Negotiating SaaS contracts can be a major cost center for the business. So how can you finalize SaaS contracts without piling up costs, and set your business up for success? Here are some essential strategies you may consider:
September 2, 2022
Before negotiations start you should:
Understand your vendor's business and what they're selling.
Know the worth of products offered, the last update to their products, and what their competitors' pricing is for similar products.
Be open to the possibility that your negotiation may fail. Sometimes turning down a deal offered by one vendor opens the door to a better deal by another vendor.
Approach your negotiations with a professional, cooperative tone (rather than argumentative or emotional). Remember that ultimately, each party wants to figure out the other’s needs and work together toward a mutually beneficial solution.
Keep in mind that they have many other customers who could be interested in purchasing their products so they may not be willing to give you everything that you ask for as other customers may offer them a better deal.
14 Questions to Ask:
We know that signing a new SaaS contract (or renewing an existing one) can be a complex process. Following a checklist of these 14 key questions can facilitate counterparty negotiations and even streamline the review for internal stakeholders.
What is their sales process like? Does it take a long time? Are they willing to budge on price if they know how much work you'll have?
How does the software work? Is it easy to learn, or does it require a lot of training?
What is the scope of the license? Are there limitations like the number of users or the number of events completed?
How does pricing work in the agreement? What is the annual expense including all charges? Are there additional fees in the future?
How often do they update the software? Will I need to train my employees on how to use it?
Are there different payment plans offered? Are there discounts for signing up for multi-year agreements or for more seats?
What are the performance requirements of the software? Are there any uptime guarantees, support response times, or other support options?
What kind of support do they offer? Is their support enough for our company to trust it in the long run?
Are there any non-negotiables that the SaaS company needs to have? What software is this integrated with? Where is the data stored?
Who is a “licensee”? Does it refer to the SaaS buyer or all end-users for the software?
Is the SaaS software compliant with government regulations like GDPR, HIPAA, SOC2, or others?
Does the SaaS company have access to sensitive data from our clients? How is data privacy and security maintained? What services and security measures are being used?
What level of indemnification is offered? Are data breaches, breaches of confidentiality, or intellectual property infringement covered?
How is the limitation of liability defined for the software? Are there specific things excluded from the limitation of liability?
Key Terms to Negotiate
Make sure you understand the different tiers offered for SaaS software, including the number of seats, feature set, or usage. Note that enterprise deals can have discounted rates for high-volume deals.
Do research to understand what the current competition looks like, the features the software offers, and what the value proposition is.
Look at the features set and identify which features are needed and which are not needed from the end-user perspective.
Consider longer-term contracts that are multi-year in order to negotiate lower rates with the team.
Think about future plans and whether or not there will be more end users coming soon to offer higher volume for discounts.
Make sure to give yourself a few months to negotiate for the software prior to needing it so that you can get better pricing.
Yearly contracts should be negotiated at least a quarter in advance and a year in advance for multi-year agreements. This offers more time to solidify the contract and avoid interruptions in the service.
Try to avoid automatic renewal packages as this makes it hard to negotiate new terms each cycle.
Keep in mind that the company may try to upsell unnecessary features to increase revenue. Ask your end user whether or not the features are necessary before committing.
Make sure to review the warranties that cover performance problems, infringement issues, and cybersecurity.
Check the remediation or cancelation of the contract within a certain time period and understand the nuance behind the limitations.
Review the different alternative remedies or money-back guarantees offered by the company.
Make sure you are crystal clear on what your company needs with respect to data usage.
If you are the seller, you want to make sure you can use some of the customer data or performance data to improve your services.
If you are a buyer, you want to make sure your data is protected using at least industry standard measures, with some measures to account for a situation with a data breach.
Support should cover (at the minimum) telephone and chat support during incidents.
Check to see what the delivery of software updates is typically like and how the company handles feature requests.
Determine the level of support needed - for non-critical applications, 24/7 support may not make sense. Look for the right level of support needed based on the usage of the application.
Ask about support metrics such as first response time, first-contact resolution rate, C-SAT, and backup rate.
Learn about how a company addresses a disaster recovery situation and its business continuity plan of action.
Negotiate the right level of Service Level Agreement for your business and whether there should be a certain amount of time that the system is up and running.
Talk to the sales representative and ask for customer references about the quality of support they have gotten.
Understand the supplier’s limitation of liability - typically suppliers will put a cap on the monetary value of damages to prevent buyers from using the software for illegal purposes.
Consider asking for a higher cap on common liabilities such as data breaches.
The Bottom Line
Using an intelligent contract negotiation platform such as Inkly can help you simplify your negotiation process and close your deals faster. Get started here to learn more about how our platform can help your business.