How to Break Up with Your Saas Vendor

Posted by on July 25, 2019

Break Up With SaaS Vendor

As a sales director for a leading SaaS vendor, my team often brings to me the same challenging conundrum from their prospects: Their prospect is approaching the end of their contract with a competitor and that competitor has massively increased the price of their next-term renewal. The price increase may be due to normal price increases or a result of a strongly negotiated initial contract term.

Sadly, for most companies, there is little or nothing that we can do to help them. The average time to go live with a new solution is six to 12 weeks, so these companies simply do not have enough time to move to a new platform. Their current vendor understands this dire situation that traps these companies in between two choices: 1) sit down at the bargaining table with no contract leverage and accept the unacceptable price increase, or 2) disrupt their business with unavoidable, unacceptable, and costlydowntime as their team scrambles to put a new solution in place.

How Do Organizations Fall into This Trap?

Most SaaS solutions entail a three- to five-year subscription contract. Subscriptions act much like a car lease where an organization does not actually own perpetual rights to the technology but rather rents software at a lower initial investment. Hosting costs are often included in this subscription or are offered at a low fee.

There are many attractions to this model. Companies have identified costs for a set period or time; they do not need to purchase expensive hardware to support a solution; and they do not need to maintain that hardware and software. All those costs are included in one low annual subscription fee. This arrangement allows a customer to be more laser focused on their own business and become more competitive. This SaaS offering is attractive to organizations that manage budget from operational funds versus capital funds.

The problem is that once a contract is put in place, it is generally forgotten about until a few months before the end of the term. Compounding that problem is the fact that many of these solutions have been customized and configured to the exact specifications of the customer. The industry term for this customization from software vendors is “getting sticky.” These customizations enable software vendors to secure their technology within one part of the business and then expand into other parts of the organization.

It takes time and money to unstick a software solution. Therefore, most vendors will not initiate contract renewal discussions until 30 to 60 days before the end of a term. Why would they? The closer a company is to their term end date; the more disruptive termination will be to their business. This situation shifts all the leverage in the world to the vendor to negotiate a new deal in their favor. After all, if a company can’t come to an agreement with the new vendor contract, then that vendor has every contractual right to just shut that software solution down, including the hosting arrangement, at the end of the original term.

4 Tips for Avoiding This Trap

  1. Negotiate your next term 12 months before your current contract ends. Keep your leverage and understand your future cost factors. Many of my competitors will not negotiate until 45 days of the contract end date. If this is the case, understand current list prices and assume those costs will be reflected your new contract.
  2. Have a “Plan B” ready at all times. If you are the owner of a solution, be aware and have a relationship with the next two top vendors in that space. Be transparent with those vendors, so they can help you understand their contractual costs and set your expectations for how much time it would take to switch. If you are particularly nervous about your current vendor, pay for a pilot of another solution so you are more familiar with your plan B choice.
  3. Take time to understand different licensing models. A straight apples-to-apples comparison to your currently negotiated terms is nearly impossible. Factors to consider include concurrent versus named usage; all-inclusive versus a la carte options; codeless versus coded configurations; among many other pricing schemes.
  4. Plan reserve budget so you can run overlapping solutions. This plan should include licensing and services costs. Very few technologies fall into an easy rip and replace strategy. Be aware of this need and budget accordingly.

Few Things Can Confuse Us Like Software Licensing

With so many SaaS licensing models out there—ranging from flat rate and perpetual, to usage-based, tiered, named user, feature-based, and so on—it's easy to get baffled. And figuring out which aspects of a software license you have the right to use can be tricky, too. You often wonder, “What's really “out-of-the-box?”

  • Gain clarity on what you are actually purchasing from vendors. Refer to the “9 Considerations Before You License a New ITSM Solution” infographic for guidance on questions to ask.
  • Take control over your next service management contract. The “How to Break Up with Your SaaS Vendor” infographic overviews steps to take before you get trapped in a hasty renewal discussion.
  • Understand more about what’s included with a Cherwell license. Our data sheet, “What’s Included in My License,” goes into detail on the 11 ITIL processes, 100+ integrations, performance analytics, and the number of users supported.

1 The average cost of an IT outage is $5,600 per minute, and because there are so many differences in how businesses operate, downtime, at the low end, can be as much as $140,000 per hour, $300,000 per hour on average, and as much as $540,000 per hour at the higher end, according to Gartner.

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