SaaS Agreement Negotiation: 6 Best Practices You Need to Know

The way people do business continues to evolve as technologies and tools advance. Companies always create new software, strategies, and methodologies to drive their business forward.

It is normal not to grasp the whole concept of an idea right away, just like how many business owners may not fully comprehend what SaaS agreements are and what they cover. Many may not even know what they should focus on when negotiating these agreements.

Just like any negotiation process, failing to understand the process can put your business at risk, especially for unfavorable agreements.

This article discusses the best practices for SaaS agreement negotiation and how to navigate it appropriately.

What Is a SaaS Agreement?

To put it simply, a SaaS agreement is a service agreement. It defines the terms and conditions of a software delivery model. Users access the software and data online from a vendor on a subscription basis.

What makes this important? It establishes the relationship between the vendor and customer through writing. This allows both parties to know what to expect from the service delivery model and from one another.

A SaaS agreement can become a point of reference if either part forgets or if a new person becomes part of one party. The goal is to get what you want and need out of this new relationship, which is why referencing the record is essential.

Top Tips for SaaS Agreement Negotiation

Before getting started with SaaS agreements, you may want to consider a few tips. Below is a list of what you need to consider for SaaS agreement negotiations.

  1. Consider technical specifications

    Specifications are an important factor for many products and services. Many people overlook specifications in SaaS, but defining the appropriate specifications avoids any disputes and establishes realistic expectations between both parties.

    This is an important step, especially if it involves the customer’s business to customize the SaaS. Things like functionality and description of these technical specifications are necessary to test and measure the performance of the service.

    One of the most essential, yet often overlooked SaaS agreement components is how you’re allowed to use your license. This can vary widely among providers and can impact how much you pay for your software tools.

    Determine the license scope, which covers the precise rights and limits the clients receive through the contract.

    Open iT offers complete software license management solutions that help you determine when and by whom licenses are used over time—whether by location, business unit, or project group. You can get a total enterprise view or down to a single user, worldwide and in real-time. These can help you determine various specifications to consider and accurately plan your budget for license costs.

  2. Recognize and communicate with stakeholders

    Many things in life and business are negotiable. Business leaders can determine what needs to be negotiated since protecting the company is a priority.

    These needs may be niche details, while some may focus on general categories. It is vital that you communicate with stakeholders to understand the negotiation process.

    As mentioned earlier, the goal for a SaaS agreement is to allow both parties to get what they want. More importantly, the details that you may be given can be referenced, so you must know what is going on throughout the process.

  3. Discuss non-negotiables to stakeholders

    Before determining non-negotiable aspects, you must know how your company will use the service. You can consider using it internally or externally and if your customers’ data will reside on the vendor’s platform.

    Once you have determined your company’s plans, you can discuss your non-negotiables. These may include authorized signatories, approvers, sales managers, and account executives.

  4. Be vigilant with pricing and discounts

    When it comes to price, you must determine service charges and the basis of calculation. This includes limits on the number of users, cost of additional users, location of users, and data storage. Another thing you may want to consider is determining if the agreement has a fixed price or how prices increase or are controlled.

    Today, many vendors have become less flexible since you can keep adjusting upward and have no way to drop down the adjustments. This is something worth noting as well.

    A common pricing model is “pay-per-use,” where organizations pay for what they have consumed only. ‌Thus, your company must ensure that you pay only for software licenses being used.

    Software management solutions are available to help meter software usage across your organization. These will help in the negotiation process, while also allowing you to reduce software costs and effectively utilize license sharing across time zones.

    Software management solutions such as the Open iT LicenseAnalyzer collects usage data from various sources to meter checked-out licenses or applications, and see when and by whom licenses are used over time.

  5. Consider additional costs

    Knowing the total contract value and amount of money you pay is essential. Any additional cost will significantly affect your SaaS agreements. This can lead to various changes in your financial obligations for each agreement across businesses.

    Additional costs include new users and new features such as subscriptions to services. This emphasizes the importance of reviewing and comparing contracts while tracking usage, add-ons, and features.

  6. Include the right to terminate

    Having the option to terminate your SaaS contract is not enough. You need to determine if financial penalties apply when you decide to terminate before the contract expires and how easy the provider will allow you to exit the contract.

    This is important because your business may be tied to the agreement longer than you would like.

    People tend to overlook the risk of lock-in, which involves storing all your data on your own server. It negates the cost-benefit of SaaS, making you better off with a slightly more expensive provider that will not lock you in.

Take Time to Understand and Learn

It can be challenging to understand the whole concept of SaaS agreements, but knowing the basics can help you and your company thrive by making good business decisions.

Because of how fast the business world can be, it is wise to update yourself with new software and strategies in the industry.

If you are uncertain of your decision, remember that communication is vital, especially with stakeholders. Going into something without fully understanding the process will lead to consequences, so take the time to talk to people and learn the concepts.

If you are looking for a company to aid your business or manage software licenses, feel free to schedule a demo with Open iT to learn how the company can help your business make smarter decisions. Open IT includes software license tracking and management tools you may need for your business.

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