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SaaS Contract Negotiation Strategies

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SaaS Contract Negotiation Strategies - Contract Sent

So you’ve put your master service agreement in front of a customer and they’ve torn it to shreds? Well, it happens. It happens more than it doesn’t to be honest. If I had a dollar for every enterprise customer that said yes, that’s fine we’ll sign that will no changes I’d be very poor. It doesn’t matter what you do or how balanced you make your SaaS master service agreement enterprise customers will want to carve it up like turkey on Thanksgiving. So what can you do about it? Well accepting it is the first step towards planning for it and once you’ve accepted that all that hard legal work is going out the window the next step is building a strategy for how to negotiate your contracts.

Get Ahead of the Game

Getting ahead of your customer and planting your software master service agreement in their inbox like a flag in the sand is one of the best ways to kick off negotiations. This is uncomfortable, your sales team will not like to do it but it will save you time in the long run.

It’s uncomfortable because your sales team has spent time building a relationship with their champion and it’s, hopefully, a good relationship. Pushing a MSA in front of a customer can be seen as a bit pushy, ‘hey, nice chatting, here’s a contract’, but there are ways around this that will save face for the sales person. A simple line such as ‘I know legal teams take a while on these things so let’s get this on their radar so they can do the back and forth while we keep looking into how we can help you’. Phrasing this as a statement rather than a question can help.

What does this do? It creates an anchor in the negotiations, it will also, hopefully, allow opposing legal to see that your MSA does actually cover everything that their terms does and more. Generally if a customer pushes you to agree to their procurement terms they are not fit for purpose whatsoever and do not cover how your product works.

SaaS Contract Negotiation Strategies

Use Case!

Oh my god, use case! The number of times we’ve been pulled into a legal discussion that has been escalated for C-Suite review because neither side will budge and the contentious issue that has blocked things moving forwards has not even been part of the use case of using our product is ridiculous. The conversation usually goes a little something like this:

  • What seems to be the problem?

  • We require a $3,000,000 liability cap, your legal team won’t agree to this

  • Why do you require a cap so large?

  • Because your platform will store the private data of our staff

  • Actually it will only store their email address and password for logging in, both stored in SOC2 Compliant software

  • What about name, address, job title, things like that?

  • We don’t collect or store any of that

  • Oh, okay, then a lower liability cap is fine.

This is a common conversation which is generally caused by the buyer’s champion having a firm idea of the use case of what they are purchasing and no one taking the time to explain this to the poor legal counsel who is just doing their job in protecting their company from what they see as risk. Over-explain, always.

SaaS Contract Negotiation Strategies: BATNA

Best Alternative to Negotiated Agreement. If you don’t know what this means you need to get to understand it. It will be a contract negotiation tool that helps you across all negotiations, not just for software as a service contract negotiations.

Understanding what the other side’s best alternative option if negotiations breakdown is generally just having an understanding of how bought into the solution your champion is. Is it a must have for them or one of three options they were looking at? If you understand this you will understand how much the champion will go into bat for you against their own legal team. There are several other considerations to this, including the level of authority that the buyer has in their organization. A common negotiation tactic is to agree to clauses you are not wanting to agree to in the first iteration of the contract. Once the contract comes up for renewal and your product is embedded into the buyers day to day business you can leverage this to renegotiate your way out of those clauses.

SaaS Contract Negotiation Strategies: Clause Rolling

A poor pun on the term logrolling. Clause rolling involves an understanding of which clauses have which value to you and your customer when it comes to negotiation and using these to trade back and forth. Your customer might value payment terms or intellectual property highly while you might value being able to use their logo in your marketing material. Understanding what is valuable to who can help you get the best outcome for all parties involved.

One way to do this is to get your sales team to try and flesh this out in initial contract discussions before things are escalated to the legal team.

What to do when negotiations break down?

It happens. Not all negotiations will follow rules SaaS contract negotiation strategies. Sometimes people are difficult to negotiate with. Sometimes one of the best ways to break a contract negotiation stalemate is to inject a new person into the conversation. Someone from your senior team or a founder of your startup. It’s not to throw their weight around, it’s more to deescalate people’s assumptions, ask ‘why’ those assumptions are in place and make a call on whether or not things can be agreed to. At the end of the day you want to get to a place that you’ve negotiated a contract that both parties are happy with and an enforceable contract.

Remove the term ‘it’s with legal’ from your company

We’re a bit biased, we know. But using a tool like Contract Sent to give you a clear overview of where all of your contracts sit and what decisions need to be made to move forwards is one of the best ways to keep things moving.

Happy negotiating!


ABOUT THE AUTHOR
Contract Sent

A contract management system built for startups to manage, negotiate and report on their SaaS contracts.

Contract Sent is not a law firm, this post and subsequent pages on this website do not constitute or contain legal advice. To understand whether or not the ideas and guidance on the Contract Sent website is applicable to your business, you should consult with a licensed attorney. The use and accessing of any resources contained within the Contract Sent site do not create an attorney-client relationship between the user and Contract Sent.

ABOUT THE AUTHOR

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