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How to manage your SaaS contracts

How to manage your SaaS contracts

Learn how an effective contract management system streamlines workflows, reduces procurement costs, and helps you develop long-term vendor relationships.

Vendr | Joint success in procurement

It’s estimated that large companies juggle upwards of 19,000 contracts a year. (EY)

That’s hundreds of renewals, negotiations, and contract compliance reviews each month. Without robust contract management organization, there are critical parts of the SaaS buying process that can easily start to slip through the cracks.

Contracts expire, negotiating opportunities are missed, and out-of-contract costs creep up unnoticed.

Let’s get your contract management systems back on track. Learn more about contract management’s importance as a component of vendor relationship management and dive into best practices for managing supplier contracts.

What is contract management?

Contract management is a business process concerned with the creation, execution, and ongoing management—including renewal—of formal agreements.

This process encompasses all forms of contracts, including:

These contracts may be designed and enforced by your organization, such as the employment agreements you hold for each of your employees—or by an outside party you’re dealing with, such as when you sign a non-disclosure agreement with a client.

In this guide, we’ll focus specifically on supplier agreements as part of the SaaS buying and management process.

The 7 contract management stages

The typical contract lifecycle consists of seven stages:

  1. Planning
  2. Implementation
  3. Pre-contract
  4. Handover
  5. Contract
  6. Pre-renewal
  7. Post-contract

1. Planning

The planning phase is where you design your contract management system. That is, it comes before you enter into any agreements with suppliers.

Answer the following questions to develop your contract management strategy:

  • What kinds of contracts do you need to manage?
  • What volume of contracts will you be managing?
  • Are there any standardized agreements you can template and use frequently? What do these contracts need to include?
  • Who in your company is responsible for contract management?
  • What resources do you need to manage contracts effectively? (e.g., a contract management software solution)
  • What issues have occurred in the past with contracts? How have you solved these?
  • What contract-related risks might exist?

2. Implementation

With your contract management strategy designed, it’s time to roll it out to key stakeholders.

This might include department heads responsible for purchasing SaaS products for their team or dedicated sourcing and procurement professionals.

Gaining buy-in is crucial here—processes and policies are only valuable if they’re followed.

Review your current contracts for compliance with your new strategy, and bring all existing agreements into a centralized contract management system.

3. Pre-contract

With your contract management strategy set up, onboarding new suppliers becomes much more streamlined.

For certain situations, your legal team might need to develop new contracts according to your company’s specific guidelines. In most cases, you’ll be able to start from a templated contract and adjust as required.

Once your team and the SaaS vendor agree upon the terms of a contract, the next step is to capture signatures from both parties, marking the start of the offical relationship.

4. Handover

Oftentimes, the people in your organization who negotiated a contract aren’t the same individuals involved in executing it.

A procurement team might be responsible for sourcing a new sales CRM and negotiating the agreement, for instance, but it’s the sales leader who is primarily involved in implementing the software and managing its use on an ongoing basis.

As such, your contract management process must include a handover stage, where details such as responsibilities, expectations, and milestones are communicated.

5. Contract

The contract stage is when the agreement is executed.

Goods and services are delivered, software products are implemented, and regular meetings are conducted to review performance and ensure adherence to contract terms.

6. Pre-renewal

This stage depends largely on the type of contract.

Some contracts are perpetual; they don’t have a specific end date. Such is the case with many SaaS purchases, especially at the SMB level.

Commonly, however, contracts have renewal dates. The initial contract might last for 24 months with the expectation that the relationship will continue afterward with a new contract being negotiated.

This pre-renewal contract stage includes:

  • Evaluating performance during the contract period
  • Reviewing market pricing
  • Assessing alternatives
  • Preparing to renegotiate terms

7. Post-contract

The last stage of the contract management process includes paying final invoices, ensuring termination conditions are met, and archiving the contract.

You may also include a review phase where you assess any challenges that arose and make adjustments to internal procedures to avoid these issues in the future.

Why is contract management important?

Contract management provides a number of benefits beyond enhanced negotiations and cost savings.

1. Reduces costs

Poor contract lifecycle management could be costing you as much as 40% of the contract value.

Effective contract management helps you get in front of renewals, enhance negotiations, and use artificial intelligence and automation to eliminate time-consuming processes from your workflows.

Your contract repository should not only act as a storage solution but should provide notifications when the end of a contract cycle is approaching.

This allows you to get ahead of contract renewals, negotiate new terms, edits, and revisions where appropriate, and avoid any costs associated with continuing business post contract expiry.

Another often unconsidered cost of ineffective contract managment is dispute resolution.

Without a contract in place, disputes can occur frequently. Parties may disagree on what was discussed initially. Without a document to refer back to, it can easily become a case of “he said, she said”.

Authoring contracts for even the most basic of agreements helps mitigate this risk. Disputes can still occur but are much more easily resolved if you have clear contract data to fall back on.

