Negotiating SaaS contracts: 5 best practices

With a projected growth of nearly $100 billion by 2025, the rapid expansion of the software-as-a-service (SaaS) market highlights the significance of SaaS tools. Such software is becoming increasingly crucial for businesses spanning various industries.

We found that nearly 40% of companies surveyed spent over a million dollars on SaaS, and 14% of them spent over $5 million dollars. That makes it essential to have well-defined strategies in place to identify negotiable aspects of a SaaS license agreement and align negotiations with business needs and priorities.

In this article, we delve into the intricacies of SaaS contract negotiation and learn how to employ strategic negotiation when procuring SaaS tools for your company.

Software prices can be negotiated

Contrary to popular belief, software prices are not set in stone. They can be negotiated like any other business agreement. 

Often, software vendors don't disclose that they're open to negotiation. You find their pricing page and provide your details, or even pay the full price immediately. Many companies overlook the opportunity to negotiate prices when a sales rep approaches them. 

The crux of the matter lies in understanding which elements of a SaaS license agreement are open to negotiation and how to navigate these discussions. You'll understand and learn these aspects in detail throughout this article.

What buyers can negotiate in a SaaS license agreement

You leave a lot on the table when your ask is limited to discounts while negotiating. Let's get into the following aspects of your SaaS contract that are negotiable and learn how to strive for mutual value.   

1. Pricing 

If you're contemplating a long-term contract with a SaaS provider, you could negotiate a reduced price in return for your long-term commitment. Alternatively, you might negotiate for additional services or improved support terms within that pricing. 

Also, keep in mind your expansion plans and future users. If the contract includes provisions for additional future licenses at a discounted rate, you won't have to pay retail rates later. 

Besides that, avoid delaying software purchases until the last minute as it leaves little room for negotiation.

2. Renewals

Steer clear of automatic renewal plans as they can cause you to miss out on the opportunity to renegotiate your contract.

Based on the usage of the tool or utilization of the SaaS contract and the overall user sentiment, you should renegotiate the contract when the renewal date comes up. 

3. Support

Invest time in assessing the quality of support provided by the vendor. This can be gauged using support metrics such as first-response time, first-contact resolution rate, and customer satisfaction (C-SAT) scores. 

Request these metrics from the sales representative and inquire with customer references about their experiences with the vendor's support. 

And then negotiate based on the level of support you will need.

4. Warranties

The warranties section of SaaS contracts generally contains a comprehensive disclaimer of all promised warranties. And it's important to note if their warranty has any specific limitations, such as those related to a data security breach. 

Investigate whether the SaaS service provider offers alternative solutions or merely a refund guarantee, and proceed with negotiation accordingly.

5. Price protection

Many SaaS vendors keep a clause in their contract to increase software prices without notifying their customers. 

It is advisable to stay cognizant of initial unrealistic low prices, which could end up in yearly price hikes because of some clauses mentioned in the contract. 

Protect your initial pricing and negotiate the contract for a long-term relationship with the vendor.

When is the best time to negotiate?

Initiating SaaS contract negotiations early gives you a significant advantage, allowing for ample time to engage in discussions with the service provider. Moreover, it eliminates the pressure to settle for a suboptimal agreement due to time constraints, ensuring that you secure the best possible deal.

Alerting your sales representative well in advance, perhaps a quarter or even a year ahead, can provide them with sufficient time to offer better discounts, as they are also interested in securing your business. 

If you’re using Spendflo, you will receive notifications about SaaS renewal dates 90-120 days in advance. During this time, you can run user sentiment surveys to determine if you should keep the tool, renegotiate the contract based on utilization, or switch to another tool. 

How to negotiate SaaS contracts: 5 best practices

Negotiating SaaS contracts can be a complex process, but with the right strategies, it can lead to significant cost savings and improved service levels. 

Here are the five best practices for you to follow to negotiate well.

#1 Preparation

Entering negotiations without adequate preparation can lead to unfavorable outcomes, resulting in missed opportunities for discounts or better terms.

Ensure that you thoroughly research the vendor, understand your needs and priorities, and determine what aspects of the contract are most important to you. 

For example, if data security is a priority, prepare to discuss the vendor's security measures in detail. 

It is advisable to have a handy SaaS contract negotiation checklist while noting points and discussing them in the negotiation process. This checklist can include your budget, team goals, and KPIs.

#2 Partner with internal stakeholders

Negotiating a SaaS contract without input from all relevant internal stakeholders can lead to overlooked requirements. This can result in a contract that only partially meets the company's needs.

Ensure that all relevant stakeholders (such as IT, legal, and end users) are involved in the negotiation process. The collective input results in a contract that meets everyone's needs.

#3 Negotiation isn’t all about price

Focusing solely on price during negotiations leads to overlooked opportunities for value. This could mean missing out on beneficial terms related to service levels, support, scalability, and more.

While price is important, also consider other aspects of the agreement, such as support levels, renewal terms, and warranties. 

For instance, you might negotiate for improved support response times or more flexible scalability options.

#4 Communicate the path to execution with the vendor

Miscommunication or lack of communication with the vendor can lead to misunderstandings and delays that no one wants.

Maintain clear and open communication with the vendor throughout the negotiation process. Make sure they understand your needs and expectations. 

For example, clearly communicate your budget constraints, desired contract length, and any specific requirements you have.

#5 Be proactive with renewals

Waiting until your contract is about to expire before starting renewal negotiations can lead to rushed decisions and less favorable terms.

Start renewal negotiations well before your contract is due to expire. Conduct user sentiment surveys to understand how various teams use SaaS tools and cross-match it with utilization data. 

This will help you drive contract renegotiations backed by data.

Save up to 30% on your SaaS software with Spendflo 

The rapid expansion of SaaS brings with it a host of complexities. With so many partnerships with various stakeholders, overlapping technologies, rampant shadow IT, excessive SaaS waste, data scarcity, and a general lack of contract comprehension, managing SaaS procurement is a daunting task for many companies.

This is where the value of a SaaS contract management software becomes evident. Spendflo saves you up to 30% on your SaaS stack with a money back guarantee. 

• Spendflo’s Buying Hub integrates with your preferred apps, simplifying SaaS buying for you and your teams. You can easily manage your procurement, renewals, and upgrades on a unified platform. 

• They enable you to rightsize SaaS spend and help you negotiate SaaS contracts. With Spendflo, you get your entire procurement process streamlined through their dashboard, Slack app, dedicated CSM, and real-time support.

Wondering how much you could be saving on SaaS? Book a free savings analysis today!