How to negotiate a SaaS contract

Procurement

Written by

Shivasankari Bhuvaneswaran

Published on

April 13, 2022

August 4, 2022

Read Time

Nearly every company in the world has undergone a digital transformation. This means that there’s not a company out there that’s not buying, managing and renewing software products on a regular basis. In fact, the average company has more than 100 software products that are used across their teams.

This means that SaaS investment is one of the biggest spends across company balance sheets. Avoiding inflated SaaS costs can be a critical lever to pull in order to ensure the company’s monthly and annual profitability, as well as ensure that SaaS buyers are simply getting the best software for the best price.

Software prices can be negotiated

SaaS negotiation isn’t often discussed because software service providers don't advertise the fact that they’re open to negotiating SaaS contracts. Instead, they tout price transparency on their websites, or use sales tactics to make SaaS buyers think that they’re getting a great deal.

It’s not just enterprise-level, multi-year contracts that can be negotiated. SaaS buyers from small and medium businesses can negotiate contract terms in their software license agreements, service level agreements (SLA) and master services agreements

Using software negotiation tactics can help negotiate warranties, better support facilities, limitations of liability, and other relevant contractual clauses.

In this guide to SaaS contract negotiation, we’ll cover:

11 questions to ask while negotiating a SaaS contract

SaaS contracts can use a number of complicated terms that can make the negotiation process confusing for new SaaS buyers. Here are a handful of questions to ask of a sales rep that will allow purchasers and end users to better understand the full breadth of the software agreement, and what elements can be negotiated in the buyer’s favor.

1. Who is defined as the "licensee"? Does it refer to the SaaS buyer specifically, or broadly encompass all end-users who use the software?

2. Is the scope of the license defined in the contract? Are there any possible limitations in the buyer's use of the software, like number of users? If so, what are they? 

3. How is the pricing represented in the agreement? What is the annual expense to the SaaS buyer when all charges are included? Are there any other chances of additional fees in the future? If so, what are they?

4. Does the agreement cover all performance requirements needed by the SaaS buyer? These could include an uptime guarantee, API integrations, support response times, and more.

5. What’s the preferred type of license? Does this SaaS vendor offer a multi-year or single-year license? How will the term license be renewed at the end of the term? Is there additional cost-savings when licensing for longer?

6. Does the SaaS buyer have any non-negotiables that the SaaS supplier needs to abide by? Some important “brass tacks” to consider are interoperability requirements, software functionality and data ownership.

7. What do the warranties cover? Is the SaaS product compliant with regulatory requirements like healthcare policies, GDPR, data protection regulation, and SOC2

8. How does the SaaS vendor fulfill support obligations? Are the support obligations outlined in the license agreement or is there a separate support agreement?

9. Does the software vendor have access to any confidential data of the organization or its customers? Are there provisions in place to ensure confidentiality, data privacy, and security? What cloud services and cloud security are being used?

10. What’s the level of indemnification offered by the vendor? Does it cover intellectual property infringement, data breaches and breaches of confidentiality?

11. How well is the limitation of liability defined? Is there an overall cap on the software provider’s liability? Is there anything excluded from the limitation of liability?


What buyers can negotiate in a SaaS license agreement

Software negotiation isn’t simply just lowballing or asking for a discount. There are a number of key value levers that SaaS buyers can use, whether onboarding to a new product for the first time or renewing an annual contract. In order to decrease price or increase the software’s value, use these items to inform negotiation conversations with suppliers.

1. Pricing

Yes - it’s possible to buy SaaS for less than the price listed on the website. At Vendr, we have thousands of customer data points that show that most companies are overpaying for their software stack. Here are the dos and don’ts of negotiating the pricing of SaaS purchases like an expert.

  • Do understand the pricing model tiers that are offered by the software vendor and how the company would be paying for seats, functionality, or usage.

