Contract Renewals Guide: SaaS Procurement Experts Explain How to Get the Best Terms

Contract renewal strategy is a critical aspect of your organization’s SaaS procurement process, as unfavorable terms can negatively impact ROI. Contract renewals give you an opportunity to right-size business licenses, negotiate better terms, secure a lower price, and more. To help you get the most out of your contract renewals, this guide will cover: 

• An overview of contract renewals. 
• 5 best practices to consider when renewing your contract.
• How to get better terms when renewing contracts.
• Get expert insights and support for contract renewals. 
• Contract renewal FAQs.

An overview of contract renewals 

Contract renewals are part of the contract lifecycle management (CLM) process for businesses and across industries. Contract renewals occur when an existing agreement reaches its expiration date and each party has the option to continue their business relationship by signing a new contractual agreement. Depending on the type of agreement your business has with the other party, renegotiation of contract terms is often part of the contract renewal process before asigning a new agreement. 

Contracts including an automatic renewal clause may seem the most convenient option for the contract renewal process, requiring no input from your organization or the other party, but auto-renewals are not always in each party’s best interest.  An example of when contract renegotiation might be a good idea before renewal is when your company’s usage of a SaaS product has decreased, though the software is still necessary in some capacity for operations to continue. Without taking the time for contract review before the contract’s renewal date, it’s likely your business is overpaying for services you no longer need. 

Many businesses use CLM software — also known as contract management software — to automate contract processes during key stages to help streamline the contract lifecycle management process. CLM software can assist with contract initiation, authoring, process and workflows, negotiation, approval, ongoing management, tracking, compliance, and contract renewal.

{{cta1}}

5 best practices to consider when renewing your contract 

Here are five common scenarios that businesses encounter when renewing contracts along with a corresponding action that often leads to the ideal outcome. Below, we will discuss specific strategies for getting better terms during contract renewal. 

• Need more flexibility? Move from annual to monthly terms.
• Is usage going up? Negotiate for more seats or units.
• Is usage going down? Negotiate for better terms.
• Is the supplier’s pricing model changing? Negotiate to keep your original rate.
• Is the annual uplift upcoming? Negotiate a better price.

How to get better terms when renewing contracts 

Let’s take a look at some of our best, tried-and-true strategies for negotiating better contract terms when it’s time for renewal: 

• Give advance notice for the agreement to not auto-renew.
• Check for overlap and opportunities to consolidate.
• Review utilization.
• Identify alternate solutions.
• Outline an offboarding plan.
• Determine your “gives.”
• Get bids from alternate sellers.
• Request “best and final” from the preferred product.

Give advance notice for the agreement to not auto-renew

To avoid your organization being locked into SaaS contracts with unfavorable terms, ensure you’re tracking contract renewal dates so auto-renewal can be canceled if you’d prefer to renegotiate terms or end the business relationship. 

Giving the supplier advanced notice that your business doesn’t want to auto-renew provides time for contract review, usage analysis, assessment of operational needs, and time to negotiate better terms. 

Check for overlap and opportunities to consolidate

Identify overlapping tools to evaluate the potential for consolidation. Use this information to negotiate better terms with SaaS suppliers and monitor usage to adjust your SaaS procurement strategy as time goes on and your business evolves.

Review utilization

Accurately tracking and monitoring SaaS usage gives your business solid data to draw on when negotiating new terms and renewal provisions. Confirm that data provided by the supplier matches up with what you’re seeing internally, then see how that compares to your previously signed contract. 

Identify alternate solutions

Identifying alternative SaaS solutions that provide a similar suite of features and functionality introduces competition that creates a sense of urgency for your software supplier, sometimes resulting in better terms. This works particularly well when you have a strong business relationship with the other party, who will likely take extra measures to keep you on board. 

Outline an offboarding plan

If looking to reduce the scope of your agreement, outline an offboarding plan well before the contract renewal date. Identifying unnecessary users and removing their credentials in advance reduces the pressure of the renewal timeline. Additionally, be sure to evaluate the features your business is using so you’re not paying for unnecessary services and capabilities. 

{{cta1}}

Determine your “gives”

Determining your “gives,” or things you are willing to offer the seller, is a negotiation tactic that helps reach the most favorable outcomes for both parties. Keep your “gives” on a “need-to-know” basis — they’re valuable secret weapons and you may not need all or any to achieve your desired outcome. 

Examples of “gives” include: 

• Case study and/or logo use: Offering a case study or the use of your organization’s logo on the other party’s website is a good way to demonstrate your commitment to a mutually beneficial business relationship. Additionally, this provides the supplier with valuable marketing materials. 
• Multi-year contract period: Committing to a multi-year contract period may help businesses negotiate better software procurement terms. Multi-year contracts assure the seller’s stakeholders of predictable revenue streams coming in from your organization for the duration of the renewal terms. 
• Committing to business growth: Committing to increasing your business’s service levels as it grows is another powerful tactic for negotiating more favorable contract terms. 
• Annual payment upfront: Offering to pay for the entirety of your contracted agreement upfront in a lump sum provides the seller with a fast influx of cash flow, giving you room and leverage to negotiate better terms. 

Get bids from alternate sellers

Coming to contract renewal negotiation with bids from alternate sellers in hand sparks a sense of urgency in the seller, and often results in more favorable terms. You should consider using Vendr Bids to anonymously submit requests and evaluate seller responses for the best price points. If you have an established mutually beneficial relationship with a SaaS provider, they’ll likely make certain concessions to retain your business.   

Request “best and final” from the preferred product

To finalize the negotiation process and secure the best possible terms, request a “best and final” offer from the preferred product’s supplier. Communicate your desired terms and ask the software supplier to present their best offer based on your desired terms. 

Get expert insights and support for contract renewal negotiations with Vendr 

Vendr can help you arrange contracts and obtain the best terms and pricing when beginning new software agreements and negotiating renewal opportunities. In addition to a vast trove of data that offers transparency into pricing benchmarks and commercial terms, our negotiation experts can help you identify opportunities to enhance your SaaS procurement processes and achieve cost savings through more favorable terms. 

Contract renewal FAQs 

Here are some of the most frequently asked questions that arise from those getting ready for a contract renewal. 

What is the difference between a contract renewal and an extension?

Contract renewal entails signing a new agreement when the previous contract expires. Contract extensions add an amendment to the existing agreement, extending the existing, previously-negotiated contractual terms. 

Should my SaaS company auto-renew our contracts? 

While auto-renewals can be convenient, it’s possible that auto-renewing every contract your business holds isn’t in the best interest of both parties. To ensure your organization is getting the best available deal and the other party is also satisfied with the terms, it’s essential to review contracts and negotiate more favorable terms if necessary before the renewal date. 

What happens if I miss a contract renewal deadline? 

Missing your contract renewal deadline frequently results in an automatic renewal of previous terms or renewal for a certain period of time, often a month, quarter, or year. In some cases, the other party may have the right and wish to terminate the contract and business relationship at this point. If your organization had contractual terms with lower rates than those currently offered, such as after the industry-standard annual uplift in software pricing, you may need to renegotiate terms. In this situation, it’s unlikely that you will receive as good of a deal as your previous contract.

{{cta1}}