Negotiating SaaS contracts with vendors as an enterprise can be easy, as their reputation will precede them. But what about negotiating as a startup when you feel you have no advantage or brand presence to leverage?
Nailing contract negotiations can significantly impact your startup's bottom line and overall success, so you cannot overlook the process.
While conversing with our customers, one common aspect that we identified is that many startup leaders dread negotiations as they have a lean procurement team.
There is no reason to be hesitant. Even if you have a lean team, you can leverage your startup advantage to negotiate favorable deals.
In this blog post, we'll explore those advantages and help you ace your negotiations as a startup.
Whether you're a seasoned negotiator or starting out, we've got you covered. These SaaS negotiation best practices are designed to assist you in securing deals effortlessly.
Let's dive in!
Negotiating as a startup
As a startup, mastering the art of negotiation can be a game-changer in securing partnerships, deals, and favorable terms.
So, here’s how you do it:
1. Understand your requirements and research on vendors
There is no point in entering a negotiation process if you’re unaware of your team's needs. Knowing your team’s requirements can help you avoid overspending on an application.
SaaS vendors are savvy. Their effort would be to bundle features and upsell pricing plans. Stay vigilant with a focus on your requirements. Get to know the common SaaS pricing plans, communicate with stakeholders, and choose the plan that best suits you.
These are some of the common SaaS pricing models; identify the pros and cons of each, evaluate them against your requirements, and choose the right one before entering into negotiations.
Conduct detailed research on the vendor. Ask your peers, check reviews, and perform social listening to learn more about a vendor’s pricing plans and reputation. Talking to your peers or the vendor’s existing customers will reveal the vendor’s negotiation tactics. It’ll give you a heads-up on what to expect during the negotiations.
Additionally, you can create a procurement request form and ask your team to fill it out while raising a purchase request. You can include questions like:
- How will this application benefit the organization?
- How long is your team planning to use it?
- When will it start generating tangible ROI after onboarding?
- How many licenses does your team need for this application?
- Are there any priority features required?
- Did you check out the inventory to ensure no overlapping applications?
- Who will be the owner of this application?
- Will there be a requirement to purchase more licenses in the future?
The significant advantage of asking these questions is knowing what your team requires, enabling you to manage your budgets effectively before hedging into negotiations.
We recommend startups start with requirement analysis; don’t get to the negotiations unless you have the specifics ready.
Leverage your potential growth
Once you’ve researched the vendors, head to negotiations. SaaS vendors are often open to providing favorable pricing plans if the buyer promises a long-term commitment.
Highlight your business plan, market potential, and scalable operational strategies to demonstrate the growth trajectory of your startup. Emphasize building a long-term relationship and how the vendor can benefit from your growth and partnering with a high-growth startup.
Startups bring unique perspectives and fresh innovation to the market and can thus use this to their advantage.
You can leverage your high-growth potential to your advantage by letting the vendor know how,
- They can benefit from your growth and increase their reputation by supporting an early-stage startup.
Partnering with a startup is good PR for the SaaS vendor. They’ll be open to collaborating with you. However, you must ensure this collaboration is a win-win situation for both parties, not just the vendor taking advantage of your partnership.
Ask for flexible pricing plans
Now that the vendor knows they can build a long-term relationship with you and scale the pricing plans as your startup grows, opt for a flexible or slab-wise pricing structure where you only pay for what you use. This pricing plan will give you more flexibility and control over your spend and budget.
While securing a favorable price is crucial, it's equally important to consider the vendor's perspective. Acknowledge their value proposition and discuss how you can contribute to their success.
Offer to be a reference customer, provide testimonials or case studies, and even participate in beta testing for their upcoming features.
Strengthen the partnership by becoming a brand advocate through participation in the vendor's referral program, bringing in valuable customers, and fostering mutual growth.
Balancing cost considerations with a collaborative approach can lead to a more fruitful and enduring vendor relationship.
Faster feedback and strategic partnership
As a startup leader, you understand the value of customer feedback. Likewise, the vendors value feedback from customers like you, too.
Getting feedback or reviews from enterprises isn’t easy, as it has to go through various stakeholders, such as legal teams, PR teams, etc. before you receive it. On the other hand, startups are more agile and open to providing product feedback.
Ok, but how can this help during negotiations?
