When negotiating SaaS contract terms – whether for an existing agreement, a renewal, or a new tool – many companies wonder whether it’s worth reaching out to competing best software options.
It used to be the default for procurement teams to talk to many competitors to ensure they were getting the best deal possible for their SaaS applications. In some companies, especially those with a procurement process in place, it’s common practice to request the three largest competitor quotes during SaaS purchases over a certain threshold.
But is it worth pursuing this for your contract negotiation process?
Maybe you can use another offer to get better contract terms and prices for your top choice. Maybe it will help you benchmark what a fair deal would be. Or maybe it will be unnecessary and a waste of time.
Let’s run through 3 times when talking to competitors can help and 3 times when it’s probably not worth it for your SaaS negotiations.
3 SaaS negotiation situations when you should talk to competitors
1. It’s a strategic new purchase
When the SaaS tool you’re looking at is a strategic new buy for the average company and you want to ensure you’ve scanned all possibilities in the market, it makes sense to talk to competitors for better license agreements. These discussions and quotes can help you to:
- Compare product features
- Compare quality
- Understand reviews
- Experience demos
- Benchmark pricing
2. It’s an expensive buy
Another time talking to competitors is sensible is when the SaaS tool is an expensive buy. When making a large financial investment, you’ll want leverage for your negotiations – invoking competition can help you get lower prices.
Through these conversations, you may also come to realize that a competitor offers similar features at a lower price point, in which case you may change your mind about your top choice.
3. It can help your negotiation
In some instances, it makes sense to mention or invoke a second competitor – real or imaginary – as a negotiation tactic. In these cases, you may or may not have actually spoken to the competitor, but mentioning them could add a sense of urgency for the company you’re negotiating with. This makes sense when you want to buy quickly without going into too much effort.
However, keep in mind that depending on the cases and timeline that you have, this can backfire. You don’t want the other party to lose trust or think you’re negotiating in bad faith. You also shouldn’t do this when it’s a strategic product and the stakes are high.
3 SaaS negotiation situations when you don’t need to talk to competitors
1. It’s a low-value purchase
There are various times when it doesn't make sense to involve competition, such as for low-value and tactical purchases. Tasks like opening discussions with competitors, attending demos, reading proposals, or even starting the SaaS contract negotiations process can take a lot of time.
When the SaaS tool isn’t strategic – e.g. it’s just for a smaller team, isn’t expensive, or isn’t impacting mission-critical work – then it’s probably not worth the time to talk to competing companies.
2. You don’t need to negotiate
Talking to the competition is also unnecessary when you don't really need to negotiate SaaS contracts.
For example, maybe you already know the market well and the prices and features of the tool align with what’s normal. Or, maybe you have access to pricing benchmarks (like with Sastrify) and you know you’re already getting the best price.
It’s probably not worth talking to competition if you’re not going to negotiate on the deal at all.
3. The cost of switching is too high
This is an important one. Invoking competition is probably not a good idea when you renew a Saas agreement where the total cost of switching – both price and complexity – is extremely high.
Here’s an example. Let’s say you’re on the negotiating table and seeking a renewal with SAP or Workday and you want to decrease the price of their offer. If you try to bring up a competitor, you will likely lose credibility because they know there’s a high chance it’s too costly for you to actually do it.
However, you can always tell the other party that you want to renew this cycle but you are working on a 12-16 months scenario to bring more players in. That may allow you to invoke competition – and use it to your benefit – for the following renewal date after this one.
Leave your SaaS negotiation process to the experts
To talk to the competition or not – that’s a big question. And the process of negotiating SaaS contracts with SaaS companies is an even bigger challenge.
Start negotiating SaaS contracts with Sastrify. Our negotiation team can handle everything for you: from vendor relationship management to software license agreements, plus provide pricing benchmarks and savings potential, giving you leverage with SaaS vendors and reducing your SaaS cost.
Sastrify customers achieve an average of 4-5x ROI and save 1.5 months of time per year. Less money, more value -- a win-win! Want to try it out for your software stack? See how much you could save with our SaaS savings calculator and set up your demo here with our chat support.