SaaS renewals: strategies for negotiating better contract terms
Aimee Manning | OCT 26, 2022
According to research, the average business uses as many as 254 different software applications, and this figure is only expected to grow. In fact, Gartner predicts that more than half of all enterprise IT spending will shift to the cloud by 2025.
But with every new SaaS tool comes a new contract, a new renewal date to keep on top of, and a new opportunity to waste both time and money.
After all, the larger your SaaS stack, the more likely you are to lose oversight of your software applications, miss renewal deadlines, and end up paying for costly and unwanted subscriptions.
This doesn’t have to be the case though. At least not with a strategy in place to manage your SaaS renewals and gain the leverage you need to negotiate the best possible contract terms.
Here’s everything you need to know.
What are SaaS renewals?
A SaaS renewal occurs when a customer extends their relationship with a vendor by renewing their software subscription for a set period of time — usually annually.
Despite seeming like a relatively straightforward process though, SaaS renewals can cause major headaches.
To start with, as many as 89% of vendors have auto-renewal clauses, meaning you need to allow yourself ample time to evaluate usage and spend, identify duplicate and redundant applications, and ultimately determine whether you want to renew or not — and on what terms.
This could be changing the number of licenses, gaining additional support or functionality, or reducing the cost of the subscription — something that’s important to consider given that 90% of buyers are overpaying for SaaS products by as much as 20-30%.
Then, there’s the notice period for canceling a subscription.
It’s often not enough just to terminate your contract by the renewal date, almost all vendors require you to do so with at least 30 days notice. In some cases, you may even be required to provide 45, 60 or 90 days notice.
The bottom line is, these SaaS renewals need to be managed effectively and often prepared for well in advance of the renewal date.
How to prepare for the SaaS renewal process
Given the importance of SaaS renewals and the financial consequences of leaving them to the last minute, the first step in any SaaS renewal strategy is preparation.
But what exactly does this entail?
Consider your SaaS usage
In an ideal world, your organization wouldn’t be subscribing to SaaS tools that aren’t being used, nor would you be paying for excess licenses.
The problem, however, is that it’s becoming increasingly easy to lose track of SaaS usage as more software comes to the market, and as more purchases are made without the knowledge or approval of the IT, procurement and finance teams.
But it’s not just unused tools and licenses that are the problem. There’s also the issue of SaaS duplication, which is where companies have multiple subscriptions to the same tool — a common example being software such as Adobe Acrobat Pro — as well as redundant SaaS applications. This is where the organization subscribes to multiple tools that effectively do the same thing or have overlapping functionality.
One of the most common types of software causing both SaaS duplication and SaaS redundancy is project collaboration software. This is because a tool of this kind is typically used by various different departments within an organization.
It’s therefore vital that you’re assessing your company’s SaaS usage so that you’re not renewing contracts for platforms you no longer need.
While there are a number of different approaches you can take to identify these tools, it is worth getting in touch with each department head to gain insights into platform usage. It can also be worth finding out if there are any additional tools they’re wanting to add to the company tech stack ahead of negotiations with vendors.
Ensure you’re not missing renewal deadlines
Given that the majority of vendors include auto-renewal clauses in their contracts, it’s important that you’re not only keeping track of these renewal dates, but that you’re also keeping track of the deadline for canceling your subscription or amending your contract. In some instances, vendors will require at least 90 days notice, so it’s crucial that you’re aware of this notice period and your renewal window, in order to avoid being locked into a subscription you no longer need.
Create a SaaS renewals calendar
While a manual approach can certainly work when you’re handling a relatively small number of SaaS tools, it can very quickly become unmanageable as your SaaS stack grows. It is for this reason why so many organizations are now automating their SaaS renewal process, ensuring that they are notified of any impending renewal dates with enough time to make proactive decisions and work on their negotiation strategies.
Effective SaaS renewal management strategies
Now that you’re armed with all the information you need to prepare for SaaS contract negotiations, here are our recommendations for getting the most out of these discussions.
