CEO & Co-Founder, Tropic.app
The easiest thing you can do to maximize ROI from every SaaS provider is negotiating effectively. Every new contract and renewal is an opportunity to strengthen the value you’re getting from your providers. The challenge is that every software company negotiates differently, and there’s no way to know you’re getting a fair deal.
Tropic is a partner of Plative’s that specializes in procurement to save companies time and money with procurement-as-a-service. By negotiating on behalf of our customers, we’ve been able to pull together a shortlist of steps you can take to remove the pain from your own SaaS negotiations.
What to Offer and Ask For
At Tropic, we’ve seen 100s of software negotiations. We have isolated the common levers in a software negotiation across each vendor stage. Use the table below to take all the guesswork out of negotiation.
Here’s a summary of which levers we’ve learned commonly matter to different vendors at different stages. Use the matrix below to guide discussions around decreasing your costs:
Work out which high-impact levers you’re comfortable with first, and work backward in your discussions with your vendors.
Learn How Your Sales Rep Is Compensated
While there are strong-arm or “win-lose” tactics that can drive deep discounts, such as keeping a “hard no” for the duration of a deal, running out the clock, etc., these are outdated and often damage your company’s relationship with the supplier. A far better exchange is one in which you invest time upfront to understand what really matters to the sales rep you’re partnering with.
We like to engage in discovery here first. What are the main priorities for the vendor? How is revenue recognized? When you understand what matters to the person you’re dealing with, it is significantly easier to find an outcome that works for both of you.
Lower Your Implementation Fees (From the Software Provider)
To effectively lower implementation fees, ask the provider to break down what goes into implementation and verify whether it is included in all contracts or sold as a service. There is typically a lot of room to negotiate here. Once you know this, there’s room to optimize by removing extraneous line items.
Decreasing implementation fees will enable you to achieve a significant discount across the entire contract and still enable the software company to recognize the MRR or ARR, a more important feature for the company.
Another critical aspect of a vendor negotiation is optimizing your licensing to your utilization. This is only possible if you have a clear understanding of where your company will be in the next one or two years. With this information, you’ll be able to ensure that your licenses are fit for your growth. This is especially critical on enterprise agreements like Salesforce.
Don’t jump at discounts that encourage you to commit to growth upfront; ask your provider to build in a ramp that adds your seats as you need them, or even build tiers you can grow into with no commitment. The agreement should scale with you so you don’t need to renegotiate every year. You should be able to create savings here because any additional seats (even later in the year) are more valuable than a flat agreement in the vendor’s eyes and will likely get your sales rep paid.
Implementation and Upkeep Investment (From Solution Implementers)
Next, it’s time to focus on optimizing costs during the implementation phase.
We partner with Plative because they deliver awesome value on top of software packages to customize and modify the software for specific industries based on best practices. However, much like accountants or any other professional services organization, no two SI’s are created equal. The first thing you’ll want to check for is the organization’s verified reviews to ensure you have the right shortlist. You can find verified reviews on places like the Salesforce AppExchange (see example here).
Once you’ve started the conversation with your SI, make sure you have all the key stakeholders at the table, or you will lose time (and money) chasing them in the process. Help them build a MECE (mutually exclusive, collectively exhaustive) list of your requirements so that you don’t get any change orders (costly surprises) during implementation. If you don’t have the requirements, don’t commit to a big project. You can conduct what’s known as a “paid discovery,” or a small engagement that will enable the SI to guide you through a requirements gathering and prototyping exercise, ensuring you get a cost- and time-optimized SOW for the full implementation engagement. When it comes to systems implementation, the best way to avoid unforeseen fees is to start with a thorough upfront discovery.
Whether it’s a software tool or an SI, your first conversation is about gathering information, not winning the negotiation. Don’t give in to the temptation to make offers or ask for things. Ditka Reiner, founder, and president of Reiner Associates says that the first call is an easy trap buyers can fall into, beginning a negotiation “before the negotiations start, then gear the negotiation to the budget…the business ends up thinking they got a good deal, when they may have gotten another 20% off.” Any initial discovery can also aid in understanding the values and culture of the company you are negotiating with, which could prove helpful when preparing for a negotiation strategy.
Take it From the Negotiators
If you hate losing time to SaaS vendor negotiations, you’re not alone. At Tropic, we can do this for you. We have cracked the code on software procurement and specialize in high-growth companies. Contact us at email@example.com to learn more about how to make software contract negotiations work for you.
Guest Blog: The Easy Guide to SaaS and Services Vendor Negotiation