Learning to Say No: Working Through Conflict in SaaS Negotiations

Almost every organization now uses some type of Software-as-a-Service (SaaS) product, whether it’s something as simple as an email client or something as complex as an enterprise resource planning (ERP) solution. According to one study (PDF), organizations with more than 1,000 employees typically use more than 150 different SaaS applications.

While those solutions may be necessary, they can result in significant costs if contracts aren’t managed effectively. That’s why it’s so important for procurement leaders to learn how to manage conflict in contract negotiations and even learn how to say, "No.”

Here are a few strategies for managing conflict in SaaS negotiations.

Monitor and Manage End User Purchasing

A good place to start is working to avoid unexpected costs that occur internally and can’t be negotiated. Because of the scale of SaaS product use, IT departments and even procurement departments are no longer the gatekeepers when it comes to new products and solutions. Now, many end users can make discretionary purchases through SaaS products without much oversight or high-level approval.

Controlling these costs is critical, as they can compound and result in unexpected costs when contracts are up for renewal, and it's time to sit down at the negotiating table. Keeping close tabs on end-user purchases can also give procurement a better idea of which SaaS products are resulting in escalating costs.

State the Company’s Needs for Each SaaS Product

SaaS solutions often come with a wealth of features that can be beneficial to the organization. However, companies often end up paying for capabilities they never use. These excess capabilities can rack up costs and lead to conflict when it comes time to negotiate new contracts.

Procurement professionals should take time to identify exactly what capabilities they need from a SaaS solution and which features they can do without. This will allow them to negotiate more clearly when asking for price adjustments at contract renewals.

Technology solutions are often sold as bundled services. However, many SaaS companies compartmentalize their solutions’ capabilities and can "turn off” features, allowing their customers to avoid unnecessary costs.

Identify Points of Leverage in Negotiations

Several factors can contribute to negotiating a better deal with a SaaS vendor. Some common points of leverage in vendor contract negotiations include price, terms and conditions, timelines, product or service specifications, purchasing volumes, and service-level agreements.

For example, if your company is ready to make a long-term commitment to a SaaS product, it could negotiate a better rate by paying quarterly or annually rather than monthly. Similarly, SaaS vendors may be willing to prorate their services or match prices if they know other vendors are offering a more attractive contract.

It is important to understand the different bargaining strategies available to each party as well as their respective goals to reach an optimal agreement. Having a clear understanding of the market can help ensure both parties are getting a fair deal.

Finally, having flexibility and being open to compromise can go a long way toward negotiating a successful agreement. While it’s important to stay firm on some aspects of the contract, there may be leeway elsewhere to help both parties reach a successful agreement.

Don’t Miss ProcureCon IT Sourcing

Successful negotiation tactics will be critical as companies continue to expand their technology stacks.

To learn more about negotiating with SaaS vendors, don’t miss the ProcureCon IT Sourcing event happening from June 26th-27th at the Marriott Copley Place in Boston.