SaaS Negotiations: How to Master Them

This year, the software as a service (SaaS) market would surpass $15 billion. Many businesses have benefited from SaaS because it helps them to offload some of their IT portfolios to third parties with specialized knowledge. SaaS is obviously proving to be beneficial to businesses, and they are welcoming it. However, this does not rule out the possibility of improving their relationships with SaaS providers.

One crucial factor is how you start your relationship with your SaaS provider. Often, it comes down to a successful contract agreement that is equitable to both parties and has a mutual understanding of standards. Some of the negotiation points also apply to the provider as they position their SaaS business product.

Key Negotiation Points in SaaS Agreements

Anyone involved in a SaaS agreement should be aware of the following main points, especially when it comes to pricing and service levels:

  • Price the application as a utility service that is offered on a subscription basis with annual or monthly device user fees.
  • Discuss custom pricing solutions if the vendor’s pricing strategy does not suit the customer’s business model.
  • Extra fees will easily add up, so address possible extra costs early in the negotiating phase.
  • To keep additional costs down, try to avoid customizations.
  • It’s best to start with the most basic product and evaluate its core features. Then decide if you want custom features and how important they are to your success.
  • Expect to get something else in exchange for a discount from a SaaS vendor, such as a longer contract period.
  • If the contract asks for long-term subscriptions (usually three to five years), make sure there’s a way out.
  • One of the most important topics to address is system reliability.
  • Include a service level agreement (SLA), which guarantees that the device will be up and running for a specified period of time.
  • Talk about how renewals are done. You may have used the phrase “evergreen extension,” which refers to your contract’s automatic renewal. If you don’t want it, make sure it’s turned off.
  • Any SaaS vendor who refuses to remove the automatic renewal option should be closely scrutinized, as this is a warning sign.

Tips to Master Saas Negotiations

Here are some brilliant negotiation tips you should think about before signing any dotted lines with a SaaS provider:

1. Make a master list of all the dangers that your company faces

When it comes to negotiating security provisions in SaaS agreements, there is no one-size-fits-all solution. A lot of what you need to (and can) do is determined by the situation. It’s crucial to consider the scale of your company and the SaaS provider. In general, the bigger you are and the bigger your service procurement strategy is, the more influence you have.

Consider the intended use of the device before negotiating with a SaaS vendor—or even during the RFP stage. According to Luke Ellery, senior research director at Gartner, if you intend to use the SaaS system to manage your organization’s customer relationships, you should concentrate on how the SaaS provider can protect customer data and ensure system stability and reliability. If the SaaS system you plan to use is more internally based, such as a learning management system, the data is less responsive, and the service is unlikely to be business-critical, he says.

2. Examine both your exits and your entries into the deal

Everyone is excited and eager to sign the contract and get started at the start of a relationship but not so soon. Although no one wishes to dampen initial excitement, the contract should contain language that guarantees the vendor will work with you to the fullest extent possible if you decide to deconvert from its services and/or switch to another vendor. 

When a vendor loses a customer, they may become very uncooperative. This can lead to difficulties and negative emotions that are impossible to resolve. Ideally, an exit would never be required; but, if it is, you want the vendor to work with you.

3. Communicate what’s non-negotiable to stakeholders

Safety teams are also called upon just at the end of the negotiating phase, as there is no space or time to make significant adjustments. As a result, it’s critical to ensure that the procurement team is aware of and covers at least the basic, non-negotiable data security issues at the outset of negotiations.

To understand their organizations’ risk appetite, CISOs should work with IT and business leaders. When deciding what is non-negotiable in their SaaS agreements, they must also consider all regulatory and industry conditions, according to Ellery. “These may be used as pre-qualification conditions for vendors.”

4. Additional Protection should be negotiated

Negotiate any extra security safeguards you might be able to get. Keep in mind that certain topics can be difficult to negotiate or may not be negotiable at all.

According to Ellery, SaaS is a scale company focused on a standard product offering. As a result, certain modifications, such as device availability or data storage location, may be unavoidable. You should also consider what problems the vendor has described as potentially unforeseeable circumstances that could prevent them from providing their product or service. Check to see if the vendor’s list of force majeure events is reasonable.

5. Get around boilerplate contract arguments

A vendor would always claim that the boilerplate contract it gives you is the work of its lawyers and that it cannot be changed in any way. Don’t be put off by this. You can apply your own provisions to the contract in a separate addendum, and state that if the addendum and the boilerplate contract’s language conflict, the addendum will take precedence. 

The two agreements can then be combined into a single working agreement, along with a cover letter stating that the boilerplate contract and addendum constitute the entire agreement. Of course, you can have your own attorney review this before signing something.

6. Pay special attention to contract termination conditions

When signing a SaaS contract, one of the most important things to remember is to spell out exactly what happens at the end. Although most mature SaaS vendors will have a structured process for returning and deleting data, it’s critical to agree on what that process entails in advance.

Your organization’s right to have the data back after the arrangement expires, as well as the vendor’s procedures for removing the data and ensuring no other parties have access to it, are both things to remember. The first step in a SaaS agreement is to make sure you have a right to your data even though the service is terminated.

7. Insist on early breach notification

Organizations must contractually ensure that third parties have appropriate mechanisms in place to protect confidential data under regulations such as the EU’s General Data Protection Regulation (GDPR) and Payment Card Industry (PCI) standards. In the case of a security incident at the SaaS provider that affects covered data, the mandates provide strict provisions and deadlines for breach notification.

Make sure to have provisions for prompt violation notification while negotiating with a SaaS vendor. Since SaaS providers do not want to be tied to a fixed timetable, such clauses may be difficult to negotiate. The idea that there is no way of knowing how easily a violation would be found is frequently their main objection.

A word on renewals

Renewals are common in the software-as-service industry. However, since they offer a chance to engage in re-negotiation, as well as provide exit opportunities from unfavorable contracts, it’s important to have some control while the renewal date approaches. You can also look for evergreen renewals, which are plans for automatic renewals of the service (typically 30 days before the monthly subscription expiration). It’s best to have these renewals removed.

If the provider hesitates or outright refuses to remove the evergreen clause, it’s a warning sign. SaaS companies should look to win your business based on providing value – not by locking you into a contract that’s complexes to get out of. You can also see if it’s possible to exit the contract when you do not receive specific levels of service consistently.

Final Thoughts

Along with excess licenses and overlapping programs, unoptimized contracts are one of the top three reasons for wasted SaaS spend. As a result, when you examine your SaaS contracts more closely, you’ll see some cost-cutting opportunities.

Negotiating with suppliers does not have to be an unpleasant experience. Tense discussions and gamesmanship are not common among finance or procurement executives. Seeking savings, thankfully, does not necessitate coercion. Companies may boost their negotiations when they have utilization data and are familiar with vendors’ normal sales tactics. Also, knowing the components of a pricing plan will give you an advantage during the negotiation. You can still find ways to make any contract work in your company’s favor.