Negotiating SaaS Contracts

The SaaS model is easy to implement, easy to use, and offers a friendly subscription pricing model. But when it comes to negotiating SaaS contracts, there are many essential things you need to consider. For a fruitful negotiation of a software contract, stakeholders must understand the differences between bad and good procurement management. When negotiating a software contract, you can never be too prepared. The most prepared one tends to have the most success.

Remember, not all SaaS contracts require negotiation. SaaS contracts usually contain standardized language and are exhibited in a way that doesn’t allow for negotiation. For example, some clauses and terms found in a non-negotiable Saas contract include usage termination, liability limitation, and governing law.

Read More: Key Clauses To Understand and Evaluate in SaaS Contracts

One of the most important reasons to negotiate SaaS contracts is to protect your organization from downside risks. Many standard SaaS vendor contracts contain terms and policies that hold the customer accountable for most risks. By negotiating a shift of responsibilities to the service provider, i.e., SaaS vendor, your business can reduce or potentially eliminate risks.

Significant Tips for Negotiations in SaaS Agreements

There are some vital details that anyone engaged in a SaaS agreement should be paying attention to, exceptionally when it comes to pricing and service levels:

• Price application is a utility service sold on a subscription model with annual or monthly payments for system usage.
• Discuss custom pricing options if the vendor’s pricing plan doesn’t work with the customer’s business model.
• In most cases, additional fees can add up quickly, hence addressing inherent extra costs beforehand in the negotiation process.
• In order to keep additional costs down, try to avoid customizations.
• As far as possible, begin with evaluating the base offering, assessing its core functionality. Then conclude whether you need custom features and how significant those are to your success.
• When negotiating for a discount from a SaaS vendor, expect to offer something else in return, e.g., an extended contract term.
• Ensure an out-clause if the agreement calls for long-term subscriptions (typically 3–5 years).
• System reliability is one of the vital things, don’t forget to discuss.
• Include an SLA or service level agreement, which commits to a certain amount of time the system is up and running.
• Discuss renewals and how they are handled. You may come across the term “evergreen renewal,” which is an automatic renewal of your contract period. If you don’t want this, ensure auto-renewal clauses are removed.
• Any SaaS vendor who does not agree to remove the automated renewal option should be carefully monitored, as that is a red flag.
• Check if the SaaS vendor is willing to offer scalable pricing. You may want to expand in the future, but you should also evaluate whether you’ll need to downgrade.

Next Steps

Entering into a Software Contract Negotiation? Ace your negotiation process with this software contract negotiation checklist designed by Aavenir experts.

Watch this on-demand webinar to learn how you can build and implement a comprehensive process mechanism to manage all contractual obligations for SaaS contracts, and move towards the maturity of building your own KYO — Know Your Obligations system