As the cloud invades the enterprise, more and more companies are finding out that negotiating a SaaS contract isn't quite as easy as implementing the system. Just because the cloud makes enterprise software easier and simpler, doesn't mean they made the legalese any easier to follow. When negotiating a SaaS contract, it is important to keep in mind some special considerations:
1. Negotiate the Pricing
Everyone loves a discount. Although SaaS is already offered at a considerable discount compared to on-premises software, many vendors will drop the sticker price another 20% if you're willing to go for a longer contract. In some special cases, you might even be able to swing a custom pricing model. This is no easy task, so you'd better come to the meeting with your debating skills in hand ready to make a solid argument. If you can make a compelling argument, you just might get what you ask for.
2. Avoid Paying for Extras
SaaS is easy to use, and the multi-tenant architecture is one of its best features. That being said, it is also a limitation. Customizing in the cloud isn't quite where it needs to be and can get pricey in a hurry. It's best to just stick with the vanilla version of the software if your business can make it work. Make use of the core functionality to its fullest extent and then move to customization if you really have to.
3. Negotiate the Term
Remember that SaaS is supposed to be a flexible solution and one that helps buyers avoid vendor lock-in. Therefore, it's important to negotiate your contract on the shortest term possible. There is a lot of variability in term length. Some vendors will offer a month-by-month contract, while others will try to get your business for up to five years (the average is probably about two years). Aim for the low end, and make the vendors win your business so you don't feel like you're stuck with your vendor at any point. This will be important as more vendors move to the cloud and innovate.
4. Get A Strong SLA
The service level agreement (SLA) is the part of the contract that spells out the amount of time that the software will be available. Negotiating a good SLA is one of the most important parts of negotiating a SaaS contract. My advice here is to make the contract have some teeth. Make sure that there is a penalty for breaking the SLA. This usually comes in the form of a discount that is paid out against future services. This is generally good enough repayment for most services. If a vendor seems hesitant to stand behind a solid SLA, you should probably head for the door.
5. Make Sure Your Data is Backed Up
Losing all their data one of the biggest fears that people express when considering the cloud as an option. It is important to ensure that backups are performed early and often. Most vendors will back up either every day or every week. However, some vendors will back the data up multiple times throughout the day. On top of ensuring backups, it is a good idea to ask if the backup overwrites the previous entry or if separate entries are kept. You can expect to pay a little more for keeping separate entries but it will help you roll back to a specific previous version if needed.
These are just a few suggestions to get your started on the right path. Do you have experience negotiating a SaaS contract? Please share your experiences with me.
Action Item: Expect to negotiate a SaaS service contract in the same way that you would a major software purchase. As companies move parts of their infrastructure to the cloud, developing and maintaining strong negotiation skills will become increasingly important. Companies should have a designated negotiations person or team that handles all negotiations and keeps an eye on how vendors deliver on their SLAs after the contract is signed.
Footnotes: This article was adapted from an article on Software Advice, a free online resource that presents reviews and comparisons of material requirements planning.