According to the Global Software as Service (SaaS) Market 2021-2025 report, the SaaS market is poised to grow by nearly $100 billion between 2021 and 2025.
Effective procurement negotiation strategies are essential for achieving the best business deals, saving costs, and optimizing your tech stack. Fair and reasonable SaaS contracts, focusing on win-win outcomes, result in a greater return on investment for your technology.
The advantages of strategic contract negotiation become clear when signing cost-effective deals. Your negotiation teams utilize all necessary tools, and your stack remains free of obsolete or unused solutions, avoiding bad deals and unnecessary price increases.
What stats say about software procurement
SaaS procurement is about buying the right tools at the right time for the right price, ensuring faster delivery and stronger relationships with suppliers. Effective procurement keeps expenses in control and ensures the highest ROI on your technologies.
But what do the stats say about SaaS procurement and the future of SaaS?
- A P&S study projects the value of cloud-based Supply Chain Management solutions to exceed $11 billion by 2023.
- Gartner found that IT teams might be operating with at least 25% of their software going unused.
- A report by 1E revealed up to 38% of enterprise software is wasted.
- 71% of workers reported that the number of apps available makes work more complex.
- Nearly 50% of teams said they spend too much time manually managing their SaaS apps.
With the SaaS market's growth, your team can expect more complexity in managing the various solutions, highlighting the importance of effective negotiations and SaaS management.
The 7 phases of negotiating contracts with vendors
The seven phases of negotiating contracts with any vendor include planning, initiation, questions, proposal, negotiation, review, and closing.
1. Planning and preparation
This stage, crucial for procurement professionals, is about understanding your current needs and goals. In planning and preparation, you would evaluate:
- Your company budget and the procurement manager’s goals.
- SaaS needs in relation to the vendor/technology.
- Goals, KPIs, and benchmarks for the SaaS solutions you plan to use.
- The vendor’s history and reliability in the industry.
- Your deal breakers. What must you have or avoid in the contract or technology?
2. Begin initiation
As a SaaS buyer and sales professional, set the tone and be clear about your team goals and expectations with your supplier. If there’s a mismatch in goals against the providers, then continuing the negotiation may be pointless.
If your internal demands and the supplier are aligned, move to the evaluation phase.
3. Ask questions
Understand what the supplier expects from the contract. This stage is crucial for learning what is most important for your vendor.
Asking many questions allows you to leverage the supplier’s responses in your negotiation process.
4. Draft a proposal
Create a concrete proposal: what you want, at what capacity, for how long, and at what price. Include contingencies like a pre-purchase test and possibilities of rescinding the contract.
5. Negotiate terms
This step is about negotiating and bargaining an agreement with your supplier. Don't rush this stage. Patience and persistence can lead to the most reasonable contract for your organization.
Use everything learned in the previous stages and other offers or contracts you're considering for the best negotiation outcome.
6. Review your contract
After reaching an agreement, review the contract for hidden costs or issues. For example, tiered pricing supporting up to 50 users may be problematic if you need more.
Look out for pricing tiers, expiration contingencies, renewal points, and regional/international limitations in the review process.
7. Close the deal
Successfully negotiating your purchasing agreement makes you an official SaaS buyer. By carefully following each step and evaluating your vendor relationships, you can confidently sign the contract.
8 Powerful Negotiation Strategies
The role of procurement negotiations in your strategy is undeniable. The negotiation stage involves several key phases for success, including recognizing various negotiation styles and the stages of procurement negotiation.
Below, we'll explore major phases and approaches in procurement negotiation, alongside essential skills, tips, and tactics.
Mirroring is the art of imitating the language, tone, or behaviors of the other party during a negotiation. This technique is rooted in the psychological principle of mimicry, where repeating someone's words or mirroring their body language can create a sense of empathy and understanding.
For instance, if a negotiator observes their counterpart using specific phrases or maintains a calm demeanor, subtly adopting these elements can foster a connection and show attentiveness.
This rapport-building aspect of mirroring makes the other party feel heard and understood, potentially leading to more openness and cooperation.