  • Do wide-breadth competitive research to understand similar solutions in the space, the features they offer, and what they chrage.
  • Do identify a list of features that end users can do without, look for support options that aren't needed and use them to negotiate a better agreement. 
  • Don’t be mesmerized by a short-term pricing tier on a monthly contract. Provided that the product will be useful for a longer period of time, try negotiating for a multi-year contract, which will provide the opportunity to negotiate lower rates.
  • Do keep expansion plans and future users in mind. If the contract includes additional future licenses at a discounted rate beforehand, the SaaS buyer won't have to pay retail rates later.
  • Don't put off software purchases until the last minute, because it provides little to no leeway to negotiate.

If the SaaS buyer is able to understand the true value of what they are buying, they will be able to identify SaaS sales tactics that try to lowball value for higher pricing. Armed with all the above information, SaaS buyers be able to open a conversation with the sales team to strive for a mutual value.

2. Renewals

SaaS buyers might be new to SaaS renewal negotiations, but SaaS providers are well-versed in them. In order to maintain and improve the vendor relationship, SaaS buyers should start negotiating SaaS contracts at least a quarter in advance of their renewal date for yearly contracts, and a year in advance for multi-year agreements. Consider avoiding automatic renewal packages, as they will likely compromise the ability to negotiate renewal terms each cycle.

Rather than handing everything over to the negotiation team, a strong negotiation tactic is involving end-users who have a grasp of the product's functionality and importance to the business. Their insights are bound to help the SaaS buying team identify troublesome areas and address them in the renewal negotiation.

As part of the renewal process, it’s likely that the SaaS service providers will be looking forward to pitching new solutions and upselling opportunities that maximize their revenue, even though they may not maximize the software’s value. Keep an open mind about these upsells, but feel free to pass on items that don’t serve the end user’s needs.

3. Support

In addition to general telephone and chat support during malfunction incidents, support also includes the delivery of software updates and continued maintenance of the SaaS applications. Depending on the software product and its level of use within the organization, teams may be heavily relying on support or not at all.

SaaS buyers need to carefully read the support services clause to understand any limitations to these services, and that they don't incur additional charges for taking advantage of them at a certain volume.

Additionally, it’s wise for software purchasers to determine the level of support the product would need. If it’s not a critical application, then it doesn't make sense to pay additional for 24/7 white-glove support. This can be one of the negotiation factors, since buyers can offer to pay less for limited support.

Take the time to review the quality of support that the provider offers. Buyers can determine this using support metrics like first response time, first-contact resolution rate, C-SAT, and more. Ask sales rep to provide these metrics, as well as asking customer references about the quality of support that they’ve received.

If the SaaS product is bound to be a critical solution, negotiate for dedicated support staff like customer success or account managers. Though this won’t result in a cost-savings, it will likely result in better product adoption — and higher value — throughout the organization.

4. Warranties

Warranties are an overlooked clause in the SaaS agreement. SaaS buyers often don't make an effort to read through what warranties are included or excluded in the agreement until they hit a roadblock with the product's performance. Often, legal teams or retained law firms may be interested in reviewing warranty terms.

Normally, warranties cover instances like performance hiccups, infringement issues, and cybersecurity measures. They allow for a remediation or a cancelation of the software contract within a certain time period.

Though the warranties section includes a broad disclaimer of all the warranties promised, look for nuances such as limitations in the case of a data security breach. Check whether the SaaS service provider offers alternative remedies or sticks to a money-back guarantee. Buyers may also be interested in warranties that cover other unfortunate use cases where the end users cannot use the product to its full capacity.

5. Limitation of liability

Most SaaS companies don’t offer unlimited liability for everything that occurs in the presence of their product. A limitation of liability clause helps suppliers put a cap on the monetary value or eliminate the associated risk altogether. These limitations typically prevent SaaS buyers from using the software vendor’s product for illegal, non-compliant or otherwise compromising to the good standing of the software.

When looking over the limitation of liability clause, SaaS buyers can accept instances where indirect types of damages are completely excluded. But, make sure that there’s at least a small cap on the amount of direct damages made to the product. While negotiating SaaS contracts, buyers can also ask for a higher cap on liabilities like data breach. 

