Saving money on SaaS starts with identifying licenses and assessing their use. But once license management processes are in place–and duplicate licenses are removed, there’s more ways to save. One of them: contract negotiation.
SaaS Contract Negotiation: the time is now
According to Cleanshelf's 2019 Business SaaS Spend report, unoptimized contracts are one of the top three reasons for wasted SaaS spend, together with excess licenses and overlapping services. This means you will find considerate cost-saving opportunities when you give your SaaS contracts a closer look.
Negotiating with vendors doesn’t have to feel uncomfortable. Few finance or procurement leaders like tense conversations and gamesmanship. Fortunately, finding savings doesn’t require strong-arming. When companies have usage information and understand vendors’ usual sales playbooks, they can improve negotiations. Also, understanding pricing strategy components will help you get the upper hand during the process.
“Now is a critical time to get in front of immediate needs and potential long-term changes to IT services contracts,” says Bill Huber, partner in the digital platforms and solutions practice at global technology research and advisory firm ISG. “This is a climate where change is potentially more achievable, and work can commence on restructuring agreements to meet the needs of the next normal.”
More than ever, the market is now “open for business.”
Five ideas to get you in the driving seat
Below we share five ways to find savings with vendors. As you explore, remember: there’s never a bad time to reassess your contracts.
#1 - Reassess license types
Build a baseline of user needs, then rightsize license types based on the features and functionality needed.
Often, companies deploy enterprise-grade apps with unnecessary features. This is most common with tools like Salesforce or Office 365. Few companies have the resources to profile their user types, understand feature differences in software plans, and assign efficiently. They just buy a bunch of the same thing.
The array of license types is daunting: Do users only need basic email and storage or are analytics, security, and compliance tools important? Build a baseline of user needs, then rightsize license types based on the features and functionality needed.
#2 - Consider term discounts
Term discounting offers compelling cost savings.
For those without centralized control of cloud apps, term discounting offers compelling cost savings. Consider this: vendors need consistent cash flow and want to avoid customer churn. As well, it’s expensive for them to support annual renewals with customer support or success staff. Salespeople are also incentivized on “bookings”, that is, the total contract value they sell at a given time. This makes bigger, multi-year contracts enticing all around.
Once you’ve identified your mission-critical apps and have consolidated multiple instances or contracts, propose a longer-term service extension. Depending on the vendor, you may find 20-30% savings if you commit for two to three years.
#3 - Ask for loyalty discounts
Vendors care about the long term value (LTV) of client contracts.
Similar to term discounts, vendors care about the long term value (LTV) of client contracts. Funding, valuation, and Wall Street interest are all connected to contract value for SaaS companies. Knowing this, determine your longest-tenured relationships and ask those vendors for loyalty discounts.
The economics of loyalty discounts make sense. Is it cheaper to offer small breaks to existing customers who have spent tens or hundreds of thousands of dollars, or to pay sales and marketing to acquire new business?
If you cannot secure loyalty discounts, don’t give up. Ask for limits to future price raises on renewals. You may not save today but can boost future savings.
#4 - Consolidate for volume discounts
Consolidate app functions to a single vendor and you'll increase your leverage for negotiation.
One of the first things clients learn with Cleanshelf is how many redundant cloud apps they own. Every app category has its fans. Think: Slack vs. Microsoft Teams, or Zoom vs. WebEx, or Outlook vs. Gmail. This hurts collaboration and productivity but also limits volume-based discounting.
By consolidating app functions to a single vendor, you increase your license need and leverage for negotiation. And if you’re split between two similar cloud apps, shop each one. Ask the vendor what volume discounts are available and compare between the two (or, three!) services.
#5 – Let vendors compete for you
Ask them to match or improve on the deal you struck.
Once you and a vendor agree on a provisional deal–but before you sign anything–call the vendor’s competitors. Ask them to match or improve on the deal you struck. Companies may undercut their published pricing to steal business from the competition. As well, if you’re nearing year end and a salesperson has their eyes on bonuses or commissions accelerators, they may use their discretionary discounting to entice you.
As well, Cleanshelf clients can use industry and software benchmarking data to better understand market pricing. Either way, use the competitive landscape to your advantage.
Procurement and sourcing news site Spend Matters reminds, “There are heaps of commercial opportunities hidden in well managed contracts that, if identified, can add up to improved company performance.” With license intelligence provided by Cleanshelf and some proactive vendor negotiation, these performance gains are realized.