IT Procurement Success

SaaS Contract Negotiation

Learn how to negotiate the terms and conditions of a SaaS agreement with your SaaS vendor. Negotiate pricing, payment terms, SLAs, data security and privacy, and termination clauses.

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Navigating the world of Software as a Service (SaaS) contract negotiations can be complex and challenging for IT procurement and Chief Information Officers (CIOs).

Effective negotiation techniques are crucial for securing the best possible terms and ensuring a successful partnership with SaaS vendors.

This guide covers definitions, preparing and negotiation strategies, and insights into key terms to negotiate.

At this stage, you've already evaluated SaaS vendors and picked the best one to sign a contract with. So, before we move forward, let's revisit the fundamentals first. 

📚 Related: SaaS Contract Management


What is SaaS contract negotiation?

SaaS contract negotiation is the process of discussing and agreeing upon the terms and conditions of a SaaS agreement between the vendor and a customer.

This includes negotiating pricing, payment terms, service level agreements (SLAs), data security and privacy, intellectual property rights, termination clauses, etc.

Effective SaaS contract negotiation requires insight into your usage, vendor's service offerings, and pricing models, as well as legal and regulatory requirements.

The goal is to reach a mutually acceptable agreement that meets the needs of both parties and sets the relationship up for success.

📚 Related: Build your SaaS Renewal Strategy

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Negotiation challenges

SaaS contracts and agreements provide new challenges to IT and procurement, therefore, they require a different approach than a typical contract.

Let's see what are the top contract negotiation challenges, no matter if they come up during your initial contract procurement or before a renewal.

1. Incomplete SaaS inventory

The SaaS inventory refers to the list of SaaS applications used by a company, along with their associated subscription costs and usage metrics.

Without a complete understanding of the company's SaaS inventory, negotiations can become difficult and potentially result in unfavorable contract terms.

It can lead to signing a contract with a vendor which has very similar functions as the existing application in another business unit - the one you're already paying for.

Therefore, this can also result in underestimating the SaaS spend and spending more than your budget allows.

2. Negotiation fear

Most of the vendors communicate pricing brackets on their websites, therefore, it's easy to assume these are the exact prices you have to pay.

But, even though "Enterprise" plans are usually the only ones without clear pricing, it doesn't mean it is the only plan that can be negotiated.

Therefore, no matter which plan you choose, reach out to a sales representative and ask for a discount. The vendor's sales team is only one click or call away. The worst thing that can happen is that they say no.

Keep in mind, regular sales team members can usually offer from 1-5% discount while their managers can go even higher, up to 10% or more.

📚 Related: SaaS Agreement Checklist

Key terms and conditions to negotiate

During SaaS contract negotiations, it is essential to address several primary terms and conditions, such as:

  1. Pricing and payment components
    SaaS prices are determined by policies that guide discounting and margin management. These are designed to either encourage or discourage certain behaviors and trends, depending on the vendor’s goals. PwC divides the common pricing components into the categories below:
    • Packaging or size discounts
    • Term discounts
    • Loyalty discounts
    • Volume discounts
    • Payment and credit adjustments
    • Usage type adjustments
    • Promotions
    • Upgrades or cross grades
    • Regional pricing
    • Channel discounts
    • Grandfathering
    Each component has a supporting set of values, goals, or priorities that an insightful business leader should be able to capitalize on.

  2. Service Level Agreement (SLA) components
    Establish specific performance expectations, including uptime, response times, and issue resolution.

  3. Data security and privacy
    Address the provider's data security measures and protocols, including encryption, breach response, and compliance with relevant regulations.

  4. Customization and integration
    Understand the provider's flexibility in customizing their solution and integrating it with existing tools and systems.

  5. Termination and data retrieval
    Outline clear terms and conditions for ending the contract and retrieving stored data.



How to negotiate SaaS contracts?

Many SaaS vendors obsess over monthly or annual recurring revenue growth to establish a critical mass of customers.

Keep this in mind when negotiating SaaS contracts, renewals, or True-ups as you can get discounts for an extended period of time.

Some SaaS providers are also open to “grandfathering” an existing customer in order to reduce churn.

By understanding the intrinsic value levers and supporting negotiation conversations with actual usage data for each vendor, leaders can land attractive pricing and terms. Just build a case and ask.

📚 Related: Microsoft EA and True-Up Renewal

1. Prepare for negotiations

Before entering SaaS contract negotiations, organizations should follow these steps to prepare and arm themselves with the necessary information:

  • Assess organizational needs: Identify the specific requirements of the organization and highlight the goals of the SaaS implementation.
  • Research potential providers: Gather information on different SaaS providers and their offerings to understand which vendors align best with your needs.
  • Budget considerations: Establish a budget for the SaaS solution and be prepared to discuss pricing in negotiations
  • Define negotiation objectives: Set clear objectives for the negotiation and establish any non-negotiable terms or conditions.

2. Apply pricing components

Consider the following examples where your awareness of a vendor’s pricing rationale and business goals could result in more favorable contract terms.