Again, consider including professional legal advice in reviewing contract terms related to liability.

How negotiating SaaS contracts leads to better vendor relationships

Negotiating a SaaS contract isn’t setting up the relationship off on the wrong foot. In fact, it’s the opposite. By ensuring that the SaaS buyer's needs are met, the relationship with the SaaS provider becomes even more valuable and has the potential to last into the long term.

Instead of a negotiation where someone “wins” and “loses,” the best SaaS negotiations are a collaboration to create a streamline contract that provides mutual value for both parties. These contracts lead to:

  • Improved forecasting and budgeting to support procurement teams
  • Cost avoidance and cost savings
  • Improved stakeholder and end user satisfaction
  • Improved compliance
  • A reduction in waste and an increase in productivity
  • Improved procurement metrics to support all business functions
  • Improved contract management processes and clear deliverables

How Vendr can help software buyers jumpstart SaaS negotiations

At Vendr, we specialize in day-to-day negotiations on behalf of our customers. With years of experience and over $1B of negotiations under our belt, we’ve gathered best practices when approaching these SaaS buying conversations. Our executive buyers are former SaaS sales specialists with years of experience on both sides of negotiations. By partnering with Vendr, SaaS buyers are able to navigate negotiations, deals and contracts with ease.

Get an inside look into the platform where you can discover and buy new tools, see how much you're saving on software, improve your negotiation strategy and stay up to date on all of your deals with our free guide to the Vendr SaaS buying platform.

Originally published January 2022. Updated April 2022.

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Belynda Cianci

Procurement

SaaS Buying

Taming the SaaS vortex: A Vendr Fireside Chat with Datadog's Michelle Vita

With the explosion of SaaS, staying ahead of SaaS Procurement and ensuring a lean tech stack has never been more challenging. Procurement professionals work daily to tame the “SaaS vortex” and ensure they maintain value as they add complexity and license volume to the stack. This has forced an evolution in Procurement and new approaches for professionals managing the software buying process. 

Michelle Vita is well-versed in this evolution. As a procurement professional with over a decade of building procurement processes for business, Michelle’s career has evolved from traditional procurement roles in private real estate development to high-tech roles in real estate technology and SaaS. Most recently, Michelle took the reins as Head of Procurement for cloud-scale monitoring and security firm Datadog. 

At the recent Digital Procurement World conference, Michelle took the time to sit down with Vendr’s KR Barron to talk about taming the SaaS vortex and building a supportive, sustainable procurement practice for Datadog. She shared her insights on team-building, growing an agile organization, and empowering your stakeholders. 

We’ve captured the highlights from the session below. 

How team cooperation helped Datadog tame the vortex

Michelle has spent three and a half years at Datadog evolving the Procurement team from a “department of one” into a thriving, progressive team with operational and strategic mandates. 

During that time, she’s come to believe the heart of a progressive, strategic Procurement function is its people.

“There are two types of Procurement personas now,” she explains.

“Classic, traditional procurement professionals, with a 7-step process, etc. Then there’s the new procurement professional. They’re more strategic and agile, more a jack-of-all-trades. The industry, in general, is evolving toward this model.”

These young, powerful professionals and the explosion of SaaS have brought about this new breed of procurement professionals. 

These new professionals are also changing the way their stakeholders think about SaaS. They’re empowering employees to negotiate on behalf of their company to buy the right tools, with the perspective of “buying as if you were the owner of the company.” 

Michelle describes her own team at Datadog in these terms. Her first hire came by way of an internal candidate who already understood the procurement process from the stakeholder perspective. Michelle described this agile-focused colleague as “one of the best hires I’ve ever had.” This versatility has allowed them to grow with the team, take on new projects, and execute effectively. 

