The importance of pricing benchmarks in software negotiations
Aimee Manning | JAN 17, 2023
When it comes to software negotiations, vendors typically have the upper hand. At least they do when they are aware of the value of their offering and are subsequently in a position to dictate the terms of the agreement — including the price.
But this doesn’t have to be the case.
At least not when you have leverage. More specifically, at least not when you have leverage in the form of pricing benchmarks.
But what exactly do we mean by pricing benchmarks? How can you use them to shift the balance of power in your favor? And how do you even go about obtaining them?
Here’s what you need to know.
What are pricing benchmarks?
By definition, price benchmarking is the process of comparing the price of something — in this case the cost of software — to that of a competitor.
But while this is a strategy that many buyers adopt when purchasing or renewing their SaaS tools, mainly in the form of obtaining quotes from multiple providers to compare and use as leverage during negotiations, this insight alone is unlikely to secure you the best possible deal on a contract.
Because the prices that SaaS providers quote are rarely set in stone. There are often always savings to be had. In fact, according to our own data here at Vertice, 90% of buyers are overpaying for their software by as much as 20-30%.
Which means that when it comes to benchmarking the cost of SaaS, the focus shouldn’t be on what a provider is quoting compared to their competitors, but rather what they are actually charging their customers. In other words, the prices that companies of a similar size and profile to your own are actually paying for the same subscription.
Why these pricing benchmarks are crucial in software negotiations
While it’s certainly possible to secure a discount on your software by arming yourself with industry pricing trends and using the best software negotiation tactics, the reality is that it will only get you so far.
Without knowing exactly what other companies are paying, and therefore what you could be paying, you’re unlikely to achieve the best possible savings.
Before we dive into how you can obtain this intel, it’s worth understanding why it’s happening.
How lack of transparency is causing huge pricing disparities
When it comes to buying software, perhaps the biggest challenge is the lack of transparency in the market.
In fact, as many as 55% of vendors obscure their pricing on their site, requiring you to enter into sales discussions to find out what they want you to pay. But as we’ve already mentioned, there are often huge disparities between the prices that different companies end up paying — something that happens even when a vendor does publish their pricing, but that is even more prevalent when a buyer has absolutely no frame of reference on cost.
Of course, many companies will pay what the company wants them to, either because they’re unaware that the vendor may offer a discount, they don’t have the time to deal with back and forth negotiations, or they’ve left it too late to negotiate a renewal. But there are almost always customers with discounted rates.
Inconsistencies in pricing isn’t unique to the software industry though. Just take an industry such as car insurance, where any two individuals could very well be paying a different price, despite having the same amount of driving experience, the same postcode, years of no claims discounts and so on.
But as with insurance, there’s no way of knowing exactly what the other customer is paying.
What we do, however, know is that the difference in what any two customers will be paying is likely to be far greater in SaaS than it is in insurance. In fact, we’ve seen examples where a business is paying $50k for its software subscription, whereas another user of a similar size is paying $13k for the exact same usage, features and terms.
At Vertice, we look at how consistent pricing is across similar customer profiles for thousands of SaaS vendors. We then give them a parity rating, giving you an idea of just how willing they typically are to offer a discount.
But again, this insight alone can only get you so far. You also need the numbers.
How to find out what other companies are paying for SaaS and use it as leverage
While there are various best practices that can be actioned when it comes to negotiating your SaaS contracts, the most effective way to secure the best deal on any contract is with intel into what other companies are paying.
With access to the pricing and discounting data of more than 13,000 SaaS vendors worldwide, Vertice can access this intel.
Better still, our team of SaaS specialists can use it as leverage by negotiating on your behalf, not only guaranteeing you cost savings, but also saving you the time and hassle of back and forth communications with your vendors.
Why not see for yourself how much we could save you on your annual SaaS spend by using our free cost savings analysis tool. Alternatively, read more about the benefits of using SaaS purchasing software or learn more about how our pricing is entirely risk free.