Other Options
The grass may be greener on the other side of the fence! We highly recommend considering the other options on the market, even if you’re fairly comfortable with your existing provider.
There might be newer solutions that better fit your needs, come at a better price point, or offer advanced features.
If you're leaning towards renegotiation, you can use insights from your software audit and market research as leverage. It’s important to note areas where the software falls short or where competitors offer better value - this may be key to negotiations.
Not sure how to research and select new SaaS tools? Check out our free guide on the SaaS procurement process for an in-depth look!
Step 4: Negotiate a Better Renewal
For the vast majority of cases, we recommend trying to renegotiate instead of opting for the default renewal deal.
As you think about renewal, it's crucial to actively engage with the vendor. Present them with tangible data, be it in the form of usage metrics that demonstrate your commitment, industry benchmarks that can provide context, or offers from competitors that might tilt the scales in your favor.
Opening a line of dialogue and negotiation isn't just about getting a better price. It’s an opportunity to secure improved terms, obtain additional features, or even receive enhanced support.
Remember, SaaS vendors value customer retention as it will cost them significantly more to acquire a new customer than keep an existing one. This offers you a decent amount of leverage in the negotiation phase.
Who battles at the bargaining table? It can be quite a time-consuming task to get the best deal if you handle this yourself, but it’s entirely possible. If you’re a natural deal hunter, you might get a real kick out of this process!
But, we understand that the opportunity cost of taking decision-makers’ time away from their job can be too high. That’s why we recommend working with a SaaS negotiation service. We’ll talk more about what they do later on!
We have a full step-by-step guide on how to approach SaaS contract negotiation. Check it out here.
Step 5: Communicate Decisions Internally
As soon as a decision is made regarding renewal, discontinuation, or a switch to a different tool, you’ll need to loop in all relevant departments or teams.
This isn't just about top management; it involves the whole gaff! Timely information can help teams prepare, adjust, and transition without hiccups.
For example, if a tool is being phased out, teams can export necessary data or complete tasks before the cutoff. Conversely, teams have new features to play with, tell them!
Step 6: Review and Refine
Post-renewal, it's not time to close the books just yet. It's essential to capitalize on the experiences and learnings this process brought forth.
This may sound like elementary school talk, but reviewing and refining your process is so important.
Acknowledge what went smoothly in the renewal process. Was there a particular strategy that worked exceptionally well in negotiations? Did specific data points or metrics help you seal the deal?
Spot the Challenges: Not all renewals will be seamless. Where did you face obstacles? Was there a lack of clarity in the contract? Did internal communications break down at any point? Were there hitches in transitioning to new terms or tools?
Negotiate Better Renewal Terms for SaaS Products with Smartcost.io
As we alluded to earlier, the best way to make the SaaS renewal process work for you is to team up with a SaaS negotiation partner.
At Smartcost, we’re experts on SaaS contracts and can help you get the best deal. We’ll walk you through the entire renewal process and negotiate on your behalf.
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.
Want to improve your SaaS contract terms? Get in touch with us today and see how much you can save!