Since that first hire, Procurement at Datadog has evolved into a two-pronged department, with members focused on both operations and strategy. The team includes progressive-thinking procurement and contracts experts who leverage technology to educate stakeholders, create good policy, and create a seat at the table for Procurement.

Buy with intention

The economic uncertainty of 2022 has ushered in a more measured approach to buying than in previous years. Even as SaaS has become more challenging to optimize, being strategic about your business cases and volume has a positive impact on the software budget. 

Where once the rationale was to buy “as many licenses as we can move into someday,” Michelle and Datadog stick to a strategic, “buy as you go” license approach that helps the team save money and be more conservative. Having licenses waiting on the shelf for someday “is money that goes to waste.” 

The temptation is to buy the number of licenses you’ll need for a future date, incentivized by the perceived savings of a volume discount. But, “taking advantage of a discount isn’t good if they’re just sitting on a shelf unused,” reminds Michelle. 

Instead, the team has become more focused on getting the licenses they need for the current team. Procurement has also focused on the best management of those tools, performing license audits, and ensuring proper utilization. They’ve also gotten more strategic about tier levels. Datadog assigns top-tier licenses for some power users and viewer licenses for others that are cheaper. 

Strive for agility and automation

When faced with a lack of resources—be it budget, headcount, or data— Procurement is tasked with applying agility to the procurement process. Michelle is always on the lookout for places to reduce human activity.

“I’m a huge supporter of relieving the team of administrative burdens that don’t add value.”

To do this, the Procurement team looks at the end-to-end process, identifies those processes taking up human touch and time, and automates them.

The team has turned once onerous processes into touchless processes that reduce friction in day-to-day operations. For instance, vendor follow-ups used to take up considerable time for the team. Now, those processes are controlled by Robotic Process Automation (RPA). Bots now perform a follow-up workflow for outstanding items, allowing procurement to focus on higher-level tasks.

“Agility is important, but also [means] working with our partners, establishing relationships, and using them to grow.” 

The contract process also slowed down internal progress, so the team found ways to reduce friction and remove human intervention from the process. By integrating their contract system with an e-signature tool, they can move contracts for review to Legal automatically, collect signatures, and speed up the contract execution process. 

Agility relies on partnerships, so as part of the legal contracts automation, the Procurement team worked with vendors to use internal paper for contracts. Using an internal template that is acceptable to vendors gives the legal team more control over the review process and speeds up the time to completion. 

Empower your stakeholders

Stakeholder education plays a huge role in creating a collaborative, functional relationship between procurement and the larger organization. The key, says Michelle, is to empower stakeholders with just the information they need to execute. 

The Datadog team invested time and resources in ensuring stakeholders had what they needed to learn the ropes. While the company had some resources in place, “Sometimes you need resources for various types of people since everyone learns differently.” 

The road to better stakeholder education started with a conversation. “We gathered stakeholder feedback from a survey on our processes.” The team issued an anonymous survey asking users to give their feedback about the purchasing process and the resources available to them. 

“Training kept coming up and coming up.” 

The team realized that even though resources were out there, the onboarding of those resources could be improved. “Our internal team feedback… kept coming up that people were starting [at the company] and not watching the videos.” Those conversations allowed the Procurement team to identify the issues and develop a plan. 

Automation has a part to play in the empowerment process, as well. “We wanted to empower stakeholders to do things that don’t require procurement touch.” To help stakeholders gain confidence in buying on behalf of the company, Michelle and the team implemented a guided help service for users.

Modeled on the “Clippy” office assistant featured in Microsoft Office, the procurement assistant program sits on top of the Procurement system, providing helpful pop-ups for users as they engage with the UI and perform routine tasks. If the user gets stuck or needs assistance, the assistant robot guides them through the process with a “click here” approach. This allows stakeholders to self-service needs without relying on procurement team members directly. 

Ideas such as these allow Procurement to remove itself from the areas where it doesn’t add value while still maintaining agility for the wider team. From there, they can develop stronger relationships between departments, gain a strategic seat at the table, and ensure that once they have that position, they can deliver value.  

