December’s entrance means a rush of annual SaaS renewals. And while year-end is undoubtedly crazy, finance and technology leaders shouldn’t just sign and send contracts that come up for renewal. Pause and consider and this may become the season of contract savings.
End of quarter (EOQ) and end of year (EOY) are milestone moments for enterprise software vendors. Shareholders want strong finishes and teams push hard to beat Wall Street or investor expectations. Salespeople have their eyes on bonuses, corporate trips for top performers and commissions accelerators. This means that generally, customers can get better deals at this time than at any other point in the year.
The reason why boils down to an industry compensation reality around “bookings”. Even though customers are buying a software service (SaaS), salespeople are still compensated by the contract value they secure in a quarter. Bookings represent the commitment of a customer to spend money and are tied to the contract at the moment of signup. So even though company doesn’t get your money (or receive “revenues”) until each month or later when your wire or payment is submitted, the rep gets the full credit right away.
See where this is going?
The more sales an account executive can push into a quarter the better. By end of quarter, they’re either behind quota and need to cram deals in, OR, they are ahead and want to take advantage of performance accelerators. Either way, the buyer has leverage.
EOY is a clean time for contracts to begin and end too. Companies like the financial and legal tidiness and often subscribe and co-term contracts accordingly. You’ll likely find this to be true inside your company too. So this year as contracts come due, use reps’ EOQ and EOY urgency to your benefit. Find financial, performance and service value opportunities to take advantage of as the quarter closes out.
#1. Double check use. This has little to do with negotiation, but remains the number one place to unlock value. As the year wraps up, review software applications and confirm that licenses are actually being used before renewing again. It’s not uncommon to have employees leave and their licenses never be reassigned. Or, to have a department manager overbuy to take advantage of a one-time deal. No matter how savvy a negotiator you are, or how desperate a vendor is, finding and reducing shelfware will make the biggest financial difference as you clean up SaaS. An optimization tool like Cleanshelf can as it lets finance leaders immediately identify available licenses, usage patterns and owners.
#2. Negotiate variables like price hikes, auto-renewals or early termination fees. Every contract will have details that, when added together, become costly. For example, many vendors have baseline annual price hikes or onboarding costs. If you sense you’ll be with a vendor for the long haul, negotiate these. A rep will likely concede to CPI+2%, instead of 4% or 5%, to close you by year’s end. If internal changes may result in your company needing to terminate a contract before its end, negotiate a contingency. For peace of mind, consider negotiating off the standard autornewal terms and require the vendor to give you thirty or sixty day notice prior to auto renewal. At a minimum, this will give you some time to rationalize the value of the SaaS.
Some complex SaaS will have implementation costs or requirements. If the vendor has a services team, they may have similar sales quota and EOQ/EOY urgency and be amenable to discounting. If you go to a 3rd party vendor, shop multiple.
#3. Reclaim service rights. Vendors have default terms for things like data policies (who holds your data after you terminate a contract or to assign GDPR responsibility). They also have contract language describing what reasonable service levels are for things like uptime, availability and help desk response time. For companies with hardline policies on discounting, these areas may be opportunities to improve your contract. A little negotiating leverage may secure you rights to a data export or transition to a cloud data warehouse when you terminate. It may bolster an indemnity clause in case of a data breach or upgrade you to a higher customer support and service class.
Your year end will be crazy, but it can also be cost-effective. Pause and assess your SaaS contracts. And while the rest of the industry is running around trying to close deals and get home for the Holidays, you can setup your company budget for new year success.
Want clear insight into all your SaaS licenses, spend and usage from an easy-to-access dashboard? Contact the Cleanshelf team today and manage SaaS with ease.
Based in San Francisco, Cleanshelf is the best way for enterprises to monitor and manage their SaaS spend. Our SOC 2-compliant and AI-powered technology saves our customers up to 30% on fees. Cleanshelf already helps businesses like Drawbridge, Ellation, Crowdriff, and Qumulo, among others. Join them now and gain control of your enterprise SaaS.