So you're interested in software-as-a-service (SaaS) for your business? SaaS has become one of the most popular ways of delivering digital tools to employees. The average company today juggles over 100 SaaS products across different business units throughout the year. Keeping tabs on so many SaaS contracts makes it surprisingly easy to lose control of spend.
While SaaS simplifies the application, practice, and function of corporate tools, negotiating and securing a SaaS contract with favorable pricing and terms is far from simple. Your buying team will have to work with sales teams to ensure the best outcomes for your business.
Negotiating SaaS contracts is like any kind of contract negotiation process, but applying the right contract negotiation essentials is critical to achieving favourable contract negotiation outcomes and long-term success.
Let's walk you through proven tactics for negotiating SaaS agreements based on thousands of successful negotiations.
What is a SaaS contract?
A SaaS contract usually means the supplying of packaged software that is remotely hosted and managed by a SaaS provider, also known as a vendor. In this cloud-based model, you can access the software via the web from any location.
Your data is centrally stored in off-premise servers maintained by the SaaS provider. When companies undergo a digital transformation, managing, renewing, and buying software tools on a regular basis follows closely.
So much doubt and so many questions are bound to come up in SaaS agreements.
Let's take it one step at a time.
There's always room for contract negotiations
Every part of a SaaS contract is negotiable, from customer data access and protection to service agreements and failures. Remember, SaaS vendors need you more than you need them.
Sales reps are known to let some matters slide in order to keep you as a customer, especially with annual contracts. After all, SaaS providers have to naturally measure their revenue or data and report to investors and other stakeholders.
Users are in a stronger position to ask for more and more during the contract negotiation guidance process, including discounts, redlined contract terms, and tiered prices.
Why get a good deal when you can get a great deal in your vendor contracts?
When should you negotiate SaaS contracts?
The earlier the better in the industry! As it is a matter of several meetings back and forth, negotiating SaaS contracts with a sales rep takes time and energy.
The earlier you start the process, the more likely you will land the deal you want for your business.
Save your renewal date because this will be another window for you to negotiate SaaS and recharge your contract renewal with better terms.
10 contract terms you can negotiate
For many SaaS buyers, negotiating SaaS contracts can be intimidating. It can be challenging to understand which points to discuss, consider, or overlook. If you haven’t been practicing SaaS contract negotiation or don't have a good relationship with your vendor, risks and failures are unfortunately probable. To avoid this outcome, you have to have a real awareness of what you want and experience in negotiating SaaS contracts.
1. Software plan
There is no doubt your SaaS contract should clearly state the model, price, and features of your subscription. Decide if you want to pay monthly, quarterly, or annually based on the benefits that come with each one.
2. Software pricing and discounts
SaaS prices are never straightforward. Many SaaS vendors will discount up to 20% to win your business and even offer custom pricing in SaaS contracts.
3. Additional costs
Extra fees can add up quickly to the initial pricing. Try to start with the base system and avoid too many customizations to functionality or integration for a lower price in the contract.
4. Software scalability
Companies scale forward as well as backward all the time. Your SaaS contracts should match the constant change. Check if you can flexibly upgrade or downgrade if and when you need to.
5. Software term
A commitment is a commitment in SaaS contracts. It's better to agree on a shorter period than a longer one, more than two years. If you go long-term, make sure there's an out clause in your contracts.
6. SLAs (Service Level Agreement)
A SaaS SLA presents what a customer should expect from the SaaS vendor and acts as a legal document. Most SaaS providers offer this nowadays in contracts and yours definitely should.
7. Software renewals
Be careful of falling into renewal traps. Ask to remove the "evergreen" clause if there is one as it is an automatic renewal of your SaaS contract. Users should always have the chance to break or renegotiate the deal instead of immediate renewal.
8. Software backups and recovery
Continuous backup in the cloud is done by every SaaS provider but how often is the difference. Communicate with the SaaS provider if you need backup every day, every week, every month, etc for your organization.