--

For more tips on driving an enablement, people-first approach in your Procurement practices, take the advice of Sören Petsch, Head of Procurement at CommerceHub.

After all, “If Procurement is the Cost Savings Department, we break the trust of our internal stakeholders all the time.”

Belynda Cianci

Procurement

How to build a software procurement project plan to meet your SaaS buying requirements

Launching a new project is a multi-faceted process. Managing the flow of RFPs, purchase orders, and procurement documents require a comprehensive understanding of the process and commitment from all team members. 

Software procurement should be a priority in any successful procurement plan. A significant portion of your project procurement might involve changes and additions to the tech stack throughout the project schedule. Managing this complexity within the procurement management plan can greatly improve the cost efficiency of your project, but how can you accomplish it successfully? 

Today we’ll discuss using a procurement project plan methodology to control your SaaS buying in large-scale projects. We’ll cover the steps you should take in planning for and purchasing software, what you should include in your plan, and costly issues to avoid when planning software purchases as part of your procurement activities for the project. 

What is a software procurement project plan?

A procurement management plan is a strategy for getting goods from outside vendors and suppliers in support of a project. Procurement management is one component of project management and follows a specific process for ensuring the right goods are delivered for the project, at the best price, under the right terms, at the right time. 

A procurement management plan outlines all the goods and services needed and lays out a process and timeline for acquiring them. It also intersects with the budgeting process of the project to ensure software buying doesn’t overrun the total planned cost. 

What to include in a software procurement project plan

The more detail you bring to a software procurement project plan, the better your outcomes. When building a plan to buy SaaS software in support of a project, your procurement team should include the following information: 

Type of software

Establish the total software needs of the project, including categories such as:

  • Communications and teleconferencing
  • Project management
  • Accounting, budgeting, and reporting
  • Content and development management
  • Security and access controls

Usage

For every app, outline the number of users and variety of user types necessary to aid productivity and optimize spending. Consider the percentage of time users will spend interacting with the software, and whether subscription or usage-based pricing might be advantageous. Consider the length of contracts necessary to fulfill the needs of the project objectives without spending money on orphaned tech products after their useful window within the project. 

Duration of use

When managing a large-scale or multi-year project, it’s important to manage apps and services, sunsetting those no longer needed in order to avoid excess software costs. Setting up contract management for your software ensures that licenses don't auto-renew beyond their expected useful life. 

The 7 steps to create a software procurement project plan

Follow these steps to establish a strong, optimal software procurement plan for your next project:

Define procurement project scope

Before you procure goods for a project, you must know — in detail — everything needed to bring the project to completion. So the first step in the development process is to thoughtfully outline the comprehensive list of tools and services needed throughout the contract schedule. This may include materials, services, and software. The list should be as comprehensive as possible. 

Establish contract terms

Understand and outline the contract terms and conditions each supplier must meet. This could encompass departmental prerequisites, estimated cost, payment terms, contract type (for instance, annual subscription, usage-based billing, etc.), and other important components of the agreement. These contract terms will be used to negotiate for sourced goods. 

Consider risk mitigation

Outline the potential project and contract risks to the degree they can be foreseen. Establish plans vendor risk management and establish protocols for evaluating and resolving risk issues. Evaluate the potential for third-party risks to your tech stack and where possible use proven, pre-vetted suppliers to meet contract needs. Consider the project impact of delays or inadequate contract compliance when looking at suppliers and assessing risk.

Define project costs

Establish the costs associated with procuring necessary equipment, services, and software during the project. Begin collecting information for an RFI, RFP, or RFQ process to satisfy the needs of the project. Consider using beneficial procurement techniques such as strategic sourcing, prequalified vendor lists, or e-procurement. Establish pricing benchmarks and standard pricing where practicable. 

Define blocking issues

Consider any project constraints (time, execution, financial, or supply chain-related) that could impact the future feasibility or execution of the project. As with risk management, establish contingency plans for any likely blocking issues and consider the cost of enacting these plans as part of the project budget. 

