Negotiating SaaS Deals
Understanding stack ranked priorities, making trades, and finding win wins
The process of negotiating SaaS contracts is not entirely intuitive at first for newer sellers, but once you see the light, there’s no going back.
In short: the best negotiations in SaaS come from deeply understanding your prospect’s key priorities, stack ranked in order, and looking for ways to create win wins for both sides by making trades.
Secondarily, it’s about sharing your own key priorities with the prospect (ideally as far in advance as possible) so that they understand which elements of the negotiation will be important to you.
By trading different elements that you both care about, you can usually come to an agreement that makes both sides happy.
Important to the seller
As a seller, here is what you typically care about in a buying cycle, in loose order:
That the deal gets done in the first place, for a discount that is approvable internally. If you completely lose a deal, and an important prospect chooses a competitor, that’s the worst outcome.
Deal size. The higher the contract value, the more you get paid and the closer you get to achieving your quota.
Deal timing. You need this deal to get done on time, ie, in the quarter in which you’re forecasting it. If it slips to next quarter, ok fine, not ideal but most sellers would take it. Anything to avoid a deal slipping into having ‘no decisionmaking timeline’ territory.
Deal mechanics over time. As a seller, you probably don’t care a ton about this because you’re not incentivized by renewals, but to a leadership team, this is a massive deal. You must design contracts to renew and expand forever. If your SaaS contracts don’t expand organically, all the growth heavy lifting falls on net new business. The most iconic SaaS companies are able to grow with expansion.
Important to the buyer
In short, this list always depends. But let’s take a look at a sample priority list from the buyer’s perspective:
Buyer wants the best solution to the problem they’re facing, or to the opportunity area they’ve identified. (meaning, as a seller, you have to “win” the evaluation before you can negotiate.)
Buyer also cares about price- they likely have some sort of budget floating out there somewhere, and the higher the pricepoint, the more hoops they’ll have to jump through to get this approved, and the fewer favors they can call in for future spend.
They may not care as much about timing, unless they’re hitting a specific budget cycle, or have an urgent need. (As a seller, you should figure out if they have budget for this purchase, or when the budget opens up. You should also figure out if there is a “critical event” they are moving towards, or if there is no timing pressure on their end.)
The buyer may (or may not) care about deployment resources or customer success resources (something to ask them about.)
They may or may not care about deal length. A longer deal could, in theory, lock an advantageous price in, but could remove flexibility if they want to churn at some point, or if they’re not certain about the choice they’re about to make.
Miscellaneous- it’s always good to understand if there is anything else floating out there in the buyer’s mind- constraints from their boss? Apprehensions about deploying successfully? Are they hung up on a competitor’s pricing? Anything that could impact your decisionmaker’s willingness and ability to pull a buying trigger, you (the seller) have to know about in advance. The only way to get there is to dig and ask good questions throughout the discovery process.
Figure out what’s important to your buyer, and why
Any priority stack ranking will differ by the buyer, and it’s your responsibility as a seller to (a) understand what’s important to your buyer, why, and in what order, and (b) communicate to them what things are important to you, and why.
Timing is a great example- if you don’t explain early and often that the timing in which this deal gets done really matters to you, you shouldn’t be surprised when the deal slips out of the quarter.
If you figure out that getting some sort of discount on your pricing is the buyer’s main priority, and timing is yours, you can make what is essentially a trade.
Basically, if you execute this deal by end of quarter (“x” date), we can tie that to “y” discount.
This a simplistic example, but good negotiation first seeks to understand what’s important to the person you’re negotiating with, and putting together a package that gets them what they want in exchange for what you want.
Understand your negotiating levers
As a sales leadership team, or founding team, it’s your responsibility to help your sellers understand what their negotiating levers are.
Examples include:
A discounting matrix (how big can discounts get at various commitment sizes?)
Ability to add free months to a contract (useful for when a prospect doesn’t think they can deploy “this month” and doesn’t want to pay for time they won’t be using the product)
Ability to pay on net 60 or net 90 terms (ie- not having to pay within the first 30 days post signature, sometimes helpful)
Ability for a seller to get bonuses based on multi year terms, ideally with baked in price increases in year 2 and year 3
Sellers can’t just go rogue and offer things that leadership hasn’t blessed, so SaaS leadership teams should have proactive strategies around what their levers are.
