A Complete Guide to Buying SaaS part 3
Strategic negotiating tactics
Our purchasing specialists negotiate with dozens of suppliers every day on behalf of our clients. Over the years, we’ve accumulated a wealth of knowledge and experience in buying SaaS, which we want to share with you.
Key points of concern when negotiating a new contract
Evaluate the cost and compare it with the price of SaaS products from other suppliers.
Pay special attention to:
- Commissioning and support: What’s included and how much it costs.
- Comprehensive pricing: Break down the cost of each specific item.
- Cost implications: Determine how the cost will change with the addition of new functionality.
- Price protection: Refrain from one-time discounts or automatic renewals and allow for a reasonable markup on future renewals of 0-5%.
Providers are interested in raising the price of SaaS instruments at renewal. That means you need to:
- Check for economies of scale: The total cost will rise over time, and there’s no surprise in that. At the same time, the terms and conditions with you as a long-term client should also improve.
- Be proactive about changing your pricing model: 80% of suppliers will change their pricing model within a year. This is done to see how it affects their bottom line.
- Expect suppliers to try to raise prices: Rates may increase if volumes decrease. The supplier will want to keep the total cost of the contract. Keep this in mind.
Basic types of licensing models
As a rule, SaaS pricing is based on the number of users, but this isn’t always the case. A common SaaS pricing model is a cost based on consumption or volume. In this case, you only pay for what you use.
1. Annual contract measured monthly
Here you make a monthly commitment for your company. However, it is often the case that a business makes a commitment with a reserve and does not use it to full scale, wasting money. Equally common is the scenario where the company exceeds the commitment and has to pay an excessive rate. We believe this is a questionable practice, as the scaling of the company should be encouraged, not vice versa.
2. Pool of Funds
This model is geared toward businesses willing to spend six-figure sums. The model itself is great because you’re not overpaying and you don’t have to pay on demand.
Each month you pay a certain amount and the provider withdraws funds based on consumption. The tricky part here is that you don’t have to track your consumption, which creates the risk of making it uncontrollable. This can cause the funds to run out earlier than planned and the contract will have to be renewed prematurely.
Even before the purchase, stakeholders should provide estimates for the number of users and potential usage. This will protect your budget from increasing in the future.
One-year and multi-year agreements
Which of these types of agreements is better is debatable. It all depends on the needs and goals of your business.
However, based on our experience, we can give you the following recommendations:
- If you are the owner of a relatively small but fast-growing business, a one-year contract is more suitable for you. This will allow you to remain as flexible as possible.
- If the supplier doesn’t provide a discount for regular partners, choose a one-year contract.
- If the implementation of a SaaS tool can potentially take more than 3 months, consider a two-year contract. Switching to another solution, in this case, may take too long.
- If you already know what your chosen product is and you have experience with it sign a contract for several years. If you have no experience with the product, limit the contract to one year.
- A multi-year contract will save you a lot of time in negotiating about renewal.
- If you don’t think SaaS management will be able to provide a certain percentage of renewals, opt for a multi-year contract.
A strategy with multi-year contracts is good for scaling. It will save your legal, finance, and security departments time reviewing contracts. Even if some of the SaaS tools become obsolete or no longer fit your business needs over time, competitors of those solutions can always buy out your contracts and offer you better terms.
How do you know that the price you are being offered is fair?
If you don’t have a company that can quote you the best price based on statistics and experience, we suggest you use the three-bid and a buy method. This will increase the chances that the price you are offered is fair.
Of course, some vendors give you their best offer right away, and haggling with them makes no sense. This is also true if the supplier knows for sure that the product is unique and that you have no way out. However, we’ve seen cases where the supplier is willing to reduce the price by up to 90% if you do everything right.
You can also find out how fair an offer is in the industry-related communities. For example, you can contact the Slack groups or ask the audience on Capiche.
Everything is clear, now let’s implement it!
Now you know the main rules of purchasing SaaS. It’s time to put this knowledge into practice.
Contact us and we will perform a free analysis of your SaaS infrastructure and explain how we can establish a fruitful cooperation and help you save money.