Seek project approval

Gain approval of preliminary plans from departmental stakeholders. Evaluate the project bids and include necessary stakeholders in the decision-making process. Including all relevant stakeholders de-siloes spending and contractual data and ensures all parties begin the project with full visibility into the process. Consider a decision criteria matrix to help evaluate bidders objectively and efficiently. 

Establish supplier management

Projects with considerable third-party procurement needs require a vendor management plan in order to maintain high visibility, track performance metrics, optimize cost, and ensure continuity in procurement and delivery. This is especially important for software, where a single project can still generate dozens of contracts representing hundreds of users and considerable budget allocation. Consider using a vendor management platform to ensure the smooth operation of your project technical stack. 

The stakeholders to include in your software procurement process

Software procurement is a team sport. Involving your full project team in the process early will ensure a smooth implementation and optimal outcomes when purchasing software

Finance

Getting early approval for estimated budgets makes the planning and negotiation process far easier. When included early in the process, finance can guide pricing discussions, provide competitive pricing data, and collaborate on negotiation. 

IT and Security

Understanding how procured software will fit into the larger software structure can inform your request for proposal (RFP) process, and ensure any security requirements are considered prior to negotiations and implementation. IT may also be able to assist with supplier evaluation based on its knowledge of the company’s total technology portfolio.

Legal

Your legal team is ultimately responsible for the strength of agreements it executes. Therefore, involve Legal early in the process to ensure any negotiations integrate any legal prerequisites. Additionally, identify the Legal team contact responsible for the contract review and approval process, and integrate them into the workflow to ensure they have the capacity for upcoming legal review. 

Avoid these common pitfalls when managing your software procurement process

Moving too fast or cutting corners during software buying mistakes can have costly and consequential long-term effects. Avoid these three common software procurement issues: 

No competitive process

The inclination to move quickly on software agreements can be a costly and frustrating mistake in the long term. Ensure that each software purchase gets the competitive analysis and evaluation process it deserves. This results in better pricing and lowers the potential for third-party risk. 

Insufficient software budgeting

Depending on the tool and the type of contract, underestimating usage and feature needs can result in software costs that far exceed the planned software budget. When establishing needs in the early stages of a procurement project, consider outlier scenarios that could drive up cost. Be sure to address these in the course of the negotiation. A general rule: you should never be penalized for becoming a better customer. 

Failing to set up contract management

Tech stacks are complex and evolutionary. When establishing a procurement project plan, start your software procurement on the right foot by setting up deals in a software management platform. This ensures active monitoring and lifecycle management for licenses and usage, compliance with contract terms and SLAs, and ample research time at renewal. It enables a robust and continuous vendor performance process. 

How Vendr can help you manage the software procurement process end-to-end

Vendr helps companies of all sizes to streamline and clarify their SaaS buying process. Using procurement software as part of your procurement management plan can give your organization the visibility and real-time reporting features it needs to successfully manage services, ensure strong relationships with project partners, and maintain budget optimization while delivering the software necessary to ensure project success.

Vivian T.

Procurement

5 steps to an efficient procurement strategy

Many moving parts come together to form a procurement strategy that upholds profitability. According to a recent Deloitte survey, reducing costs is top of mind for 76 percent of chief operating officers

Accordingly, it’s critical that procurement teams get clear on their objectives, how they can lower operational costs, and what new, low-cost initiatives to execute to consistently hit KPIs. 

Below, we go through the ins and outs of procurement, what it takes to create and apply a strategy, and how to ensure it’s contributing to your business’ bottom line. 

What is procurement?

Procurement is the process of purchasing goods and services, including software, necessary to run company operations. It’s also the practice of effectively managing resources to ensure a company gets the most value for its spending strategy. 

What are the goals of strategic procurement?

There are many business goals under the procurement umbrella that ultimately lead to the same result: cost savings. Procurement initiatives like risk management, optimizing budget allocation, streamlining supply chain timelines, and even running different types of spend analysis are all strategies to keep a company lean yet competitive. 

