How to Ace Your Negotiations: SaaS Contract Negotiation Checklist

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SaaS solutions have become one of the most important aspects of business. These cloud-based applications boost a business's overall functionality.

However, getting the most out of a SaaS solution depends on an essential factor – contract negotiation. Getting what you want for your business without proper SaaS contract negotiation is hard.

A SaaS contract outlines service terms such as data security, pricing, termination clauses, etc. While a standard contract might seem straightforward, it often contains room for negotiation.

Negotiating the SaaS contracts can prove highly beneficial for your business. You can secure better pricing and negotiate flexible terms.

This article will discuss the SaaS contract negotiation checklist to help you become a successful negotiator. We will also discuss effective negotiation tactics and highlight common pitfalls to avoid. Let’s get started.

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Before You Negotiate: Prepare for Success

You cannot just jump straight into the negotiation process. You must thoroughly prepare to ensure you achieve the best deal possible. It’s important to consider a few things you need to remember before entering the negotiation stage.

Define Your Needs and Goals

This is one of the most important things you must remember before negotiating with your SaaS vendor. You will fail to negotiate the best terms without understanding your business’s overall needs and goals.

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You should address the specific requirements you want to achieve from the SaaS contract. This involves discussing with your stakeholders and various departments.

Once you determine your needs, you must set clear goals for the negotiation. Determine the key areas where you need the most improvements. These include contract terms, pricing, service level agreements, or additional features.

Research Market

The next stage is researching the market. Now, we have seen countless business owners making the mistake of overlooking the market research process. Don’t make the same mistake as they do.

A thorough market research will help you understand the overall pricing structures for similar SaaS solutions. When you compare the pricing against industry standards, you will know the competitive pricing for the services you seek.

Additionally, you also need to research the vendor’s reputation. Do they provide high-quality services? How reliable are they in terms of solving your business’s needs?

Apart from asking these questions, you must also pay close attention to the customer reviews. Pay close attention to platforms like Capterra, G2 Crowd, or similar platforms. We suggest looking for customer reviews, case studies, and testimonials on Gartner.

Understand the Contract

You don’t want to waste valuable resources on irrelevant SaaS contracts, right? This is why you need to understand the SaaS contract terms thoroughly. Familiar yourself with standard SaaS contract terms like:

• Provisions related to the pricing
• Service levels
• Data security
• Termination clauses

Understanding the SaaS contract terms will help you identify the areas where negotiation can be most beneficial. You must also consider the clauses that could impact your organization's interests.

Make sure you determine the clauses you must negotiate based on your business’s requirements.

Have a Clear Negotiation Plan with BATNAs And Price Benchmarks

The last step is having a clear negotiation plan. A successful negotiation requires careful planning, including developing a clear negotiation plan.

Determine your BATNA—the alternative plan you will focus on in case the negotiation fails. Understanding your BATNA will help you make informed decisions during the negotiation process.

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Apart from BATNA, you also need to focus on price benchmarks. Research the SaaS solutions and their pricing models to know the fair price for your desired services.

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The SaaS Contract Negotiation Checklist

Now that you know the preparation process, it’s time to know the specifics. But why is the SaaS contract negotiation checklist so important?

Well, for starters, it will help you know the key points to address during the SaaS contract negotiation. This way, you can secure a SaaS agreement that is suitable for your business’s goals.

Pricing and Billing

The first thing you need to remember is the subscription term length. Do you want a monthly subscription or an annual one? Remember that an annual subscription will prove more cost-effective than a monthly one, so choose the one that works best for your business.

But you might think an annual subscription is more risky, especially when you don’t know if it will work for your business. This is why we suggest a trial period and then choosing a suitable subscription term length.

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Now, some vendors charge a flat fee for their services, whereas others charge a subscription per user. Consider how many people will use the services and negotiate a suitable term.

You also need to negotiate the payment terms. Do they provide any discounts for upfront payments? If they do, negotiate and secure the most favorable payment term based on your business’ revenue and cash flow.

Service Level Agreements

A robust service level agreement showcases the vendor's commitments regarding the service's performance and availability. It is one of the most important aspects of the SaaS contract negotiation checklist.

You must negotiate for an uptime guarantee that meets your business’s needs. Industry standards typically range from 99.9% to 99.99% uptime. When determining an acceptable uptime percentage, consider the potential impact of downtime on your operations.

Next, determine clear response time expectations for different support tiers (e.g., critical, high, medium, low). This ensures you receive timely assistance when encountering issues.

But what will happen when the vendor fails to meet SLA standards? This is why you need to outline the consequences. Some common repercussions include service credits (financial compensation) or extensions on the contract term.

Don’t forget to negotiate the value of the service credits to ensure they represent a significant incentive for the vendor to meet the SLA. This way, you can hold the vendor accountable for performance. Here are the key clauses you need to look into in a SaaS agreement:

• Agreement scope
• Subscription and pricing plans
• Service level agreements
• Data ownership and security
• Liability
• Termination and auto-renewal
• Customer support and maintenance
• Product modifications

Here's a SaaS agreement checklist you can take with you during contract negotiations.

Data Security and Ownership

The next key SaaS contract term is data security and ownership. Remember that you need to take extreme precautions to protect the data items. Failing to do so will cause severe consequences to your business.

Negotiate for industry-standard encryption protocols for data. This ensures your data remains protected even during a security breach.

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The contract must also specify robust access control measures such as multi-factor authentication and role-based access. Moreover, it should outline the vendor's obligation to notify you promptly in case of a data breach.

You must also highlight who owns the data you generate while using the SaaS solution. You should retain ownership of your business data, and the contract should grant you the right to export your data at any time.

