Negotiating Software-as-a-Service (SaaS) contracts can be a delicate dance, where both parties strive to find a balance between value and compromise. Yet, amid the excitement of securing cutting-edge technology and favorable terms, lies a landscape fraught with potential pitfalls. In this post, we uncover 4 Pitfalls to avoid when negotiating SaaS contracts.
4 Pitfalls To Avoid When Negotiating SaaS Contracts
Committing to Excessively Long Contract Lengths
Avoid becoming trapped in a contract that fails to meet your requirements. Make sure to prioritise evaluating the contract’s terms against your long-term goals before making a commitment. Attempting to exit an agreement due to unmet expectations can be more costly further down the line.
SaaS vendors will often propose a default term length of 2-3 years. Many providers push this narrative because it helps them lock-in customers for prolonged periods of time without needing to worry about competition and churn.
Very often buyers can actually negotiate down to 12-months, which in many cases can be the minimum length for ‘enterprise-software’. There are instances where short length is available, like a month-to-month contract.
The important detail in negotiating this is to push back on contract terms that are longer than you would like them to be.
Overlooking Negotiable Terms & Conditions
Not fully understanding what you are getting yourself into is a challenge SaaS buyers expose themselves to when negotiating a contract. Ensuring that you have a comprehensive understanding of what you are signing up for will empower you to negotiate a better deal, and it will improve your ability to manage that contract effectively in the future.
Here are some contract terms commonly overlooked:
1. Renewal Process
Do you know what happens at the end of your SaaS contract? It is customary for auto-renewals to be applied as the de facto method.
Auto-renewals are typically triggered 60-90 days before the end date of a contract. Meaning if buyers want to cancel or renegotiate their agreements, they need to do so prior to the 60-90 day renewal window. In the industry, this is commonly referred to as ‘a customer’s notice period’, and it requires a customer to formally notify their vendor in writing that they want to cancel or renegotiate an agreement.
Pro Tip: the auto-renewal term can be negotiable, and replaced with a mutual consenting term for renewal by both parties. You should always keep an eye on when your notice period comes up, and what implications might exist for auto-renewing.
2. Payment Terms & Frequency
SaaS contracts generally have payment terms that are ‘Due on Demand’, and have an ‘Annual’ billing frequency.
In many cases vendors will be able to offer Net 15, and Net 30 without requiring much approval. Net 45 or Net 60+ might be possible, but it may require approvals and scrutiny from the vendor’s management.
The same is true for alternative billing frequencies. Vendors will often be able to offer monthly, quarterly, or bi-annual. It’s worth noting that while these are negotiable, often vendors will try to apply price uplifts for making such changes.
Pro Tip: always explore what options are available to make an informed decision. These items can significantly improve cash flow.
Rushing Into Signing Contracts
Never let SaaS vendors rush you into making a decision. A very common sales tactic that is used is to tell buyers that prices or discounts are ‘time limited’.
We believe that the most effective way to secure a competitive deal is for the two parties to have a general idea of when a decision might be made. From the buyer’s perspective showing this intent can strengthen your position, and motivate a SaaS vendor to fight for winning your business.
Avoid getting pressured into deadlines and timeframes set by the vendor. Sales people are taught that ‘Time Kills Deals’ – since buyers with more time, often are able to evaluate alternatives and understand their BATNA better.
Showing intent and setting your own deadlines is a powerful way to take control of the narrative. Additionally, if extensions are ever required, if asked for they are typically granted.
Not Asking For Discounts Or Reductions
You will be surprised by how such a simple question like “what reduction can you offer on the price” can yield you. In SaaS, many sales people will have the ability to apply their own discretionary discounts without needing anyone’s approval. This can be up to 20%.
The important part when doing this is how you approach asking for a reduction, and when to do it. If done incorrectly or too early, SaaS vendors can easily adjust their initial price to then make it look like you are getting a bigger discount than what you might have really been able to achieve.
Improve Your Next SaaS Negotiation
In a negotiation, knowledge is power.
Our team has over 10 years of sales experience negotiating SaaS deals from the other side of the table. The experience gained from structuring thousands of contracts has given us the unique ability to share valuable insights about what can be negotiated and how.
If you are looking for ways to reduce your SaaS costs, and you would like to leverage our expertise in this area – please get in touch!