Additional procurement goals include:

  • Sourcing suppliers to build cost-effective relationships
  • Procuring higher quality goods at competitive price points
  • Selectively managing deals to get the most value for money
  • Ensuring cost-effective supplier relationships that uphold company terms

What does strategic procurement include?

Strategic procurement can include many business motions designed to keep company spending low while increasing value. 

Three of the most important overarching categories in a sound procurement strategy are cost reduction, risk management, and quality control.

Cost reduction: Motions like vendor development, supplier optimization, global sourcing, tail spend analysis, and determining contract ROI are all direct efforts to reduce company costs. 

Risk management: Risk reduction strategies like supplier optimization, supply chain management, green purchasing, and product lifecycle forecasting are procurement strategies designed to mitigate risk and streamline operations with the fewest errors or setbacks possible. 

Quality control: Supplier risk scorecards, KPIs and metrics, and supplier compliance audits are built to handle quality control. Quality control processes are necessary for companies to ensure goods and services are delivered according to purchase order terms and procurement policies.

Every business is tasked with designing a procurement strategy that considers its objectives and methodologies. With the help of software, businesses can ensure smoother procurement workflows, access permission configurations, and centralize key purchasing and vendor data to make meeting desired goals easier.  

Vendr can help build the SaaS procurement process you’ve always dreamed of. Learn more.                

Procurement strategy framework

Establishing a procurement strategy requires planning and documenting before it can effectively be enforced. This way, procurement teams have clear guidelines to inform decision-making, determine how best to deal with vendors, and ensure best practices are applied. 

A general procurement strategy framework is made up of— 

  • Clear benchmarks: How will procurement initiatives align with the company’s business goals? How will you gather first- or third-party data to ensure relevant market rates inform those benchmarks? 
  • Procurement plans of action: How will your business create a procurement process that meets key business goals? 
  • Goal results: What cost savings, risk reduction, and quality control metrics should the procurement plan aim for? 
  • Expected timeframes: When do you expect to reach procurement objectives?
  • Procurement implementation roadmaps: What are the specific steps needed to establish an ongoing procurement process? 
  • A list of key performance indicators: What KPIs will the company use to measure its results? What spend analyses will the business perform to refine its strategy? 
  • A list of procurement tools necessary for the job: What procurement tools—whether software or hardware—are necessary to implement a company-wide procurement strategy that’s trackable, centralized, and highly automated? 
Optimize your vendor processes with Vendr’s Ultimate SaaS Buying Guide.

Example of an effective procurement strategy

MixPanel, a business analytics service company, established a procurement strategy that allowed them visibility into resource allocation so it could streamline its purchasing workflow. Their goals were to spend less time negotiating SaaS contracts, to shorten their procurement cycle, and to reduce unnecessary payments.

With their strategy, they quickened the SaaS acquisition process, stopped duplicate spending and overpayments, and shortened their process timeline by 75 percent. By implementing a procurement strategy, MixPanel’s procurement process went from three months to three weeks. 

Check out the video below to learn more about MixPanel’s procurement journey. 

Steps to an efficient procurement process

If you’re creating your first procurement strategy, follow these steps:

Outline a procurement strategy

Begin by drafting a procurement strategy statement from the ground up. Consider outlining benchmarks, procurement practices, business objectives, tools you’ll need, and your action plan to meet and possibly even exceed your procurement goals. 

Outlining a procurement strategy may take weeks or months. Involving key company stakeholders ensures you’re covering your bases and getting visibility into the needs of each company department. 

Integrate procurement software

Today’s data-driven world requires speed, automation, and ease of use. Thankfully, there’s plenty of procurement software built to help companies create, enforce, and run their procurement strategy. 

Without a digital procurement solution, companies run the risk of committing costly human errors, losing track of who owns which procurement initiatives, and having a harder time analyzing data to draw valuable insights.

