When it Comes to SaaS Pricing, It’s Still the Wild West

By Michael Schulman

IT/Telecom Delivery Analyst, NPI

January 11, 2017

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In the past, most IT Sourcing pros operated on the assumption that SaaS subscription pricing is relatively inflexible. But, things are changing. As much as some vendors would like customers to believe there is a regimented program that defines the price point of their subscriptions, IT Sourcing pros are realizing that those same vendors will still do just about anything it takes to win the business – including providing material discounts.

NPI recently analyzed vendor pricing for the SaaS deals we reviewed in 2016. What we found was interesting and positive. Over the last half of 2016, discounting for SaaS subscriptions has trended lower because the vendors have established more reasonable initial price points. However, price points remain inflated enough that most vendors still have significant room to maneuver on price without sacrificing their ability to preserve margin. Many enterprise SaaS vendors (especially those with roots in legacy on-premise software) aren’t behaving that differently than the generations of software vendors before them.

That’s good news for IT Sourcing pros pursuing SaaS pricing flexibility, but bad news for those expecting SaaS sourcing to be less of a headache than navigating an on-premise software deal. Yes, there are vendors who will stick to their guns and refuse to budge, and some that do offer a fair deal up front. But more and more, the “same old song” is playing again: There is headroom in most proposals, and IT Sourcing teams need to fight for best-in-class deals.

The first step? Set the tone for 2017. Let your vendors know your budget is receiving greater scrutiny than ever before. Benchmark vendor proposals to identify over-charging. Align your IT buying team internally with a strategy to achieve best-in-class deals. When this approach is followed across all purchases, the 2017 budget will stretch much further – and fund some of those digital transformation projects that are in the wings!