Best Practices to Improve Your SaaS Renewal Negotiation Strategy

April 02, 2024

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With cloud migration growing rapidly, companies are spending a lot more on SaaS platforms. Gartner forecasts SaaS spending to top $232 billion globally, growing at a rate of nearly 18% annually. These investments are accounting for larger shares of IT budgets as vendors are increasingly aggressive about phasing out residual perpetual licenses in favor of subscription models that provide recurring monthly revenue.

When it’s time for renewal, however, you are at a significant disadvantage without a solid SaaS renewal and spend management strategy.

What is SaaS Renewal Management?

SaaS renewal management involves tracking, managing, and optimizing the renewal of your SaaS contracts to avoid overpaying and toxic spend. Balancing multiple vendors, complex licensing models, and changing needs, it’s crucial to have a solid renewal negotiation strategy in place to avoid overspending.

How to Prepare for a SaaS Renewal

When you’re heading into a renewal cycle, you need to be armed with information as contracts get close to expiration. You need to gather data including:

  • Current license inventory
  • Usage and spend analysis
  • Future needs

This information can frame your SaaS renewal for optimization. That includes right-sizing license counts, harvesting inactive or underutilized licenses, and selecting license types that best fit your current and future usage requirements.

You also need negotiation intel. More than eight out of 10 companies overpay for their IT assets. Price benchmark analysis helps you determine best-in-class pricing and discount targets so you can negotiate the lowest price possible. NPI provides transaction-specific price benchmark analysis, negotiation intel, and licensing expertise to ensure you can negotiate the best deal on SaaS renewals.

Best Practices for Managing Your Software Renewals

Don’t go into SaaS renewals without due diligence ahead of time. Vendors can use time pressure to their advantage, so you need to be proactive and have the intel you need to optimize your renewal. Here are a few best practices for managing SaaS renewals.

Auto Renewals

Most SaaS vendors include auto-renewal clauses, but they can be a trap. Auto renewals generally include pre-set rate increases and can lead to overspending. They can lock you into deals that are no longer appropriate and take away your opportunity to renegotiate terms.

Make sure you review contracts carefully, track renewal dates, and provide appropriate notice to opt out of auto renewals.

Utilize Per-Renewal Reminders

For all your SaaS contracts, you will want to set reminders in advance of renewal dates. Keep in mind that some SaaS renewals may only require a three-month runway for preparation, while others require more extensive planning (more on that later!).  Give yourself enough time to gather the data you need to fully optimize your renewal while also accommodating things like evaluating competitive alternatives, quarter, and fiscal year-end timing incentives, and so on.

Assess Usage and Inventory

Avoid just renewing the same number of licenses without doing an inventory. Look for opportunities to harvest inactive or underutilized licenses.

An estimated 30% of cloud fees paid are for licenses or subscriptions that are dormant, or for features that are never used. Right-sizing is crucial to avoid spending on licenses you no longer need. You should take a deep dive into SaaS contracts that have multiple license models to ensure usage aligns with what you’re paying for. Does everyone in the organization need the highest level or can you save money by tiering plans based on actual needs?

Understand Required Runway

SaaS renewal negotiations can get complex and vary greatly between products and vendors. For straightforward renewals with little change, 30-60 days may be enough time to do your analysis. For large enterprise agreements, you may need 6-12 months of runway to complete your due diligence, benchmarking, and negotiations.

Access Up-to-Date Licensing Expertise

A lot can change between the time you signed your initial deal and SaaS renewal periods. New subscription metrics and deals get introduced. New competitors hit the market. Terms and conditions can change. Your business needs may evolve.

Ensure you have access to licensing experts like NPI that track transaction-specific data so you have the latest information about current rates and terms with Microsoft, Adobe, Salesforce, SAP, Workday, and other SaaS platforms. Price transparency is critical. Of the $40+ billion in enterprise IT spend NPI analyzes annually, more than 85% of vendor quotes were higher than fair market value.

Inspect for Indirect Cost Optimization

SaaS renewals should focus on more than just subscription prices.

There’s a misconception that contractual business terms are non-negotiable for SaaS purchases and renewals, but that’s not true. You can often negotiate more favorable contractual business terms, especially at the enterprise level. Pay close attention to any price escalation language as you may be able to cap pricing for multiple years or avoid automatic increases.

What is a Good SaaS Renewal Rate?

For top vendors, SaaS renewal rates can average between 80% and 90%. Some of the biggest names will see renewal rates even higher. While that spells leverage for the vendor, it doesn’t mean there isn’t room to negotiate. The cost for vendors to acquire a new customer is significantly higher than retaining a current one, so armed with the right information, you may be able to lower your costs during renewal periods.

NPI regularly achieves 7-figure savings. Savings of 20% to 50% on individual purchases are common.

Negotiating the Best Deal

Enterprise IT vendors have an advantage on their side of the table – they know their own licensing and pricing inside and out. Even after doing your internal due diligence, it’s easy to be at a disadvantage when discussing SaaS renewals.

You need to have the same level of expertise and information on your side to ensure you can get market-leading pricing and terms. When you know what other similar-sized purchases in the market cost and where levers exist to negotiate, you can negotiate a fair and competitive deal.

NPI Helps Procurement Teams Proactively Manage Renewals

Enterprise IT vendor licensing, terms, and subscription programs are complex. Pricing is wildly inconsistent even for customers with similarly scoped requirements, and contractual business terms and online service terms can be confusing.  NPI helps eliminate blind spots and levels the playing field to help you negotiate best-in-class pricing and terms.

IT Price Benchmark Analysis and Negotiation Intel

NPI’s SmartSpend for IT Buyers subscription service provides you with the critical data you need to negotiate a world-class outcome on your IT purchases and renewals. It includes:

  • Price benchmarking: See how your quote stacks up against industry-leading benchmarks.
  • Precise savings: Get recommendations for price and discount targets based on volume, timing, and other relevant factors.
  • Business terms analysis: See where changes or additions can strengthen deals.
  • Vendor-specific negotiation intel: Get insight into vendor and channel motivations, levers, and behavior to enhance your negotiating position.

Request a sample Fair Market Value Report to see how it works.

SaaS License Optimization Consulting

For large SaaS estates, NPI can help you identify specific, actionable cost-reduction opportunities through detailed analysis and SaaS license optimization. Significant savings commonly come from right-sizing license assignments and redeployment or elimination of inactive licenses.

By matching costs with deployment, you can develop an optimal licensing strategy to meet current and future needs while avoiding wasted spending. With NPI, you get line-item analysis by vendor specialists to uncover the details to better manage enterprise SaaS costs.

Negotiate Better SaaS Renewals

You need a partner on your side to help optimize SaaS renewals and avoid overpaying. Contact the experts at NPI today.