How Not to Cave in Price Negotiations for SaaS

Negotiating the price of a new purchase (or renewal) is not always easy. The last thing you want to do is cave in price negotiations – especially when it comes to SaaS.

Let’s paint the picture using a common scenario we’ve likely all experienced: buying a car.

Even if they haven’t done it themselves, most people will tell you that buying a car is a painful process. You feel anxious walking into the dealership, knowing you may make a huge purchase. On the other side of the table, a salesperson is incentivized to make sure you sign a contract before you walk out the door. You sweat through your shirt knowing you shouldn’t pay the full sticker price, but not knowing how much you should pay. And asking for discounts feels awkward for some reason, even though it’s expected. 

The SaaS procurement process feels all too similar. Only procurement pros aren’t using their own money or buying something solely for their benefit. They’re purchasing software for their organization, and as such, want to make sure they secure a deal that will make their finance and leadership teams proud. 

So how can procurement teams get the best tools for the best price? It comes down to preparation. Learn how not to cave in price negotiations for SaaS.

How Not to Cave in Price Negotiations for SaaS

Tip #1: Start Early

Part of the anxiety of coming to the negotiation table stems from not being prepared. By starting early, you can mine usage data, consider future needs, and enter negotiations with confidence. We recommend setting alerts 90 days prior to a renewal to allow time for planning. This also helps avoid auto-renewals, which could lock you into a year-long contract with unfavorable terms, or worse, for a tool you no longer even use. 

Tip #2: Use Benchmarking Data

When negotiating SaaS, it seems nearly impossible to know if you’re getting a good deal. You can scour review sites, but the information is often outdated. One way to avoid caving on pricing negotiations for SaaS is to use benchmark data. Zylo Benchmarks provides an accurate estimate of what an organization should be paying by analyzing anonymized data from its managed $34B in SaaS spend across more than 21,000 applications. Updated in real-time, the tool stacks you up with your peers to provide accurate price benchmarks.

Tip #3: Create a Price Target

Armed with data, decide how much you’re willing to pay for your SaaS renewal. When creating a price target, involve key stakeholders from Finance and IT, as well as users of the tool. Keep the number front of mind during negotiation to know when to push or when to back off. 

Tip #4: Know What Levers You Can Pull

In securing your target price, you may have to give some concessions or rationalize the price point. Know what levers you can pull, such as:

• Signing a multi-year contract to secure a discount
• Letting the vendor know your organization has experienced significant outages or CSR churn
• Adjusting payment terms to better accommodate your cash flow
• Downgrading if you find unutilized seats within your organization
• Sharing growth plans to move up a tier and secure better pricing
• Offering references or case studies in consideration of a lower rate

For more tips on how to negotiate SaaS contracts, read the blog here.

Tip #5: Use a SaaS Management Tool

A SaaS Management tool provides key insights that aid in contract negotiations. With a Discovery Engine, uncover utilization data to help inform whether an app is business critical, or find duplicate and redundant apps ripe for rightsizing and consolidation. A management system also tracks and notifies businesses about upcoming renewals, so they have time to prepare.

Follow these tips on how not to cave on price negotiations on SaaS, and you’re off to the races! 

Extend Your Renewal Coverage with a SaaS Services Provider

To sum it up, it takes considerable time and effort to secure favorable SaaS agreements for your company that maximize the value of your investments. In fact, Zylo research shows the average company sees more than 200 renewals a year, with approximately eight hours required to conduct each renewal.

Whether you have a procurement team or not, it’s nearly impossible to cover all your renewals. Not to mention, negotiate them successfully.

Take on the renewals that you want without feeling like you have to cave into your vendors during negotiation. Then, consider outsourcing your other renewals or new software procurement to an industry expert. That frees up your team to focus on your priorities and other efforts that move the business forward, while ensuring competitive pricing. We find that the average organization overspends on software licenses by 15%. But Zylo customers who use Zylo’s SaaS Negotiator service see an average 6X ROI.

Let Zylo experts fully manage your negotiations. With more than $30B in SaaS spend data, our Managed Services team facilitates the process from end-to-end, ensuring you get the best price, working directly with the vendor, and adhering to your internal processes. Get started today.