Little Known Ways SaaS Vendors Are Winning Using Vague Pricing and Hidden Terms
Global market intelligence provider IDC released a report this week predicting that spend on cloud services will increase an estimated 23.2% over 2017. The brisk pace is good news for SaaS companies in particular, as IDC believes this growth will deliver $277 billion in spend, amounting to a CAGR between 2018 and 2021 of nearly 22%. More so than infrastructure or PaaS products, SaaS will attract the lionshare, or nearly two-thirds of the spend worldwide.
Cleanshelf has written about the relentless march of SaaS products into organizations of all sizes. IDC’s growth metrics suggest more of the same. And while the value SaaS tools provide is often worthwhile, the velocity and scale of deployments is delivering a shocking amount of spend. For unprepared companies, this has rapid and surprisingly adverse impact.
If it doesn’t work, just cancel, right?
Easier said than done.
Consider what is buried in section 12.2 of Salesforce’s Master Subscription Agreement (emphasis ours):
“...Except as otherwise specified in an Order Form, subscriptions will automatically renew for additional periods equal to the expiring subscription term or one year (whichever is shorter), unless either party gives the other notice of non-renewal at least 30 days before the end of the relevant subscription term. The per-unit pricing during any renewal term will increase by up to 7% above the applicable pricing in the prior term, unless We provide You notice of different pricing at least 60 days prior to the applicable renewal term. Except as expressly provided in the applicable Order Form, renewal of promotional or one-time priced subscriptions will be at Our applicable list price in effect at the time of the applicable renewal. Notwithstanding anything to the contrary, any renewal in which subscription volume for any Services has decreased from the prior term will result in re-pricing at renewal without regard to the prior term’s per-unit pricing…”
This is not just about Salesforce. But it is worth recognizing that the arguably most successful SaaS company of all time auto-renews before terms end, includes 7% rate hikes and, in cases of reduced licensing, reprices to highest level of the current pricebook regardless of previous term per-unit pricing.
Salesforce’s success means other SaaS companies will adopt similar models.
Consider the repercussions when this happens across all SaaS vendors in a company stack. It is no wonder our State of SaaS Spend report shows that the average 200-person startups is losing $460,000 per year on wasteful contracts, excess licenses and overpriced vendors.
Renewals and price hikes may be acceptable, but leadership needs to compare the value of the software against term revisions. To do this companies need to have a central view of what is being used, by whom and how often.
To combat ballooning license spend, Cleanshelf encourages the following:
- Diligently measure the value that each application provides to the organization. Using Cleanshelf Service Reviews, companies can keep line-of-business leaders accountable for their SaaS purchases and usage. These check-ins optimize future planning and help IT and finance partner with the business to make sure that licenses contribute to the bottom line. This resists the trend of auto-renewal and surprise contract extensions.
- Optimize SaaS accounts to account for redundancy and functionality. Cleanshelf tracks SaaS subscription spending by department giving leadership an overview of where licenses are being used, where redundant deployments are, where incompatible tools exist and where improvements can be made. This may look like consolidating three different CRMs into one, cross-departmental solution that is centrally managed and negotiated, for example.
SaaS spend is growing globally. Vendor sales savvy is peaking and pricing terms are increasingly opaque and full of ‘gotchas’. Don’t let costs and deployments grow unchecked. Cleanshelf can help companies automate and monitor software usage, while improving spend ROI. Contact the team today for a demo and see how easy it is to take back control of the cloud ecosystem.
Cleanshelf is the leading SaaS spend optimization solution focused exclusively on tracking, controlling, and benchmarking subscription SaaS applications. Cleanshelf’s cloud technologies help companies save up to 30% on their SaaS spending by automatically identifying unused, underused, or unmanaged licenses and subscriptions.
Headquartered in San Mateo, CA, Cleanshelf serves dozens of clients, including Drawbridge, Revinate, Dynamic Signal, Qumulo, and Service Rocket.