Mirroring must be applied with subtlety and authenticity. Overdoing it can seem mocking or insincere, which could backfire. The key is to mirror naturally, reflecting aspects of the other's communication style without losing one's authenticity.
Labeling, on the other hand, involves identifying and vocalizing the emotions or unspoken thoughts of the other party in a negotiation.
By explicitly acknowledging feelings ("It seems like you're concerned about...") or intentions ("It looks like you value..."), a negotiator demonstrates understanding and empathy. This technique, when used effectively, can defuse tensions and bring clarity to underlying issues.
Labeling works because it helps in validating the other party's perspective, even if there is disagreement. It shows respect for their feelings and viewpoints, which can lower defenses and lead to more open dialogue.
Importantly, labeling should be done with sensitivity and accuracy. Mislabeling emotions or intentions can lead to misunderstandings or erode trust.
3. Focus on the human touch
In procurement negotiations, establishing rapport and understanding the other party's perspective is crucial. This involves active listening, showing empathy, and building connections beyond just the transaction.
Focusing on the human element helps negotiators create a collaborative environment. This often leads to finding common ground and shared interests that might not be immediately apparent.
Effective communication, respecting cultural differences, and personal integrity play significant roles. It's about seeing the person beyond the contract and understanding their concerns and motivations, which often leads to more mutually beneficial agreements.
4. Steer clear of ranges
In negotiations, it's wise to avoid offering a range for price or terms (e.g., "I can pay between $X and $Y"). Presenting a range often leads the other party to focus on the higher end. Instead, come with a well-researched, specific figure or proposal.
This approach shows confidence during vendor negotiations and simplifies the process by reducing ambiguity. Ensure your offer is supported by solid data, as this strengthens your position and makes it harder for the other party to counter with unreasonable demands.
5. Make compromises together
Negotiation is about finding solutions that work for both parties, not winning at the other's expense. Encourage a collaborative approach, where both sides openly discuss their needs and constraints.
This involves identifying areas where compromises can be made without significantly impacting your key objectives. By fostering cooperation, you create an atmosphere where both parties feel valued and are more willing to make concessions.
Remember, the goal is to reach an agreement where both sides feel they've gained something valuable, such as achieving long-term relationships or service level agreements that benefit all parties.
6. Separate facts from emotions
Keeping negotiations professional and objective is key. While emotions are a natural part of human interactions, they shouldn't dictate the course of a negotiation.
Focus on factual information, such as market data, benchmarks, and historical precedents, to support your position. This approach aids in making rational decisions and prevents the negotiation from becoming personal.
When emotions do arise, acknowledge them without letting them steer the conversation. This separation ensures decisions are based on sound business principles rather than emotional reactions.
7. Present alternatives and show willingness to compromise
Showing flexibility by presenting multiple options can be a powerful negotiation tactic. It demonstrates that you're considerate of the other party's needs and are open to finding a middle ground. Alternatives also provide a backup plan if your primary proposal isn't acceptable.
Additionally, indicating a willingness to compromise, when appropriate, builds trust and goodwill. This doesn't mean conceding on critical points but showing that you are reasonable and open to discussion. It can help move the negotiation forward and often leads to more innovative and satisfying solutions.
8. Silence is golden
Silence can be a strategic tool in negotiations. It gives you time to think, prevents you from revealing too much, and can put pressure on the other party to fill the silence, possibly with concessions or additional information. Use silence after making an offer or a key point. This allows the other party to fully process what's been said and can lead them to reveal their position or concerns.
However, it's important to use silence judiciously and not as a means of intimidation. When used correctly, it can be a powerful way to gain insight and advantage in negotiations.
10 powerful negotiation tactics
Effective negotiation tactics are crucial for businesses and customers alike. Business owners must often negotiate terms with suppliers, clients, and customers to ensure a beneficial agreement that promotes the company’s growth opportunities.
In distributive negotiation, the focus is on dividing a fixed amount of resources, a scenario where the price is often the key aspect. This is where negotiation strategies come into play.