If you aren’t sure that your solution is actually the buyer’s first choice (meaning: you haven’t actually “won” the evaluation) then you are not yet in a position to negotiate anything, and should hold off on any concessions or trades until you understand why your product is the prospect’s top choice.
Don’t negotiate if you haven’t won the evaluation
Negotiation starts in discovery, with your ability to understand what really matters to your buyer, and in what order. Strong negotiation also relies on your ability to share the things on the other side of the table that really matter to you.
Again, try not to negotiate or talk about discounts until your product is the “winner” of the evaluation. If you start the negotiation process, and the buyer is still holding onto the idea that they still could choose a different solution, you’re setting yourself up for pain.
If you need to negotiate at all, it’s because the deal isn’t going to get done on its own momentum without one. When you negotiate, try to understand what things are acting as blockers, and preventing you from moving forward.
When you identify the blockers, try to figure out which you can help with on your end, which you’d be willing to give on, in return for the things that matter to you (ie- deal must still hit a certain price threshhold, and get done on time.) Remember, never give in a SaaS negotiation without getting something in return- the prospect must understand that there is a cost for anything they ask for, otherwise they are incentivized to just keep asking for things.
Final thoughts
Finally, do not send any “approved” discount to your prospects without knowing that they’re ready to commit.
Once you win the evaluation, you can float a discount or package that you think you could get approved internally, but first, you need approval by your customer BEFORE you ask your VP of sales to approve anything. Essentially, the customer must commit that price X gets the deal done before you use political capital to ask for discounting approval from your revenue leaders.
One of the worst offenses in sales is to get a discount approved, only to see the deal fall through. You must be certain a deal is good to go before asking for internal favors.
In other words, the prospect must pull the trigger on their final commitment before you (the seller) do. Otherwise, you’re putting yourself in a position to ask for more and more on your end without getting any commitments in return, and that’s a recipe for negotiating disaster.
Strong SaaS negotiators are good at spotting the different trading vectors through discovery, they’re disciplined about refusing to give concessions without getting things in return, and they don’t give final approval on their end until the buyer has committed on theirs.
Thanks for reading EarlyGTM post #14!
Mike Marg, Partner, Craft Ventures
(for more thoughts on go to market, @mikemarg_ on Twitter)
Great read, Mike. Love how these fundamentals are applicable to both early-stage (founder-led) and growth-stage companies.
Few quick thoughts and lessons from our own experience. Feel free to disagree!
1/ One of the tricker "Important to the Buyer" is we find they often have a personal incentive. A certain initiative your product supports when brought in makes them look like a rockstar in front of their leadership. Navigating this successfully we've found not only deepens the relationship/trust but aligns to their own personal agenda. This is a bit less powerful in a competitive bake-off.
2/ Negotiating with the right people! Just because you're selling to a Director of Engineering doesn't mean they truly hold the budget or have control over it. Ensure you understand the process and don't burn your negotiating levers on the wrong people.
3/ Similar to 2, now that you know the people involved in the process (more now given macro headwinds) there is a fair chance everyone wants some sort of win when they push you. We think of this as anchoring high then having 4 matches to burn throughout the process until our floor is less protected.
4/ We find pre-communicating the discount structure and limits with the right people forces their hand a bit more in terms of how much they perceive we can be pushed. Actually DROdio over at FounderCulture has a great post on how he built this out at Armory (thinks of it like a Chinese takeout menu, "5% for co-marketing, 5% for multi-year").
5/ Underrated is making sure especially early on the right people on your team are doing the negotiations. If its your CRO then they're a bit stuck on who they can go back to and find approval. Buyers should know you're fighting internally for them.
6/ We've found simply asking upfront what is a home run to get this done has been powerful. It also quickly reveals if they're the right people to be discussing price with (or if they even know).
7/ When you are confident this is absolutely the best solution on the market, leveraging that confidence at the table. We've seen champions go out of their way to build a really strong case internally for their procurement teams and continue pushing them as long as we've kept the channel clear to them on what is going on. As you said, their goal is to have the best solution.
Good read thanks for sharing!