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Software as a Service (SaaS) can be a blessing to your organisation. SaaS solutions will help you with your day to day job, give you insights about your customers and boost your productivity.
However, if you’re responsible for a SaaS contract, it’s not always rainbows and butterflies. With most contracts, you’re up for renewal at least once a year. How do you ensure that your SaaS tool remains all fun and games and you’re not sucked into a risky renewal?
Many SaaS organisations will try to do three things upon renewing a contract:
Improve their contract terms
Increase your fees
Upsell their services
In this article, we’ll dive into why SaaS companies take these actions and what you can do to prevent these from happening to you.
Why do Software as a Service companies change their contracts?
Before diving into ways of avoiding this, it’s good to know why SaaS organisations aim to do these things.
First of all - contract terms. Most Software as a Service providers take a “one size fits most” approach to legal. Because they offer their services at scale to many customers at the same time, it’s not possible for them to create specific contracts for each of them. Therefore, they often have standard terms of service. As the provider grows, they will want to make tweaks to these terms. Usually this is either because they figured out they are legally at risk, or because as they grow bigger, they don’t have to offer all kinds of legal ‘favours’ to bring new customers in. If you have agreed to their standard terms, you will usually get a notification that the terms have changed. You won’t be asked for approval.
Why do Software as a Service companies want you to spend more?
Secondly, increasing fees and upselling their service. The reason behind this seems very obvious; these companies want to make more money. However, there is an even more important reason for SaaS providers to try and increase the amount of money you pay them each year: Net Retention Rate (NRR).
The net retention rate of a (SaaS) company is the percentage of revenue that’s retained from their customer base over a period of time (usually yearly). This includes canceled contracts, downgrades, but also upgrades and price increases.
Many SaaS organisations rely on investment from venture capitalists. One of the metrics these investors use to make investment decisions is the net retention rate of a SaaS company. Therefore, increasing your spend is not a matter of earning more money for most SaaS companies. It’s much more important. It’s about bringing their NRR up, winning their next investment and succeeding as a company!
How you can avoid this from happening to you
Let’s split this in two parts. First of all; changes to the providers’ terms and conditions. We’ll be honest; this might be a tough one. It’s unlikely that you will leave a SaaS provider because of a change in their terms as there are usually no big changes. We would recommend asking yourself if you can live with the changed terms. If so, great. If not, push back as soon as changes to a vendor’s terms are mentioned and let them know clearly that you cannot remain a customer with the proposed changes.
For your next renewal, try to move from online terms to offline terms that cannot be changed without approval. A next step would be to aim for better terms. Many SaaS organisations will offer a “Master Service Agreement” (MSA) instead of their standard terms and conditions to certain customers. Even though it might be hard to get onto these if you’re already a customer, it might be worth your while.
Now that we have tackled the legal bit, it’s time to focus on the money. We know that most vendors will try to increase their prices. How can you ensure that won’t apply to you?
The answer lies in the net retention rate. Of course, a SaaS company would love to see you spend more with them. However, the minimum they want to secure at a renewal is keeping your business. After all, they would rather retain 100% of your spend than risk losing you as a customer for a potential 5% price increase.
If you have a renewal coming up, it is worthwhile to reach out to your main point of contact on the vendor side well in advance. Typically, we recommend reaching out about 3-4 months before the renewal happens. In this initial reach out, you can inquire about potential changes to their pricing and any new features you don’t have access to (yet).
If there are no upcoming changes to their pricing, try to renew your contract in advance. If you are happy enough with the SaaS solution, you might even want to lock into a multi year contract so that you’re guaranteed of the price you pay for a longer period of time.
If there are going to be changes to the price you have to pay, or if you will miss out on certain features, you have enough time to take a look at your provider’s competitors. We recommend being vocal about this to your vendor. It’s likely that you will see improved renewal offers very soon!
Of course, going through this can be time consuming and it might not be the most joyous job you’ll ever do. That’s why companies choose to work with Spendicious. Our expert buyers will take these renewals out of your hands and get you on the best deal possible. We have done this so often that we even offer this risk free; we will save you more money than what you’ll pay us.
Whether you work with us or if you decide to take on these renewals yourself; we wish you all the best in avoiding risky renewals this year!