Start conversations early
While your renewal window will determine how soon you should be starting these discussions, we would recommend contacting your vendors at least 90 days before the contract is up for renewal. This will prevent you from scrambling to negotiate your agreement at the eleventh hour, while increasing the chances of you securing a better deal.
Find out the vendor’s fiscal year
Many sales representatives have quotas to meet each quarter or fiscal year, which is something you can use to your advantage. If time allows, consider negotiating with them nearer the end of these periods, as they may be more flexible with their terms.
Anticipate your vendor’s goals
While your vendor’s primary objective will almost always be to maximize revenue, they may also have other goals that they’re trying to achieve, for example pushing particular platforms or expanding into certain geographical areas. Anticipating these aims can give you extra leverage and help you get a better deal.
Find out what other companies are paying
Before going into negotiations, try and find out what the going rate is for the contract in question. If you find that you’re being quoted more than other companies, you can leverage this data to lower the price, or secure better contract terms.
Not sure how to get these pricing insights and discounting data? Vertice has access to thousands of SaaS transactions, meaning we can tell you exactly what other buyers are paying for their software. Here’s everything you need to know about how we leverage pricing benchmarks.
Consider multi-year contracts
Prior to any renewal, it’s worth compiling a list of the vendors that are critical to your business. In these instances, it may make financial sense to negotiate a multi-year contract, as vendors will likely offer discounted rates for two or three year contracts.
Understand your usage requirements and use it to inform renewal negotiations
According to our data, a third of all SaaS licenses are either barely used or not used at all by the intended employee. In departments such as sales, it’s substantially higher at 52%. That’s more than half of all sales licenses going to waste.
The challenge is knowing where this SaaS wastage exists.
Imagine if you did though and could rightsize your plan prior to a renewal so that you were only renewing the licenses that are actually required? Well, with Vertice you can.
Our usage analytics functionality maps information from your SaaS contracts — for example the amount and tier of licenses being subscribed to — and compares it with real usage data. Data that can then inform renewal negotiations, ensuring you’re only paying for the amount of licenses that are required.
Request to extend your free trial
If you’re on a free trial but remain unsure of how it will fit into your SaaS stack, it may be worth seeing if you can extend this trial. Sales reps can be open to this as it reduces the possibility of you terminating the contract altogether and increases the chances of you signing up on a paid plan in the near future.
Offer a reference or case study
It’s possible to get further discounts by offering to be a reference or agreeing to a case study. While this will require extra work from your side, it’s a potentially great way to cut costs.
Remove auto renewal clauses
While there are a small number of businesses that like the convenience that auto renewals bring, especially for business critical applications, for many others they are a huge — and often costly — problem.
But while as many as 89% of vendors have auto renewal clauses stipulated in their contracts, these clauses aren’t always set in stone and can be removed. You just have to ask.
According to Vertice’s Head of Buying, Nick Riley, many SaaS buyers aren’t aware that this is even an option. “In almost all cases, vendors will remove auto renewal clauses when asked to do so during negotiations. Where possible, we would always recommend that organizations do this to maximize their buying power at the end of their contracts”.
It’s also crucial that you read through the contract and understand the language being used. “Some contracts will include language that allows a price uplift upon renewal. You should never accept this. If a supplier won’t remove the auto renewal clause, then you should have it put into the contract that they will contact you, in writing, 90 days before the renewal to remind you. It’s also worth being aware that clauses around price uplifts and renewals are often separate, so make sure to check the whole contract”.
Manage your renewals with Vertice
When it comes to renewing your software, visibility of your entire SaaS stack is crucial. Without it, you not only lose buying power, but you also risk getting tied into a contract for a subscription that your organization no longer wants or needs.
At Vertice, we ensure this never happens by giving you this visibility. More specifically, we allow you to track all of your software applications from a single platform, while alerting you of renewals ahead of time, streamlining the approval process, and enabling you to identify valuable opportunities to optimize your software portfolio for increased ROI.
But that’s not all we do.
We understand that the process of reviewing, managing, and controlling SaaS can be both time-consuming and expensive, which is why we can take this burden off your hands. With extensive buying expertise and access to the pricing points and transactional data for more than 13,000 vendors worldwide, we can secure you the best possible deal on any software contract.