Customization and Scalability

Remember that SaaS solutions should adapt as your business grows. In addition to scalability, the SaaS contract terms must be customizable to meet your business’s growing needs.

This is why you must know how customizing the SaaS solution can fulfill your business’s workflows. Discuss the level of customization offered by the vendor and any associated costs.

But what about scalability? The contract must allow you to easily scale your SaaS solution usage up or down as your business needs fluctuate. You also need to discuss the limitations or fees associated with scaling and negotiate for flexibility if possible.

Renewal Terms

Coming next is renewal terms, especially the auto renewal clauses. While it’s completely your decision to keep it or remove it, we suggest you negotiate and remove this clause. This way, you don’t need to worry about any hidden fees.

The renewal period is the perfect time to renegotiate the contracts. Use this time to re-evaluate your needs, benchmark pricing against competitors, and negotiate for better pricing.

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Now, here comes an important part—pricing changes during renewals. Sometimes, vendors revise their pricing structure. Based on this new pricing structure, they may ask you to pay more during the contract renewal period.

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This is undoubtedly a hassle, so you must negotiate this during the initial stages of negotiation. Ask the vendors if the renewal price will remain the same even if they revise their pricing structure.

Termination Clauses

This is another important aspect of the SaaS contract negotiation checklist. Sometimes, you might need to terminate the SaaS agreement before the contract terms expire. The termination clause outlines how you and the vendor will exit the agreement.

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For starters, the contract should specify the notice period required for either party to terminate the agreement. Negotiate for a reasonable notice period with sufficient time to find an alternative solution.

Apart from the notice period, you must understand the process for migrating your data from the SaaS platform. The contract must highlight how the vendor will hand over the data. Negotiate for a reasonable timeframe and cost structure for data migration.

Remember that some contracts have a penalty for early termination. Review this clause carefully and negotiate for its removal if possible. If it’s unavoidable, try reducing the penalty amount.  

Other Considerations

Last but not least, you need to consider the other aspects. Apart from the core aspects of the SaaS contract negotiation checklist, you must also focus on additional considerations.

For example, the contract should clarify ownership of any intellectual property. This includes any customizations you make to the platform.

Now, both you and the vendor will have confidential information. The contract should outline confidentiality obligations and how each party will handle sensitive data.

If you disagree with the vendor, the contract should specify the dispute resolution process. This may involve negotiation, mediation, or arbitration. Make sure you negotiate a fair and efficient dispute resolution process.

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SaaS Contract Negotiation Tips and Strategies

The SaaS contract negotiation checklist we’ve mentioned helps you know the key points. However, you need to know the best contract negotiation tips to secure the most suitable outcome for your business.

• Start the negotiation process with a collaborative approach. We recommend you see the negotiation stage as a joint effort to reach a mutually beneficial partnership. However, don’t be afraid to push back from unfavorable contract terms. Use your research and justify why you need changes in the contract.
• Next, make sure you have a solid understanding of the SaaS landscape. You need to understand the industry-standard pricing for similar SaaS solutions. Researching the pricing and features provided by the competitors will help you negotiate a competitive rate.
• Lastly, know your alternatives and be confident about walking away from an unfavorable deal. If the vendor refuses to agree to a few favorable terms, be prepared to walk away. This shows that you prioritize your business’s needs.

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Common Mistakes to Avoid During Negotiation

You might make common mistakes during the negotiation process despite your best efforts. If you don’t want to face any problems in the future, make sure you avoid these mistakes during negotiation:

• As mentioned earlier, don’t jump into negotiation blindly. Take your time reviewing the vendor's standard contract. You need to understand the terminology and highlight the key negotiation areas.
• Don’t make the mistake of focusing solely on the price. While it’s undoubtedly a significant factor, you should not consider it as the sole focus. You don’t want a competitive price with unfavorable terms, right?
• Pay close attention to the SLAs, termination clauses, and other security measures. These will have a massive impact on the long-term value of your SaaS subscription.
• In the business world, verbal assurances don’t have any value. The same goes for the negotiation process. Whatever agreement you both reach must be documented in writing and formally incorporated into the contract.

This will increase transparency, and there will be fewer misunderstandings in the future. Consider it a red flag if a vendor doesn’t want to document everything in a contract.

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Conclusion

SaaS solutions are important for your business’s growth, but a well-negotiated contract unlocks their best potential. Thus, reviewing the contract terms carefully will help you secure the best SaaS agreement.

Remember that effective SaaS contract negotiation should benefit both you and the vendor. Don’t forget to consider the effective contract management strategies we’ve outlined in this article. In the end, be confident while negotiating with your SaaS vendor.

However, negotiating the best deals is easier said than done. You will need expert assistance. This is where CloudEagle’s assisted buying feature comes into the picture.

With $1 billion spend negotiated and $120 million of savings experience, we can secure the most favorable deal for your business. Let’s see what Elena Guan has to say about our services.

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Our seasoned negotiators have years of industry experience. Hence, they can access the latest price benchmarking data.

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We will discuss all the important factors while building a negotiation strategy. We will also use the latest data to ensure you receive the maximum value for your money.

Let’s take Nowports as an example. They didn’t have access to benchmarking data for effective vendor negotiation. They were failing to track their own SaaS usage and missing renewal deadlines.

But, with CloudEagle, they managed to secure 34% savings via SaaS negotiations. Are you wondering how?

Well, we gave access to data points and app usage visibility through integrations. We also sent contract renewal reminders and provided a centralized view of contract details and benchmarking data. Check out their interesting customer success story.

Sounds intriguing, right? Do you want CloudEagle to handle your vendor negotiation process? Make sure you book a demo with us today, and our experts will immediately assist you.

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