SaaS Subscription Model Negotiations

Negotiation tactics we used to decrease our SaaS spend by 30% in the last year: It’s amazing to me how much room there is in SaaS pricing. The price is not the price is not the price. You can always negotiate, and there are often loopholes that can save you a ton of money. Here are some of them: - Cancel the renewal before the negotiation. We send cancellation notices to our biggest opportunity negotiations months in advance, and tell them that we will only renew upon having a new deal. Often, account reps can provide special discounts for “at risk” clients. - Get your usage data. We always dig through our data before a negotiation. If our usage is lower than expected, we use that as leverage. For example, our hiring has gone down by about 60% post-ZIRP, but we still paid the same annual price for our applicant tracking system. We showed them the data and made it clear the software wasn’t worth what we were paying. - Be nice. Honestly, sometimes I get frustrated because I know I’m getting the runaround. Every time I do, it backfires. When I’m on my A-game, I’m nice - I tell them I love their software, it is useful, but we just don’t have as much of a need right now. It’s not you, it’s me. I do tell the truth, though, so they know I’m genuine with my praise and critiques. - Compare their costs to other options. There are 3 different types of comparisons: 1) direct competitors. Just call them and get a quote. 2) indirect competitors. Oftentimes another company offers a “basic” version of the software you’re using, so you can use that as leverage: “we don’t need an applicant tracking system because we already pay for Notion”. 3) budget competitors. Compare the pricing of x subscription with y subscription. We regularly compare unrelated products and say: you are the 2nd highest cost product we use, even though you aren’t the 2nd most valuable to us. - Ask 3x. You almost always have to negotiate at least three times to get the best deal. It doesn’t work with every company, but most account reps have latitude and at some point you’re not worth their time. Take advantage and just make sure you press multiple times in a row instead of taking the first offer. I’m surprised at how often we get our way in these negotiations. Sometimes I step in as the founder, but now my team has watched this playbook and gets the same results on their own. You don’t need to be a founder or a business unit leader to do this: act like an owner and make sure your company isn’t wasting money!

I'm wrapping up another quarter negotiating SaaS deals, and for one deal, I was debating what term length to pursue. (Contract term length has become one of our most critical strategic decisions in procurement.) 🔹 The Current Landscape 🔹 The market has shifted dramatically. SaaS contract lengths plummeted in 2023 and have only slightly rebounded in 2024 (still averaging under 15 months). Meanwhile, price uplifts have soared to unprecedented levels. 3-15% is now standard, with some vendors pushing shocking increases (just heard from a fellow procurement leader facing a 200% increase on a multi-million dollar spend... ouch). 🔹 The Pendulum Swing 🔹 I'm seeing two distinct approaches emerge: Some companies have instituted strict policies capping contracts at 12 months (too many got burned in 2022 with oversized multi-year commitments). Others still pursue 3+ year terms to maximize discounts and shield themselves from those aggressive annual uplifts. 🔹 My Portfolio Breakdown 🔹 Looking at deals I've personally negotiated over the past few months: 1-year terms: 56% 2-year terms: 31% 3-year terms: 7% < 1-year terms: 6% > 3-year terms: 0% Surprisingly, 2-year deals weren't higher. For me, they often hit a sweet spot: enough leverage for better pricing, reasonable commitment timeframe, and price protection for 24 months without being locked in forever. 🔹 My Decision Framework 🔹 While every situation demands nuance, here's my general approach: 1-Year Terms When: 🔸 New vendor (even thorough due diligence has blind spots) 🔸Highly competitive market (optionality is a beautiful thing) 🔸Rapidly evolving space (avoid lock-in with outdated tech) 🔸Low switching costs (maybe we go in another direction). 🔸Current vendor with performance issues or pricing concerns (goal here is to start shopping alternatives) 2-Year Terms When: 🔸Stable, predictable growth projections for seats/usage 🔸Balanced need for pricing leverage vs. flexibility 🔸Vendor relationship is solid but not critical infrastructure 3-Year Terms When: 🔸Core enterprise systems (sticky, difficult to replace) 🔸Vendors with consistent, aggressive YoY increases that are hard to push back on (although sometimes we pivot to a 1 year deal to switch to someone else). 🔸 We've validated long-term fit and negotiated favorable terms (partnership). I know everyone loves a three year term but if it's pushed to hard (by either procurement or sales), it can hurt trust. The dataset isn't massive but interesting not the less. Anything surprise you here?