9. Software security
Keeping data ownership is a must for users. Your SaaS contracts should have a clause about security and even data export in case of migration and any surprises. Data protection is very critical. Nothing from your organization should be shared in the cloud or with external parties without your consent. No data breach, no risk.
10. Software support
Having a dedicated CSM team to answer your questions in a timely manner is everything. Make sure that can be delivered, whether via the web, by email, phone, or by chat from your SaaS providers. Is it a no-brainer? It's best for your SaaS contracts to highlight that part.
7 Questions to ask before signing your SaaS contracts
To channel your bargaining power in enterprise contracts negotiation, you must ask the right questions. New SaaS contracts can be quite confusing for any customer since they include many complicated terms. Ensure you cover topics such as billing, obligation, dedicated support staff, and response times.
- What are the SaaS data security policies within the service contracts?
- Is the software agreement scalable for all users in terms of the contract lifecycle management?
- What kind of upgrades are available, and how do they affect intellectual property rights?
- Which feature agreement are you getting, and does it include any disclaimers of warranties?
- How will renewals be handled in the agreement, and does it address the business model and pricing model?
- Can users try the software before signing an agreement, and what access to software is granted with a business license?
- Are there any hidden costs in the agreement, and how do they relate to your organization's competitive advantage and contractual obligations?
More considerations for SaaS contracts and negotiations
1. Security Measures and Encryption
In SaaS contracts, it's vital to address security breaches and implement proper security measures. Encryption should be a standard feature to protect your data and ensure compliance with various regulations. Your legal team should review the contract to ensure all necessary security provisions are included.
2. The Importance of Service Availability and Uptime
In cloud service agreements and software license agreements, service availability and uptime are crucial factors. Ensure the contract includes uptime percentages and minimum performance standards to guarantee the software meets your business's performance objectives. Discuss any additional guarantees offered by the software provider and negotiate favorable terms.
3. Evergreen Renewal and Individual Subscription Limitations
Pay attention to evergreen renewal clauses in your SaaS contracts, as they can lead to automatic renewals without giving you the chance to renegotiate terms. Make sure you have the option to opt-out or renegotiate at the end of the term. Individual subscription limitations should also be considered, especially if your business requires flexible user access or scaling.
4. Negotiating Limitations of Liability
In SaaS contracts, it's essential to understand the limitations of liability for both parties. Ensure that the contract clearly defines the exact rights and responsibilities of each party and negotiates favorable terms that protect your business interests.
Navigating virtual negotiations
Why do people choose to negotiate virtually? There are plenty of reasons. During the pandemic, negotiations moved online out of necessity – for health and safety reasons but also travel restrictions, border closures, and rules against in-person contact. Even outside of a global health crisis, virtual negotiations also tend to be less costly, more convenient, faster to get up and running, and easier to organize.
But as with any alteration in how we do business, there are upsides and downsides. Let's talk about what to avoid and cover some of the research on how virtual negotiations can go wrong when not handled properly.
The potential downsides of virtual negotiation
Virtual negotiation already existed prior to the pandemic, of course, although it became much more widespread during COVID-19 (out of necessity). While there are a number of studies that have highlighted some of the downsides of virtual negotiation, we discuss the risks of remote negotiation here not because we believe the practice is a bad idea, but because they can teach us how to improve our virtual negotiations.
Here are some highlights:
- Computer-mediated communication leads to “decreases in group effectiveness, increases in time required to complete tasks, and decreases in member satisfaction compared to face-to-face groups.”
- Negotiating over email can be especially tricky. Introverts are drawn to using email in conflict situations, but we all tend to be less cooperative when using it.
- Most of us overestimate how well we think recipients of our emails have understood our message. We’re also (unsurprisingly) worse at reading someone’s emotions through email.
While all this research is certainly credible, it does not suggest that virtual negotiation can’t be done well. It simply indicates that we need to be intentional, smart, strategic, and well-prepared so we can set ourselves up for success in virtual negotiations.
7 tips for effective virtual negotiation
Since virtual negotiation is here to stay – and may become the predominant form of negotiating sooner rather than later – it’s important for us to find ways to do it better, so outcomes can improve on both sides of the virtual “table”.