Understand SaaS vendor license types

More often than not, companies deploy enterprise-grade apps with unnecessary features. This is common with vendors, such as Office 365 which offer many different types of licenses. To avoid this, build a baseline of user needs and right-size licenses based on the features and functionality needed.

Consider term discounts

Vendors need consistent cash flow and want to avoid customer churn. You can use this information when negotiating your SaaS agreement and get attractive discounts. Once you’ve identified your mission-critical apps, you can consolidate multiple SaaS contracts and propose a longer-term service extension.

Ask for loyalty discounts

Similar to term discounts, vendors care about the long-term value (LTV) of SaaS contracts. Funding, valuation, and Wall Street interest are all connected to contract value for SaaS companies. With this info in your back pocket, you can determine your longest-tenured relationships and ask those vendors for loyalty discounts.

Fear of churn

The SaaS model typically requires heavy investment in customer acquisition while the cost of keeping an existing customer is relatively low. If a SaaS vendor has a low lock-in with your company and there are good alternatives, use your bargaining power to get loyalty discounts.

Consolidate for vendor discounts

With SaaS management platforms, you can quickly find redundant SaaS apps. In this step, you can consolidate app functions to a single vendor to increase your license need and leverage for negotiation. Just ask your preferred vendor for volume discounts and compare them with competitors.

Logo power

If you work for a well-known company with great brand recognition, leveraging your logo power can get you a good discount. Many SaaS vendors have special accelerators in place. These are set to motivate sales teams to close high-profile industry names as they seek to build their category leadership in the market.

3. Negotiate risk and security components

When negotiating SaaS agreements, remember that security and risk components are not set in stone. They can be adjusted to meet your needs – at least to some extent.

To ensure that the security clauses in SaaS contracts protect you in the best way possible, take a look at the tips below.

  • Create a master list: Before starting a SaaS contract negotiation, create a master list of all risks that are relevant to your organization. In general, the bigger your planned service procurement, the more leverage you’ll have with the vendor.
  • Communicate the non-negotiable: Call your security team early on when negotiating SaaS contracts. That way, you ensure that non-negotiable security risks around data protection are covered before a SaaS solution is purchased.
  • Get additional protections: You can ask your vendor for additional protections. This could include language protecting you in case of a vendor acquisition or a vendor’s cybersecurity provisions.
  • Insist on early breach notification: When negotiating SaaS contracts, it’s advisable to include clauses that ensure prompt breach notification. This might be the most difficult point to negotiate as vendors don’t like to be pinned down to a specific timeline.

4. Closing the deal

The final stage of SaaS contract negotiations involves finalizing and formally closing the deal. These final steps include:

  1. Review the final contract: Ensure that all agreed-upon terms are accurately reflected in the written contract.
  2. Consult legal counsel: Involve legal professionals to review the contract and ensure the organization's interests are protected.
  3. Obtain approval from stakeholders: Present the finalized contract to key stakeholders within your organization for approval and buy-in.
  4. Sign the agreement: Once all necessary approvals have been obtained, proceed to sign the contract and establish the formal partnership.
📚 Related: 6 Best SaaS Renewal Practices


Best practices

  1. Do your homework: Thoroughly research the SaaS provider's offerings and alternatives in the market to establish a solid negotiation position.
  2. Use data and benchmarks: Reference industry standards, competitor offers, or relevant case studies to support your demands and requests.
  3. Focus on value, not just cost: Emphasize the value that the SaaS solution will bring to your organization, and consider value-added services like support and training.
  4. Be prepared to compromise: Approach the negotiation with flexibility and openness, as both parties may need to make concessions to reach a mutual agreement.
  5. Maintain a strong partnership focus: Foster a collaborative relationship with the SaaS provider, aiming for a partnership that benefits both sides.

📚 Related: Best SaaS Contract Management Practices



Managing SaaS contracts and agreements is a complex task that not only requires negotiation skills, but the visibility of your SaaS application landscape and a clear understanding of your leverage, your company’s needs, and how these needs can be protected.

SaaS management platforms are the most efficient way to streamline and manage your SaaS contracts, optimize your cloud spend, and stay in control of your data.

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Frequently asked questions on SaaS contract negotiation

What is a SaaS agreement?

A SaaS agreement is a legal document issued by the SaaS vendor and lays out the terms and conditions of the respective software delivery model provided to the client.

How to negotiate SaaS contracts?

To negotiate SaaS contracts it is necessary to uncover and evaluate all contract details, understand pricing strategy components and license types, and compare it to the actual usage of a particular SaaS vendor to find negotiation opportunities.

How to negotiate the price for SaaS?

To negotiate the price for SaaS, start by assessing your organization's specific needs and goals for the software implementation. Conduct thorough research on different SaaS providers to find those that align best with your requirements. Establish a budget for the SaaS solution and be prepared to discuss pricing during negotiations. Define your negotiation objectives and identify any non-negotiable terms or conditions.

What are the 4 main stages of SaaS contract negotiations?

Negotiations of SaaS contracts are done in four stages: Preparation, pricing components negotiation, risk and security component negotiation, and closing.


Free White Paper

A Guide to SaaS Management