2. Sets a foundation for a healthy vendor relationship

A solid contract sets expectations from each party, leaving nothing up to assumption or interpretation.

From there, healthy conversations about performance can take place, and both parties can feel comfortable that they’ll receive what’s expected. In your case, that’s the goods or services you’re purchasing. For your vendor, it’s remuneration.

3. Ensures contract compliance

Good contract management processes monitor compliance throughout the contract lifecycle and hold suppliers accountable where necessary, for instance, if the platform’s downtime is higher than outlined in the contract.

Risk mitigation is of critical concern here.

All supplier relationships include some form of risk. The contract creation process involves assessing the risks for the initiative at hand and looking for ways to limit that risk in the agreement.

Setting performance expectations, for instance, is one form of vendor risk mitigation.

4. Improves relationship management

All relationships run more smoothly when clear expectations are set, and business relationships are no exception.

A great contract administration process should include regularly scheduled meetings with vendors to review performance and ensure continued mutual fit.

Best practices for SaaS contract management

Every company’s contract management practices differ based on their industry, internal policies, and the specific vendors with whom they hold long-term partnerships.

In general, though, following these best practices will enhance your contract management execution.

Manage contracts in a single place

Few things make contract management more difficult than having your agreements distributed across various Google Drive folders and company laptops.

Contracts should be stored in a searchable central repository to facilitate locating a given agreement as and when required. Ideally, this should be cloud-based so that stakeholders can access contracts from any location.

Find the right balance between security and accessibility

It’s important for certain team members to access contracts easily, but this must be balanced with data and contract information security.

Complex contracts may include sensitive information that must be protected according to company guidelines.Your contract management solution should allow you to customize access and permissions restrictions accordingly.

Track and enforce contract management KPIs

KPIs (key performance indicators) are a great way to objectively track performance against expectations.

Determine the metrics that are most important to contract success, then schedule regular meetings with your vendors to review and discuss challenges and improvements. Quarterly reviews should be appropriate for most businesses.

Automate manual elements of the contract management process

Manual contract creation and approval workflows are time-consuming. Take advantage of automation to outsource unnecessary tedious work.

You might use automation to streamline your contract approval workflow, allowing multiple stakeholders to sign off on a deal without needing a dedicated meeting or conversation.

Additionally, automated contract renewal reminders are a smart way to prevent agreements from expiring and to get ahead of renegotiations.

Use price benchmarking to inform contract negotiations

Price benchmarking gives you insight into what your competitors are paying for the same product or service and to what degree previous buyers have been able to negotiate with the vendor you’re dealing with.

Arm yourself with this information before entering contract negotiations, and you’ll be more prepared to negotiate favorable terms.

Using Vendr, you gain access to the largest data set of SaaS transactions around, which, combined with our team’s SaaS negotation expertise, could save you tens of thousands per purchase.

How does a contract management platform help?

Managing contracts without a centralized contract management platform is pretty much impossible. Even at the SMB level, you’ll struggle to stay on top of every vendor relationship if you’re trying to manage contracts manually.

Here’s how contract management solutions can assist.

Contract standardization

Consistency across contracts is important. You want to know that you have roughly the same terms with each vendor, adjusted for that particular relationship. This promotes compliance across contracts and improves your ability to manage compliance, as most vendors have similar obligations.

Contract management systems help standardize agreements, assisting in compliance with internal supplier relationship guidelines.

Contract templates

Templates help you optimize the contract creation process.

Rather than starting from scratch every time you enter into a new agreement with a vendor, you can simply pull up the relevant template and edit as required.

Contract renewal reminders

Contract management software can be programmed to automatically remind you when contracts are coming up for renewal.

Many programs offer integrations with calendar tools, so you can sync these reminders to your monthly schedule and plan accordingly.

Streamlined approval processes

Inefficiencies in the approval process slow procurement down, frustrate department leaders, and delay your ability to take advantage of the supplier relationship you’ve just entered into.

A contract management platform can streamline this process. For instance, you may need sign-off from three different stakeholders before a contract can be approved. This can happen entirely within the platform, with the contract moving from one stakeholder to another upon signing.

E-signature assistance

Speaking of signing, your legal department will enjoy the ability to issue contract approval via electronic signature.

This is not only cost-effective (as it eliminates the need for paper, ink, and filing cabinets), but it further streamlines the contract creation process for fast approval.

Related: E-procurement software options to consider

Vendr provides contract management to enhance your cost savings

Vendr is a full-service platform that helps companies find, buy, and manage software. This includes helping you create, negotiate, manage, and renew your software contracts throughout your vendor relationship.

Vendr uses price benchmarking to bolster your negotiations, ensure supplier contracts are compliant with approval workflows, and identify areas of overlapping spend to reduce your annual software expense.

Interested in learning more? Find out how much you could better manage your tech stack and reduce your SaaS spending with our free savings analysis.

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Published By
Vendr Team
Last Updated
December 2, 2024
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