One of our renewal negotiations wasn't progressing well, so we took a proactive approach. We created a list of improvements for the vendor's product and offered 5-star ratings and reviews on platforms like G2 and Capterra. We demonstrated the value you place on their product and showcased a willingness to contribute positively to their reputation.
The vendor, appreciating our constructive feedback and the potential for positive reviews, became more open to renegotiating pricing plans. This resulted in a win-win situation—we benefited from significant cost savings, and the vendor gained valuable insights to enhance their product.
This is how you can leverage your agility to secure favorable vendor deals. This approach goes beyond a transactional relationship; it fosters a sense of partnership.
By actively contributing to improving the vendor's product and offering positive reviews, your startup is positioned as a valuable and engaged customer, likely resulting in flexible pricing and cost savings.
Scale ACV as you go
Another exciting tactic that should be exercised with caution. As high-growth companies, we discussed how startups have the potential to scale their businesses as they grow. One can leverage scalability during vendor negotiations to show the potential upside for the vendor.
SaaS vendors prefer customers with high-growth trajectories and will be more inclined to meet demands and offer products at discounted prices.
Let the vendors know that you may only purchase 10 seats/licenses now, but as your business scales, those 10 seats will be changed to 50 seats.
Build trust with your vendors by making commitments based on your growth plans, but make sure to accurately forecast your scalability before doing so. In negotiations, vendors might encourage you to buy 50 licenses instead of the 10 you need, emphasizing your potential growth.
Resist the temptation to fall for these upsell tactics, as it could lead to unused licenses and a suboptimal return on investment.
It's crucial to stand your ground in such situations and procure licenses according to your immediate requirements.
Shorter sales cycle and rapid decision-making
This is another advantage that startups pose over enterprises. A single purchase approval will require rounds of evaluation, approval, and signatures in an enterprise. Startups are the polar opposite of enterprises when it comes to decision-making. They are quicker.
Leverage this strategy in your negotiations. Drawing from years of experience, we've discovered a critical insight: SaaS vendors are just as eager to have you on board as you are to utilize their product.
So, play up your strengths, commit to an expedited sales cycle for a favorable contract, and excel in your negotiations.
A few months back, we were negotiating with the vendor but could not convince them to offer a discounted price or flexible pricing plans.
So, instead of concluding the negotiations, we analyzed the vendor’s pain point and identified that our product could solve their challenge.
Therefore, we proposed providing our product for free for a defined duration in exchange for a few seats within the vendor's product. The outcome? It turned out to be mutually beneficial for both parties involved.
Delighted with our product, the vendor opted for a subscription after the complimentary trial, creating a win-win situation.
Similarly, if your product addresses a specific pain point for the vendor, leverage this unique solution during negotiations to seal the deal.
Highlight recent advancements
Think from a vendor’s perspective: What stops them from partnering with you? What’s the blocker?
What if you’re one of those startups that looks great on paper but is not worth the partnership?
These are some common concerns that SaaS vendors might have. So, how do you make them trust you?
Leverage your latest developments during negotiations. Did you recently secure Series A funding? Have you closed a deal with a high-value customer? Are you using an influencer to endorse your product? Did you secure a badge or win an award?
You can use these recent advancements to negotiate with the vendor and assure them that your product/organization is worth partnering with. This leverage will not only persuade the vendors to partner with you, but it might also push them to lower their pricing for you.
A good vendor relationship begins with trust. Rather than expecting vendors to trust you automatically, you are responsible for earning their trust.
There you go. Use these tactics to streamline your negotiations as a startup.
Is that all I have to do to negotiate as a startup? You may ask.
No, you have to mix these tactics with some of the common contract negotiation playbooks discussed in this article → Click here
Negotiating as a startup using CloudEagle
Taking advantage of the above tactics requires time and research. As a startup, we know your major drawback is a lean team stacked with strategic tasks. Is that why you’re reading this article?
We have an effective solution to help you streamline your contract negotiation process.
CloudEagle has a team of SaaS buying experts who can work as your extended procurement team. These experts have years of negotiating experience under their belt. They can navigate the intricacies of vendor negotiations and help you purchase the right application at the right price.
From requirement analysis and vendor research to competitive analysis and the latest pricing benchmarks, our SaaS buying experts will do all the heavy lifting for you. At the same time, your team can focus on their core responsibilities.
Here’s one of our customers recalling how the CloudEagle buying experts helped them save on SaaS spend through vendor negotiations →
So, do you want to help your team optimize their productivity? Book a demo and let our experts take over the negotiations for you.