Here are some ways to increase the chance of success in a virtual environment.
1. Use video conferencing when negotiating virtually
Whenever possible, use video for negotiations. As mentioned above, negotiating over email is tricky to get right. It can be done (see tip number 7 below), but video is best so you can learn from the other party’s face and body language. A study by Charles Naquin in 2003 found that negotiators who communicated over video performed better than those using email or text. It’s also better and easier for your brain to view your counterparts on a bigger screen versus a smaller one.
2. Assign clear roles to your remote team
Every participant should be clear on their role and responsibilities both before, during, and after the session. What is each member expected to come prepared with? Who will take notes, keep time, and manage the agenda? As you move through the agenda, who is responsible for each item that remains open after the meeting?
We all know how quickly a large Zoom call with 4+ people can devolve into chaos. Ensuring everyone knows their role is especially important in a larger negotiation with more people present.
3. Encourage small talk at the beginning of the negotiations
Since virtual environments can make it harder to build rapport, make sure you don’t just jump straight into business at the beginning. Leave some time in the agenda to chat with your counterparts and build a relationship. Making a personal connection can significantly impact what comes after
(Note: Some cultures love small talk while others see it as rude. If you are negotiating across borders, make sure you research the way your counterpart’s region does business and adapt as needed.)
4. Clarify the purpose and agenda for each negotiation session
It’s common with video calls for people to join at different times, creating a bumpy start. Be sure to clarify the purpose of the meeting at the beginning once everyone has joined (if possible) and reconfirm the agenda. If someone says they have to leave early, you can adjust the agenda to accommodate and ensure the key topics are still discussed.
5. Keep the remote negotiation call brief
When choosing video conferencing, keep it short and sweet. Video calls are more cognitively taxing versus other options like email, so you’ll achieve better results – and keep everyone engaged – if each meeting is short and structured.
6. Avoid multitasking while video conferencing
While some people like the virtual environment because it allows them to work on multiple things at once, research shows that multitasking on a smartphone while negotiating led to worse payoffs and the person’s counterparts rating them as less professional and less trustworthy. Especially if you are the seller, multitasking can be seen as distracting and disrespectful.
This goes for private messages as well. You may need to exchange messages back and forth with your team during the meeting, but you should keep it to a minimum (and use a separate tool to avoid the embarrassment of accidentally sending the message to the whole group).
7. When negotiating over email, tread carefully
As mentioned above, email negotiations are even trickier than other environments like videoconferencing or phone calls. There’s no physical or audible clues – think tone and body language – and it’s easy to be misunderstood or to sound impolite.
The negotiation experts at ENS International offered these tips for email negotiation:
- To email or not to email
Consider whether email is the right medium or if you should call, videoconference, or meet someone in person
- Think about process
Negotiations aren’t just about content (i.e. what’s inside the email); they’re also about process (i.e. how the email is likely to be received)
- Keep it brief and clear
Brevity, clarity, and proper formatting are key. Be concise in your emails and ensure you start a new email chain (with a new subject) if there’s a different topic to discuss.
- Build rapport
Just like with other forms of virtual negotiation, you need to build a relationship first. This could mean adding some small talk to the exchange or finding areas of common interest.
- Choose your words carefully and be polite
Since email relies on only written words to convey meaning, choose your words carefully. Be polite and remember that we tend to sound tougher in email than we would in person, so consider scaling back language (unless tough is what you’re going for).
5 key learnings from thousands of successful negotiations
1. Prepare and focus on the process
Preparation is key for an effective software negotiation process, according to Tim Hintze, Senior SaaS Procurement Specialist. “80% of the success of your negotiation strategy lies in the preparation. Set your minimum and maximum goals, know all the facts and requirements on your side, and have everyone in the negotiation team on the same page.”
