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Published by Gartner in April 2021, this new research explains the top 10 SaaS deal terms which Gartner analysts believe are most important to consider when negotiating software contracts.
With the sudden shift to a remote workforce over the last year, SaaS adoption is surging and expected to grow. By 2025, an estimated 70% of the workforce will be working remotely at least five days a month.
The transition to remote or hybrid work brings SaaS cost management sharply into focus. With a sudden influx of SaaS contracts and agreements to manage, many organizations may need guidance on exactly where to focus when negotiating multiple SaaS deals.
The latest Gartner research highlights several critical considerations for SaaS cost management when negotiating software contracts. The report also includes a downloadable cheat sheet outlining negotiability details for key software vendors such as Microsoft, Oracle, Salesforce, Workday, and Adobe.
Savvy contract negotiation is the foundation of SaaS cost management
It’s unlikely that the business world will ever return completely to a pre-2020 operating model. Industry leaders like Spotify, Twitter, Atlassian, and several others have already announced they will maintain a highly remote workforce.
Software is the glue that holds a remote workforce together. More specifically, subscription-based software or SaaS use is increasing at a rapid rate for organizations around the world. When left unmanaged, SaaS costs can quickly balloon – or as we say in the ITAM world, create a “SaaS spend explosion.”
SPVM leaders seem to be increasingly aware of SaaS cost management challenges. “In a recent Gartner survey 43% of respondents answered that SaaS deals were difficult to negotiate.”1
The difficulty with negotiating SaaS contracts is that the terms and conditions are not typically tailored to each company.
Many SaaS vendors may try to pressure customers with a "take it or leave it" approach to contracts. Compounded by the pressure to quickly support a hybrid workforce, many organizations find themselves potentially stuck in contracts which are not optimized for their needs.
The lack of apparent flexibility in SaaS contracts is a critical challenge. Often SaaS contracts span 3-5 years and may not let you adjust terms to meet fluctuating license demands. Even during the pandemic, many vendors did not let companies downsize contracts due to unforeseen staff layoffs.
Separating from or switching SaaS vendors can be a complex undertaking and needs significant planning to mitigate potentially high costs of migration. This means that it’s important to include an exit strategy when negotiating SaaS contract terms. Additional areas to consider are how to extract your data, what will that cost, or how to bridge between multiple subscriptions.
With so many elements impacting SaaS cost management, and in a rush to pivot to a remote workforce since the pandemic, contracts may have been signed without proper consideration.
What are the most important SaaS deal terms to negotiate?
According to Gartner, “Sourcing, procurement and vendor management leaders are often under pressure to negotiate an increasing volume of SaaS contracts quickly, limiting the attention given to negotiating key terms.”
Without understanding these critical SaaS contract terms to negotiate, organizations risk significant unplanned SaaS costs over time. It’s important that you have the information necessary to be able to identify hidden costs in SaaS contracts. This mean knowing exactly how to negotiate a pricing model that fits your demand plan and mandating viable exit strategies to reduce vendor lock-in.
To ensure SaaS cost optimization, Gartner outlines three main focus areas when negotiating contracts:
Understanding the nuances of SaaS contracts can help you highlight the main costs and risks to senior stakeholders within your organization and make informed, cost-saving decisions.
Gartner, Top 10 SaaS Terms to Negotiate That Avoid Putting Your Budget and Business at Risk, 26 April 2021, Jo Liversidge
1 Gartner’s Sourcing, Procurement & Vendor Management 2020 Survey: Results presented are based on a Gartner study conducted to identify the greatest challenges SPVM leaders are facing today when negotiating with and managing technology vendors. This primary research was conducted online in September and October 2020 among 279 respondents in North America (n=130), W. Europe (n=84) and APAC (n=65). When asked the question, “How easy or difficult was it negotiating these technology deals over the past year?” 43% of respondents said SaaS contracts were difficult, which was higher than onpremises (29%) and Iaas (33%).
Olaf Diehl is responsible for Marketing and Product Management. He studied business administration at the Philipps University in Marburg and has been responsible for IT consultancy for ITSM and SAM since 1998, and since 2002 in a management role.