Contract renewal strategy is crucial to SaaS procurement since unfavourable conditions might lower ROI. Contract renewals allow you to right-size business licences, negotiate better terms, decrease prices, and more. To maximise contract renewals, this handbook covers:
- Overview of contract renewals.
- How to improve contract renewal conditions.
- Contract renewal best practices.
- How to seek contract renewal advice from experts.
- Contract renewal FAQs.
Overview of contract renewals
Businesses in all industries renew contracts as part of contract lifecycle management (CLM). Each party can sign a new contract to continue doing business after an existing agreement expires. Renegotiating contract conditions before assigning a new agreement may be part of the contract renewal procedure, depending on your business’s agreement.
Contracts with automatic renewal clauses may seem like the easiest method to renew, requiring no input from your organisation or the other party, but auto-renewals are not always beneficial. When your company’s SaaS product consumption has reduced but is still critical for operations, contract renegotiation may be a good option before renewal. Without contract evaluation before the renewal deadline, your organisation may overpay for services it no longer needs.
Contract management software (CLM) automates critical contract activities and streamlines contract lifecycle management for many firms. Contract initiation, authorship, process and workflows, negotiation, approval, ongoing management, tracking, compliance, and renewal are assisted by CLM software.
How to do contract renewal with better terms
Here are some of our greatest, tried-and-true techniques for obtaining improved contract conditions at renewal:
- Give advance notification to cancel auto-renewal.
- Examine overlap and consolidation prospects.
- Utilisation review.
- Find alternatives.
- Develop an offboarding strategy.
- Determine your “gives.”
- Get bids from other sellers.
- Request “best and final” from the desired product.
Pre-notify the agreement not to auto-renew.
Track contract renewal dates to cancel auto-renewal if you want to renegotiate terms or stop the business connection to prevent being tied into SaaS contracts with unfavourable terms.
Giving the supplier advance notice that your organisation won’t auto-renew allows for contract review, usage analysis, operational needs assessment, and improved terms.
Look for overlap and consolidation opportunities.
Assess consolidation possibility by identifying overlapping tools. Use this data to negotiate better SaaS supplier terms and monitor consumption to alter your procurement strategy as your firm grows.
Utilisation review
Tracking and monitoring SaaS usage gives your firm strong data for negotiating new terms and renewal conditions. We recommend getting this data internally or from your seller.
Ask your seller for total and active usage figures over the past year and compare them to what you see internally. Once usage is validated, verify that the new contract offer matches the signed contract. For long-term scalability, your contract should lower per-unit costs as consumption rises.
Find other answers
Competing with other SaaS solutions that offer similar features and capabilities puts pressure on your software supplier, which may lead to better terms. If you have a good business relationship with the other party, they may go the extra mile to keep you.
Develop an offboarding strategy
Create an offboarding plan before the contract renewal date to limit its scope. Eliminating unneeded users and deactivating their credentials beforehand minimises renewal timeline pressure. You should also assess the features your organisation uses to avoid paying for superfluous services and capabilities.
Determine your “gives”
Your “gives,” or what you’re willing to offer the seller, can help you negotiate the best deal. Your “gives” are valuable secret weapons, but you may not need them to reach your goal. Keep them on a “need-to-know” basis.
Examples of “gives”:
- Case study or logo use: Publishing a case study or your company’s logo on the other party’s website shows your dedication to a mutually successful commercial relationship. Additionally, the supplier receives important marketing materials.
- Multi-year contract: Multi-year contracts may help organisations negotiate better software purchase terms. Multi-year contracts guarantee predictable revenue streams from your company to the seller’s stakeholders.
- Dedication to business growth: Another effective way to negotiate better contract conditions is to commit to improving service as your firm expands.
- Yearly upfront payment: Offering to pay for your contract in full upfront gives the vendor a quick cash flow, providing you leverage to negotiate better conditions.
- Expedited signature: An accelerated signature allows your vendor to finalise the contract with your firm on a shorter schedule. This reduces seller overhead and provides them piece of mind that the deal is final.
Get bids from other vendors
When contract renewal negotiations begin with bids from other sellers, the seller often feels more urgency and offers better terms. Use Vendr Bids to anonymously request and assess seller responses for the best price. If you have a good connection with a SaaS provider, they may make concessions to keep your business.
Request “best and final” from the desired product.
Request a “best and final” offer from the preferred product supplier to conclude negotiations and get the best terms. Ask the software supplier to make their best offer based on your terms.