Professional negotiators will often employ a variety of negotiation techniques to shift the position of the other party to a more advantageous point.
Here are some tactics you can start using today:
- Negotiate at Fiscal Year-End: Engage in negotiations when companies are eager to meet annual sales targets. This period often sees sales teams more willing to offer discounts to close deals and hit quotas. Timing is key; align your discussions with the company’s fiscal calendar for maximum effectiveness.
- Bundle Products for Bigger Discounts: Purchase multiple products or services together to secure bundling discounts. Ensure the bundle meets your needs and evaluate the value of each component. Bundling can lead to increased savings and simplified vendor management.
- Group or Consortium Buying: Pool resources with other organizations to form a buying group, leveraging collective purchasing power for better terms and lower prices. This approach is especially beneficial for smaller entities but requires coordination and a clear understanding of combined needs.
- Opt for Yearly Billing for Better Terms: Choose yearly over monthly billing for potential savings and favorable contract terms. Vendors often reward longer-term commitments with discounts, but assess your long-term needs and financial flexibility before committing.
- Request a Price Match Guarantee: Challenge vendors to match or beat competitors' pricing for similar products or services. This requires market research and an understanding of competitors’ offerings. Ensure comparisons are fair and consider features, quality, and support.
- Utilize Auto-Renewal Flexibility: Take advantage of auto-renewal settings, if available. This can give you negotiation leverage at renewal time, as you can choose to disable auto-renewal and discuss terms more favorably. Check contract terms for any clauses related to auto-renewal settings and implications.
- Maintain Discounts in Renewals: Strive to keep any initial contract discounts when renewing. This involves negotiating to have the same, or similar, discounted rates carried over into new contract periods, especially if your previous terms were satisfactory.
- Include Future Feature Guarantees: Negotiate to ensure access to future product features or updates within your current pricing structure. This protects you from additional charges as new features are rolled out and ensures you benefit from the latest developments.
- Leverage Competitive Quotes: Use quotes from competitors as leverage in your negotiations. Presenting alternative offers can prompt your current provider to match or better the terms, ensuring you receive the best possible deal.
- Ask for Volume Discounts: The more you purchase, the more you can potentially save. Negotiate discounts based on the volume of your purchase, as many vendors offer scaled pricing based on quantity.
What does modern SaaS management look like?
The challenges surrounding SaaS in the modern era primarily relate to expansion. The large number of relationships with clients and suppliers, overlapping subscriptions, and a general lack of understanding around contracts, make SaaS procurement complex for most companies.
With platforms like Sastrify, it's easy to simplify the negotiation process. Here are 3 ways you can do it:
Automated procurement: Sastrify automates your SaaS procurement. Our team will onboard your solution landscape through an all-in-one, spreadsheet-free platform. This gives you an overview of your solution usage, SaaS spend, security risks, and other valuable data.
Being well-informed about your SaaS landscape helps you approach negotiations more effectively, knowing exactly what your needs are.
SaaS usage and spend forecasting: Procurement solutions like Sastrify compare SaaS usage and activity to your purchased licenses. This helps clean up your tech stack, reduce waste, and accurately forecast SaaS spend.
You'll also get notifications about upcoming renewals, expirations, or opportunities for re-negotiation to maximize future savings.
Seamless and transparent negotiations: Modern SaaS management teams handle negotiations for you. Sastrify provides all the necessary data, pricing information, forecasts, and insights to position you for success in every negotiation.
You maintain visibility throughout the entire SaaS and negotiation process, deciding which technologies your procurement team should pursue.
How to sign the best deals with Sastrify
With SaaS set to expand and become more of a need across major industries, it’s important to have an advanced long-term strategy for procurement negotiations.
Sastrify can simplify the tedious process that is procurement and negotiation by automating SaaS spend and management, providing you with valuable insights, cleaning your tech stack, and handling negotiations for you.
Ready for your next SaaS purchase? Our team is here to handhold you throughout the negotiation process. Click here to learn more about how Sastrify can help your company get the most value out of SaaS negotiations and agreements today.