The current state of affairs paints a concerning picture for SaaS buyers.
Our data shows that the SaaS inflation rate is around four times higher than the general market inflation rate. Specifically, SaaS expenditure in the U.K. and Australia is currently growing at a rate five times higher than market inflation — and in the U.S., a substantial 3.5 times more.
These would be worrying figures in any economy, but for CFOs attempting to drive growth during an economic downturn, soaring software costs should be ringing alarm bells.
One of the reasons that SaaS vendors are able to increase their prices year after year is that so many obscure their pricing information. As a result, buyers lack the insight to negotiate best-in-class deals on their software contracts.
Without a frame of reference on what other companies pay, many are quoted higher rates for enterprise-level software subscriptions. So much so that our data indicates that as many as 90% of companies are overpaying for their SaaS products by 20%-30%.
What can you do?
Vendor pricing is rarely set in stone, and buyers have more purchasing power than they realize when they approach negotiations and are equipped with leverage. When your company reaches out to sales teams to inquire about SaaS solutions, there is often room to negotiate the contract.
Finance and procurement teams need to be aware of the negotiation tactics that can be used to attain SaaS products at a better price and avoid the common pitfalls associated with software negotiation. If you’re looking to cut your software costs in 2023, these are the strategies that are recommended for securing SaaS contracts with long-term value.
If cutting SaaS costs is a top priority for your business in 2023, improving your software negotiation strategy is the place to start.
Give yourself enough time to prepare
The first step in gaining negotiation leverage is to allow yourself time.
Ensure that you approach a vendor to renew or take on a brand new contract far before you plan to onboard with the new product. Before anything else, you’ll need to understand your needs and comprehensively research which tools are best equipped to fulfill them.
To help you on your way, put together a short list of tools and consider:
- The number of licenses the company requires.
- The level of support and maintenance needed.
- The features that you deem essential and those that would be “nice to have.”
- The budget you are willing to allocate.
This way, you can enter negotiations with the knowledge and time you need to secure the best deal. If you fail to take this time, your supplier could realize that you need a quick turnaround and respond with inflexible terms. Though there is no one-size-fits-all solution, we typically advise that the average company begins the procurement process six to eight months before contract renewal.
Consider your contract length
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