Best practices for specific renewal scenarios
There are several frequent contract renewal scenarios and excellent practices to help firms handle each one. Ask yourself these questions before renewing a contract:
Want more flexibility?
Your SaaS product may help your firm now, but you’re not sure how it fits into growth plans. You may need contract flexibility in this instance. This situation warrants switching from annual to monthly contracts. Instead of signing a long, pricey contract, you can renegotiate as your company changes.
You should recognise your requirement for flexibility well before the contract expiration date so you may give the supplier plenty of notice to adjust your contract conditions. Prepare to discuss alternative options and a plan to offboard unwanted users and seats with your provider to reduce the pressure of the renewal schedule and give your organisation the flexibility to make the correct decision.
Has your usage increased?
Validating your suspicion that use is rising is the most crucial step to avoid over-purchasing on your next contract cycle. Your seller’s representative can provide total and active usage data for the past year, which you can compare to your internal reporting. After utilisation is established, negotiate for more seats or units.
When negotiating, consider long-term scalability. Pricing tables and contract language can prevent linear pricing growth if usage grows beyond the renewal timeline. As your usage increases, your per-unit cost should fall to reflect economies of scale. Negotiate with your seller that lower unit prices are a business requirement for expansion. If a seller won’t lower charges as users and usage expand, tell them you’d like to consider growth-friendly alternatives.
Further user commitments are also effective negotiating tactics. Be conservative with growth forecasts to avoid paying for unused seats, and ask if you may add seats monthly or quarterly based on growth projections.
Your usage dropping?
In the opposite direction, you may use less. Validating usage by comparing seller reporting to internal reports is the most crucial step here. Consider renewing a contract with a smaller scope or consolidating tools to meet your needs, which gives you leverage in contract talks.
Get proposals from other providers for a reduced-scope renewal. Tell suppliers price will be a crucial consideration to receive an aggressive bid. Share that aggressive pricing with your preferred seller to leverage your decreased scope. When negotiating with a supplier, avoid saying “supplier of choice” or expressing personal preferences. Giving the supplier any idea of your position could diminish price leverage.
Along with competition pricing, you should offer an offboarding plan to eliminate unwanted users/seats before your renewal deadline. This cleanup should be done 30–60 days before renewal to reduce timetable strain.
Changing supplier pricing model?
If a supplier’s pricing model changes unfavourably to your business and contract, seek to preserve your rate. Make sure your deal doesn’t auto-renew and give the supplier at least 90 days’ notice to avoid being tied into the higher rate. This improves negotiating position.
Tell the vendor that your business needs the old price model or that you’ll pay the same as last year’s contract with the new model. Introduce a deadline, price protection, and auto-renewal removal to protect your contract moving forward. Anchor on a flat contract price YoY.
Ask the seller if and to whom the price model change was communicated in advance. Some suppliers simply inform customers of changes upon renewal. Lack of notification can help you negotiate your original rate.
Is the annual upswing coming?
If your contract has a yearly uplift, negotiate a better price. Another crucial thing to avoid in this case is having your deal automatically renew at a higher price.
Explain that budget drives this renewal and that a flat YoY cost is required to continue forward when requesting to cut pricing. Set up budget planning periods for the finance staff well before service dates expire. This will give the supplier the impression that proposed increases were outside the planned period and that the finance team is driving the contract.
Be ready to offer additional “gives” and future-proof your contract with rate reductions as users/seats scale and price protection language. Remind the seller that greater usage requires price increases rather than an annual uplift and seek the removal of uplift language from future agreements.
FAQs about contract renewal
These are some of the most common contract renewal questions.
What distinguishes contract renewal from extension?
After a contract ends, a new one is signed. Contract extensions alter the agreement to prolong the previously negotiated terms.
Should my SaaS automate contract renewal?
Auto-renewals are easy, but they may not benefit both sides if your organisation renews every contract. Before the renewal date, analyse contracts and negotiate better conditions to guarantee your company is getting the greatest price and the other side is satisfied.
Missing a contract renewal deadline—what happens?
Missing the contract renewal date typically leads in automatic renewal of prior terms or for a month, quarter, or year. Other parties may have the right and desire to cancel the contract and commercial partnership. After the industry-standard annual software price increase, your organisation may need to renegotiate conditions if it had lower rates. This bargain is unlikely to be as excellent as your prior one.