IT Buyer Hani Mattar offered more specific ways to prepare:
- Conduct market research on what competitors are offering and for what pricing
- Understand your growth plan over the next three years and use that as leverage
- Collaborate with SaaS providers and align on your growth and future plans to gain discounts based on that (instead of a one-way conversation)
Our Head of Procurement, Alex Dussurgey, explains that getting the buying process right is the most important part of the preparation for all internal stakeholders. “I've learned that process beats content in the hands of a skilled negotiator: The process is our HOW – how we manage the negotiation tactics; the approach. The content is our WHAT – what you are negotiating about; the matter at hand.” (More on this topic on our blog)
2. Communicate wisely
Always begin negotiations with proper communication on the right channels. This can lead to a better deal and better pricing, faster. But that first email sent to the vendor is crucial, says Hani. For example, “be sure to eliminate any red flag wording such as negotiations, pricing reduction, etc.”
Alex also pointed out the importance of active listening in negotiations. “Skilled negotiators appreciate that verbal communication includes listening as well as talking. It is more difficult to listen than to speak and real listening requires constant practice.”
How can you listen better – and utilize what you’re hearing – during a SaaS agreement?
- Ask yourself “What is it that the ‘Other Party’ wants me to do, think or believe?”
- Make contrasts and comparisons, validate the evidence
- Read between the lines – determine what is not being said
3. Aim for mutual benefits, but voice your needs
“The ultimate goal of any negotiation plan should be to achieve a win-win,” says Katja Rickert, Sastrify’s Team Lead for Purchasing. “Every Account Manager has a personal motivation and underlying goals and principles. What you usually see when entering a negotiation is the tip of the iceberg. Work yourself through the layers and establish what is driving the Account Manager and how you can help them succeed as well – that way they turn into a strong ally and will act as an ambassador for you in their organization.”
At the same time, working toward a win-win outcome in SaaS agreements doesn’t mean you shouldn’t speak up for what you want. “If you don't ask, you don't get,” says Tim. “Always state your needs and goals, even if they seem ridiculous at first. They can at least serve as an anchor point from where to start further discussions.”
4. Build relationships with vendors
During a negotiation table, remember you’re talking to human beings and establishing a relationship is key. IT Buyer Irem Koroglu said this: “I've learned that connecting with your point of contact and having daily conversations helps create a human touch. In the end, it helps both sides within the whole negotiation process.”
Tim agrees. “You always negotiate with a person. Having a good vendor relationship helps a lot. I see that especially now that I work at Sastrify... In the past when I did procurement as a SaaS buyer, I spoke to a vendor a maximum of once per year on the renewal date. Now, I sometimes talk to the same AE many times for different Sastrify customers. Knowing the person you deal with and having a good relationship makes things so much easier and the outcome much better for both sides.”
We’ve seen evidence that the best SaaS agreements happen over time when you leverage these vendor relationships.
5. Get help with SaaS contract negotiations
Finally, get help with your SaaS contract negotiation tactics if you need it (and usually companies do). Without the proper knowledge, skills, processes, and experience, negotiating the best SaaS contract terms can be a huge drain on both time and money – something a lot of companies can’t afford in the current economic climate. SaaS solutions, like Sastrify, can do all the heavy lifting for your team with many added benefits.
According to Irem, “Most companies are too busy to have an organized structure of purchasing activity, which is why they need support from Sastrify – to facilitate the whole saas buying journey and keep everything under control.”
Sastrify’s dedicated team of SaaS experts can support you with your software contracts and guarantee the best negotiations so each member of your team can stay focused on what they do best.
Get a fair price on your SaaS agreements and save thousands with our free Savings Calculator.
How to streamline your SaaS contract negotiations
If your SaaS contracts are already in effect, it might be a good idea to use some external support.
Sastrify makes it easy to discover, manage and visualize your SaaS subscriptions in one place. Sync over 22,000 solutions — from Google Workspace to AWS hosting — and get complete transparency into your SaaS stack. Plus, thousands of successful negotiations and over $1 billion in benchmarked SaaS spend means our negotiation teams knows what deals and discounts are available.
Start the SaaS contract negotiation process early and speak to one of our SaaS pricing experts today.