Procurement software accelerates the SaaS procurement process from beginning to end. If you're buying or renewing software, a service and platform like Vendr can share valuable insights to make this process easier. 

Procurement software will allow you to:

  • Get a high-level view of all spending on apps across your business
  • Coordinate stakeholders with supplier purchase history 
  • Customize the storage and tracking of key data points within its dashboard
  • Streamline purchasing processes to increase team productivity

As you vet procurement software, it's critical to ensure it can scale with your company and that it’s customizable enough to mold to your existing procurement policy and its workflows. 

Gather data

What’s your company’s current spend culture? Is there a lot of maverick spending procurement teams aren’t managing? Can you get third-party data to conduct market analyses? 

Knowing where you currently stand is necessary to improve your current procurement numbers. Data sprawl can quickly get out of control and become siloed without any efforts to centralize it. Without relevant purchasing data, it becomes harder to implement a procurement strategy that’ll lower spend, account for maverick spending, and uncover spend leakage and overspending. 

Running a comprehensive operational data analysis requires gathering, organizing, and categorizing data in one platform. This takes gathering spending data from internal stakeholders, like managerial leadership, and external parties, like vendors. Centralizing data ensures accuracy and visibility, and it enables businesses to arrange and track historical data as it is added. 

Set clear procurement objectives

With a data-driven procurement strategy at the helm, determining clear business objectives becomes easier. 

Here are a few examples of procurement objectives: 

  • Cut the cost of manufacturing goods by refining your supply chain strategy
  • Enable cost-control across departments with access to intake forms
  • Implement additional process automation
  • Optimize supplier ROI to increase it by 3% within the next year
  • Forge new vendor relationships in Q4 that generate an additional 10% return
  • Negotiate better price points
  • Lower supply chain risk
  • Refine current purchasing strategy
  • Accelerate the purchasing process of goods and services by at least 25%

Use relevant spend analyses to make data-driven decisions

Data-driven decision-making requires data and analytics tools that add visibility into a company’s spending patterns. Along with different types of spend analysis, procurement teams can use data to accurately determine how well their efforts are paying off. 

As you make decisions about vendor relationships, contract management, total cost of ownership (TCO), or even maverick spending, use different types of data analyses that provide relevant insights.

These analyses can include:

Contract spend analysis: Contract spend analysis draws insights from more granular data like individual item purchases. Once purchases are matched with corresponding departments, it’s easier for procurement teams to point out recurring purchases, maverick spending, or overspending patterns. 

Payment terms spend analysis: This analysis helps teams use data to pinpoint vendor discounts that aren’t being used. For example, an internal invoice management system that automates payment processes and quickens transactions can be leveraged to lower expenses via early payment discounts.  

Tail spend analysis: Tail spend is notorious for being an area where companies tend to overspend. A tail spend analysis looks at smaller purchases, like office supplies, to see where additional costs can be cut. Tail spend analyses enable procurement teams to manage spend leakage and control spending patterns with updated company policies.

Category spend analysis: One effective way to control overspending is to run a category analysis. Category analyses give teams insight on which categories use the majority of resources, which categories to consolidate, and where to improve sourcing strategies to uncover new savings opportunities. 

Supplier spend analysis: Analyzing supplier transactions is critical to improving vendor relationships. When teams create a list of their top supplier contracts based on their cost-effectiveness, the data can point them to supplier relationships that need special attention or a better negotiation strategy. 

How Vendr can help you build and execute your procurement strategy

Working closely with your finance, procurement, or IT teams, Vendr is a connected source of truth that companies can leverage to reach their business objectives. Vendr works closely with your team to create or optimize your ideal purchasing process so finance leaders can be in the loop on every dollar spent and get the fairest price available.

With Vendr, every step of the buying experience is tracked and accounted for. Once integrated with your existing system, Vendr ports in data from all connected sources so teams have one unified view of key SaaS buying and management data. 

Learn how much you could save on SaaS with Vendr’s free savings analysis.