It’s the most critical part of the SaaS buying and renewal process: the negotiation table.
Software buyers may not be used to negotiation. Most software has clearly communicated pricing brackets. If your company uses a certain tier of software, that’s typically what you’re used to paying on a monthly, annual, or per-user basis.
However, purchasing software is not a static process. Software pricing is subjective and dynamic. As the software buyer, it’s crucial to approach the conversation with your sales rep to be armed with the right data, comparison points, and negotiation tactics to approach this discussion confidently.
Before you strap on the goalie pads for your next SaaS purchase or renewal, consider the Vendr negotiation approach. With a transparent strategy, team mindset, thoughtful planning, and good data, software buyers can be confident that they’re getting the best price and moving toward a successful negotiation.
Here are some of the top tips from software buying and negotiation experts:
- Cooperative bargaining: use the teamwork approach
- State your software purchasing dealbreakers
- Manage software contracts proactively
- Have full visibility into your tech stack
- Compare suppliers throughout the process
- End the negotiation with a clear commitment
Cooperative bargaining: use the teamwork approach
While SaaS buying negotiations seem like a competition between the buyer and the sales rep, in reality, both parties want the same outcome. Negotiations go more smoothly when buyers and sellers acknowledge setting the competition aside, and begin negotiation with a collaborative approach rather than fighting for the upper hand.
Both the buyer and the seller have clear objectives during the software buying negotiation, but they aren’t necessarily at odds. Buyers want a fair deal that gets you the functionality you need without breaking the budget. The sales rep wants to get you buyers to get what they need without compromising the value of the product, brand, and their time. Just as importantly, the sales rep wants to create solid relationships that land repeat business and referrals.
In Getting to Yes, negotiating expert Roger Fisher and co-author William Ury point out positional bargaining — in which each party puts its flag in the ground and negotiates by concession — isn’t as effective as a reframe of the conversation as cooperative bargaining.
“The ability to see the situation as the other side sees it, as difficult as it may be, is one of the most important skills a negotiator can possess.”
By treating the SaaS buying process as a partnership, purchasing negotiations become efficient and pleasant, ending in a stronger win-win relationship between the entire negotiation team.
State your software purchasing dealbreakers
There’s no sense trying to push dealbreakers off until the last mile. Instead, start the SaaS negotiation process by addressing the elephants in the room.
As Douglas Stone, author of Difficult Conversations puts it:
“Working to keep negative information out during a difficult conversation is like trying to swim without getting wet.”
Instead of avoiding discussion around the dealbreakers related to buying new software, lay them out upfront. By sharing the items that will end the negotiation with a sales rep, they are given an opportunity to understand, respond, and find solutions. Once these major issues are ironed out, the software buyer can continue negotiating without concern about what’s hiding in the shadows.
Three big areas to discuss upfront that might be software buying dealbreakers are:
Beyond the basics — secure encryption and storage — consider protections like breach reporting, data deletion, and other advanced protections.
Budget and capacity
Every negotiation has a bottom-line budget constraint, and it’s best to share it early in the software negotiation process. This allows a sales rep to do the groundwork and get a number that works for both sides. If the budget is too far out of alignment, you’ll know before wasting time in a negotiation that isn’t going to happen.
Functionality, training and user experience
Buyers should be armed with information regarding the needed software functionality. If the procurement team is leading the software purchase, they must collect information from the necessary business units in order to understand the experience that the end users expect. Discussing these requirements upfront means you can assess the offering on its merits.
Manage software contracts proactively
When buyers wait until the last minute to purchase or renew software, they lose leverage in a negotiation. Planning a negotiation strategy take time and attention. Running up against the cancellation window negatively impacts the decision-making process.
In a recent interview with Reddit's Procurement leader, Omar Ghani, he explained how time and attention are critical negotiation tactics:
“The first [negotiation challenge] is the challenge of deadlines. If a renewal is due two weeks from today, you've already lost a lot of negotiation leverage.”
SaaS buyers must get a handle on the contract renewal schedule. Procurement professionals should start planning their contract negotiation strategy with a 90-day window in order to evaluate all software needs stress-free.
Have full visibility into your tech stack
When procurement teams manage SaaS contracts proactively, they avoid unused licenses that can account for up to 30 percent in SaaS waste.
Poor negotiation strategy leads to purchasing licenses that aren’t customized to fit the needs of the buyer’s company. While going best-and-biggest saves time, it rarely results in cost-savings. To avoid dark spending or waste, it pays to give the vendor management aspects of the buying process extra attention.
Knowing how to right-size software buying requires some visibility into the current SaaS stack. A comprehensive view of your usage metrics is the first step of optimizing your software buying process to save money.
Chris Voss, former FBI negotiator and author of Never Split the Difference, writes”
“When the pressure is on, you don’t rise to the occasion; you fall to your highest level of preparation. So design an ambitious but legitimate goal and then game out the labels, calibrated questions, and responses you’ll use to get there. That way, once you’re at the bargaining table, you won’t have to wing it.”
Preparation also saves money. By knowing what software is in the company’s stack today, and how each product is being used, software buyers ensure they purchase only what is needed.
Compare suppliers throughout the process
Three bids and a buy. This is Vendr’s recommended best negotiation strategy. Use strategic sourcing to look into three products, get preliminary contract details or requests-for-proposals (RFPs) in place, and then choose one to purchase. In addition to having three sales conversations, make sure that you’re comparing software reviews, customer testimonials and internal stakeholder recommendations.
An important point to consider when comparing software prices are the hidden costs and time investments of migration. Changing vendors incurs security and legal vetting, setup, and downtime. When deciding whether a competitor can better serve your needs, be sure to understand the total cost that isn’t just reflected in the contract price.
In “Getting to Yes,” Roger Fisher and co-author William Ury propose the idea of the BATNA - the “Best Alternative to Negotiated Agreement” as a principle to exploring other options. It puts the power of negotiation in the buyer’s corner and avoids the scarcity mindset that leads to less-favorable deals in the end.
End the negotiation with a clear commitment
If buyers have explored your software options and determined one supplier as the best option, they should not be afraid to commit.
In William Ury’s follow-up book “Getting Past No,” Ury surfaces the power of commitment in forging better deals with your chosen vendor.
“For every ounce of power you use, you need to add an ounce of conciliation.”
Kindness and respect are critical in building the relationship between buyer and supplier. Buyers can display this conciliation in the form of an advantageous contract term for your supplier.
Adding years to the standard one-year term can result in more pricing leverage for the buyer. Software providers can rely on the renewed business and may offer SaaS buyers better terms and more attractive prices. In an increasing climate of software competition and churn, customer stability is gold.
Commitment is the final step in cooperative negotiation. Buyers have the leverage to offer something extremely valuable to sales reps: deal stability. In turn, they can offer competitive pricing and terms throughout the relationship.
SaaS negotiation doesn't have to be a challenge.
Starting from a level playing field in terms of deadlines, goals, and expectations can change the tone of a software negotiation and long-term relationship between a supplier and a customer.
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.
Level-up your software negotiations when you work with Vendr.
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 June 2021; updated April 2022.