I've saved companies millions on enterprise software deals. Here's the negotiation framework I developed at Microsoft, VMware & Instacart: The hard truth: Most SaaS products cost almost nothing to run. Yet I once rushed into a 3-year contract that ended up costing us double what we expected. That expensive mistake taught me something powerful about enterprise deals. Most companies have a broken process: • See a need • Pick a vendor • Rush to close • Overpay massively Here's my 5-step framework to fix this: 1. Start Early (3-6 months before renewal) Companies who begin negotiations early consistently get 5-15% better terms. This isn't just about timing - it's about leverage. When you're not rushed, you control the conversation. 2. Create Competition Never negotiate with just one vendor. Ask each competitor: "What can you offer that others can't?" This simple question reveals hidden costs and scalability issues you'd never find otherwise. 3. Focus Beyond Price The real value is in: • Service level agreements • Integration support • Training resources • Future scalability • Data ownership Pro tip: Demand performance penalties. If they won't include fee refunds for missed SLAs, that's a major red flag. 4. Master the Slow Play Never take live meetings with sales reps. Force all communication over email. Then be slow to respond. This drives sales teams crazy - especially near quarter-end. They'll often improve offers without you asking. 5. Talk to Leadership If the head of sales or CEO isn't deciding your deal, you haven't reached the best possible terms. How to get there? Say "no" frequently. Let the deal drag on. Make it appear lost to the vendor. Using this framework, I consistently negotiate: • 30-50% discounts on list prices • Better service levels • More flexible terms • Additional features at no cost The secret? Software costs almost nothing to run. Vendors depend on recurring revenue. They'll bend significantly to keep your business - if you know how to negotiate. Want to master the founder mindset and build better? Join Founder Mode link in my Bio for free weekly insights on startups, systems, and personal growth.

Are your SaaS contracts supporting your company’s growth, or holding you back? When you're a growing tech company, every dollar counts, and every tool you choose needs to grow with you. But too often, SaaS contracts are built for the vendor's benefit, not yours. Is ay this first hand when I built the entire procurement process from scratch at a SaaS company. So many contracts that were purchased without thought of the future. Negotiating SaaS contracts for scalability means ensuring your pricing, terms, and flexibility align with your company’s current and future needs, without locking you into something you’ll outgrow (or underuse), which was so common there. Here’s how to do it: 1️⃣ Start with Usage Forecasts Understand your anticipated growth over the contract term. Will you need more seats, data storage, or advanced features? A scalable contract lets you add capacity as you grow, without massive cost hikes. Make sure to forecast budgets and usage. 2️⃣ Negotiate Tiered or Flexible Pricing Ask for pricing models that align with your growth. Can you move between tiers without penalty? Can you add or remove users monthly instead of yearly? These terms keep your costs in check as you scale. You generally can't remove, so choose wisely. 3️⃣ Cap Automatic Renewals or Remove Automatic Renewals Avoid getting locked into auto-renewals at higher prices. Negotiate a cap on renewal increases and request a review period before the renewal kicks in. the best way to do this is to have options on your contracts or multi-year deals. In order to get this done, you need to start well before the renewal date and it's easier if auto-renewal is off. 4️⃣ Include Exit Clauses, if Possible No one likes thinking about leaving a tool, but things change fast in tech. Ensure your contract allows for termination or scaling down if your needs shift. This is not easy to do in tech, but easier to do in services. Think about your needs when setting terms. 5️⃣ Review SLAs and Support As you grow, downtime is costly. Negotiate Service Level Agreements (SLAs) that guarantee uptime and fast support response times. Scalability isn't just about features; it's about reliability too. You should also have consideration for information security and what happens during a breach. 6️⃣ Look for Value Beyond Cost Can the vendor offer consulting, training, or implementation help? These extras save you time and money, especially during onboarding or growth phases. When you negotiate with scalability in mind, you’re not just buying a tool—you’re building a partnership that grows with your business. Do you negotiate SaaS contracts with growth in mind? If you need guidance on structuring contracts to match your company’s future trajectory, follow me for more insights or reach out through Rath Management Solutions, LLC. Let’s align your procurement strategy with your growth goals. #SaaSContracts #ProcurementStrategy #TechGrowth #Scalability #VendorManagement