Getting your SaaS (software as a service) contract negotiations right can have huge implications for your business units, from saving time and reducing costs to regulatory compliance and achieving the most favorable contract terms.
SaaS negotiation is the process that happens when your company is negotiating a contract with a service provider, whether for a new purchase or an existing SaaS agreement. These days, most companies use many SaaS subscriptions, and therefore need to negotiate with many different SaaS providers. But they may not have much experience in the process or know the “dos and don’ts”.
If you’re looking for guidance on how to approach your SaaS negotiations, this article is for you.
What is a SaaS agreement?
A SaaS (Software as a Service) agreement is a legally binding contract between a software provider and a user that outlines the terms and conditions for using the software.
It eliminates ambiguity and establishes a clear understanding between the parties involved, ensuring that both the software provider and the user are aware of their rights and obligations.
What is the purpose of a SaaS agreement?
A SaaS agreement serves as a crucial framework that establishes the rights and obligations of both the software provider and the user. The interests of both parties are protected by outlining important details such as user rights, renewal dates, payment terms, billing frequency and data protection provisions.
The SaaS agreement contract checklist
We recommend preparing for your SaaS contract negotiation well in advance for both new and old SaaS subscriptions. There is always room to negotiate, and it pays – literally – to be prepared.
Here are our top dos and don'ts that you can check off as you get ready to negotiate your service agreements:
1. Take control of your time
2. Create a backup plan
3. Be prepared
4. Focus on small goals
5. Ask the right questions
6. Plan for the unexpected
7. Understand your organization's needs
8. Have a rationale for lower prices
9. Think about what you'll say
10. Find balance
1. Settle for inaccurate information
2. Enter SAAS negotiations alone
3. Accept the first offer ON A SAAS TOOL
SaaS agreement negotiation checklist: “dos”
DO: Take control of your time
As mentioned above, being prepared means leaving yourself plenty of time. If you start your SaaS contract negotiations early, it will give you a clear advantage. There will be some wiggle room for you to go back and forth with the service provider to get the best deal. Plus, you won't feel rushed to take a subpar deal just because you're running out of time.
DO: Create a backup plan
If you've ever bought a car or a house, maybe you're familiar with the common advice to not let the salesperson or realtor know how much you want it. It's the same with your SaaS agreements. Have a backup plan in a SaaS agreement so that the negotiation doesn't feel so high-stakes.
Before you start the conversations, check their competitors' prices and have one in mind that is lower or otherwise more favorable (e.g. better SaaS application features, more flexibility, higher data protection, etc.)
DO: Be prepared
Being prepared starts with giving yourself plenty of time, but it also means doing your research and planning ahead. Are you successful in your SaaS management? What kind of SaaS applications does your company need? How about the renewal date of existing ones? Should you have the enterprise plan?
Be sure to create a strategic plan in advance of service agreement negotiations so you can achieve the best possible outcome for your company. Contract details are your playground.
DO: Focus on small goals
Whenever you face a huge task or challenge, it usually helps to break it up into smaller pieces. The same goes for your SaaS agreement negotiations. Rather than looking at it as a gigantic, scary process with tons of work and back-and-forth, break the negotiation into small goals and focus on reaching each of those milestones.
DO: Ask the right questions
This is the time to get answers to all your questions. Don't assume anything – if you're unsure about anything in your SaaS contract or SaaS agreements, simply ask and leave nothing to doubt. Questions should be specific and answers should be in writing in your SaaS agreements (e.g. renewal terms, sensitive data handling, actual usage, SaaS vendors, etc.)
DO: Plan for the unexpected
Things can change quickly during SaaS negotiations, and unexpected situations may arise. Ensure you're ready by making key decisions that limit your risks. Remember you can always adjust in the other direction of a SaaS agreement if necessary.
DO: Understand your company's needs
It's helpful to work with key stakeholders in the company to understand in advance which things are a “need-to-have” and which are a “nice-to-have” in SaaS agreement outlines.
Every company is different, and not everything offered by the SaaS provider will be important to your team. However, some features or aspects of SaaS contract details will be very important. Have lists of both these categories when you enter the negotiations.
DO: Have a rationale for lower prices
SaaS solutions always have flexibility to provide discounts. Your job is to come into the negotiations with a rationale for why they should give you a lower price or more favorable total contract terms. Lay out your reasons and see what you can achieve in your SaaS agreement.
DO: Think about what you'll say
This is not the time to “wing it.” Plan out what you want to say before the negotiations begin in a SaaS agreement checklist. How will you explain what your company needs? What questions will you ask? How will you describe your expectations? What will your answers be to the most predictable questions? If you prepare what you might say in advance, you're less likely to get flustered in the moment.
DO: Find balance
Many SaaS negotiators are either too friendly or too tough in a SaaS agreement. It's important to strike a balance and find a happy medium. After all, this is your SaaS contract and you should be fully satisfied, but you're also building a relationship with the vendor that can lead to more gains in the future.
SaaS agreement negotiation checklist “don'ts”
DON’T: Settle for inaccurate information
Be thorough and comprehensive as you prepare for your SaaS contract. You must use active listening, as this is not the time to accept inaccurate or outdated information. A SaaS agreement is a SaaS agreement and there will not be a rewind button. If there’s something you can’t find in your research, ask. If they can’t give you a good answer, push back on them. Customer data security is everything.
DON’T: Enter SaaS negotiations alone
Many companies are woefully underprepared for SaaS negotiations. These processes take up time and resources that many businesses simply can’t afford to spend. If this sounds like your company, you can get experience on your side by hiring technical support for your SaaS agreement.
DON’T: Accept the first offer on a SaaS tool
Always skip the first offer and move to a second round (and beyond). The first offer from a SaaS vendor is never the best. We promise you the best SaaS subscription agreement.
Key terms to watch out for in a SaaS agreement
When entering into a Software as a Service (SaaS) agreement, it's essential to grasp the finer details that could influence your business operations. This revised checklist includes important contract terms worth looking out for:
- Platform details and service level agreements (SLAs): The platform's efficiency is critical. Ensure the SLAs in the agreement clearly state the average response time, uptime guarantees, and any penalties for disruptions. Service quality measures such as the Notification Period, Transition Process, and Cloud-Based Software reliability should be clarified.
- Data privacy, security measures, and policy: The agreement should emphasize the security of your customer data. Examine how the software provider handles data storage, protection regulations, security evaluations and compliance with international data protection standards.
- Pricing, billing units, and financial details: Understand the pricing model, its billing terms and consumption metrics . Understand Contract Renewal Terms, extra charges, Subscription Term, and other relevant financial details.
- Termination and notification: Examine the termination clause, focusing on the Notification Period, ensuring a transparent process for both parties. The agreement's Transition Process during termination should also be clear.
- Intellectual property and licensing rights: Scrutinize the section on licensing rights to ascertain software ownership and usage. The contract agreement should guard your intellectual property and define any limitations.
- Force majeure events: Penalties for not achieving the set service levels are standard in SLAs, incentivizing vendors to ensure quality services. However, exceptions, such as force majeure events, should be outlined where penalties might not apply.
By focusing on these enriched key terms and provisions, you can align your SaaS agreement with your business units' needs and protect your interests.
If you could use some assistance, SaaS spend management platforms like Sastrify make it easier than ever to ensure your agreements are aligned to your business needs. Our team of experts is equipped with exclusive market data to identify accurate savings potential and effortlessly negotiate with your SaaS vendor.
Get started with a free SaaS savings forecast based on $1.5 billion in benchmarked spend.