An Overview of the Contract Negotiation Process + Tips for Saving Money

Negotiation is a necessary component of software procurement and business in general, but reaching an agreement between parties with different and potentially divergent interests isn’t always easy.

Contract negotiation is a critical skill that helps businesses secure favorable terms and build strong, long-lasting relationships with suppliers. The right negotiation strategy can ultimately make the difference between a great deal with a high ROI and a mistake that ends up costing time, money, and operational efficiency. 

Understanding the negotiation process and best practices will help prepare your organization for the software contract negotiation process and ensure that you know what to expect when you're at the bargaining table. 

Expert software procurement specialists like the team at Vendr are well-versed in explaining and guiding organizations of all sizes through the software procurement and contract negotiation process. This guide will cover: 

• An overview of how contract negotiations work.
• 11 contract negotiation best practices. 
• Leveraging negotiation experts for better pricing.
• Contract negotiation FAQs. 

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An overview of how contract negotiations work 

Let’s take a look at the basics of contract negotiation and the typical negotiation process. 

What is contract negotiation?

Contract negotiation, particularly in the context of software procurement, refers to the process of arriving at an agreement on the terms and conditions of a legally binding contract through discussions between a buyer and a seller. Your business and the other party—in this case, a software supplier—bring stakeholders and negotiation experts together to discuss each party's needs, goals, and cost requirements to find a mutually satisfactory agreement. 

The contract negotiation process 

The contract negotiation process typically occurs in the later stages of the software procurement process, when an organization is seriously evaluating a short list of potential suppliers or partners. It involves discussing and eventually agreeing on the terms of a contract. Terms usually include items such as pricing, delivery schedules, warranties, contract lifecycle, user support, and other contract provisions. 

The most successful contract negotiations result in a win-win agreement that balances each party's interests. Parties will often mark up versions of the contract to make the necessary modifications and utilize document version control to track these changes over time. When everybody is happy with the agreement, the groundwork for a successful business relationship is set. 

11 contract negotiation best practices from experts 

Here are some of the top negotiation tips that our experts recommend to reach the ideal outcome for your SaaS procurement. 

Clearly define your requirements and objectives

Before you kick off the contract negotiation process, it’s essential to have a clear understanding of your business’s needs and goals. Identify key features, services, and capabilities that must be fulfilled, as well as your budget constraints. 

Research and consider multiple providers for added leverage

Researching multiple providers with similar products or services helps your organization gain valuable insights into industry standards and prices that will make your negotiation approach more effective. Consider using Vendr Bids to anonymously submit requests and evaluate seller responses for the best price points

Letting any suppliers you negotiate with know you’re considering other options can spark a sense of urgency that drives them to make a more attractive offer. 

Negotiate pricing based on usage 

Instead of agreeing to a fixed pricing tier, consider negotiating a pricing structure based on your company’s actual usage of the product capabilities that are most relevant to your business. This helps avoid overpaying for features or services that you don’t need. 

Remove auto-renewal language

Contracts with auto-renewal clauses written in often lead to unexpected costs down the line and make it much more difficult to negotiate better terms and pricing in the future when the contract renewal date approaches.

Removing contract auto-renewal language from all agreements helps maintain control and ensure the best possible deal and contract terms for products and services. 

• Negotiate for the option to lock in pricing upon renewal 

If you expect to continue using a provider’s products or services long-term, it’s often a good negotiation tactic to ask for the option to lock in pricing upon renewal. Software vendors usually uplift the pricing annually to remain competitive. Having your terms and pricing rate locked in helps avoid unexpected (or expected) price hikes. 

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Establish a pre-negotiated pricing table to account for future growth

You can often “pre-negotiate” a pricing table that accounts for your organization’s anticipated growth and increased usage in the future, helping to secure a better deal if the supplier has any price changes in the future. 

Request service guarantees

Service guarantees written into contractual terms will minimize the risk of service disruptions and performance issues by holding counterparties accountable for delivering the expected level of service (e.g., service uptime, availability, performance, etc.). 

Look for hidden costs 

Be sure to look for any hidden costs associated with purchasing a software provider’s products or services. These hidden costs may include implementation fees, data migration charges, overages, and additional user fees. 

Negotiate payment terms that align with your cash flow

To maintain a healthy cash flow, it’s a good idea to ensure you’re negotiating payment terms that align with your business’s financial structure and available budget. This might include negotiating for extended payment terms, receiving discounts for early payments, or payment installments. 

Negotiate professional services separately from core items

Professional services, like customization or user training, can be negotiated separately from the core product or service items you’re purchasing to ensure you get the best deal on both. 

Negotiate terms incrementally

Negotiating one aspect of a contract at a time, term by term, can help your business and the supplier maintain a more focused and effective negotiation process. 

Leverage Vendr’s specialized negotiation experts for fair pricing and terms 

Vendr specializes in helping businesses like yours negotiate more favorable terms and rates on software contracts. Our team of business negotiation experts provides contract negotiation support, pricing benchmarks, and other valuable resources to help ensure you’re getting the best possible deal on software contracts. 

Leveraging Vendr’s business negotiation expertise and resources will streamline your software procurement process, save time and money, and help build stronger, more successful business relationships. 

Contract negotiation FAQs 

Here are some of the most common questions that arise from teams negotiating contracts. 

What are some other tips I can use to future-proof my SaaS contracts?

Additional best practices to future-proof contracts and save money include: 

• Economies of Scale: Earn rate reductions as users/usage grows to ensure scalability.
• Price Protection: Include language to lock in rates/discounts for the software, such as for user/usage pricing. 
• Remove true-ups: Ask to remove true-ups to allow flexibility throughout the term. As an alternative, semi-annual or quarterly cadences can give similar leeway. 
• Remove Auto Renewal: Most businesses want the option to renew, not forced to renew if they miss a deadline ahead of their renewal date. 

How can companies prepare for contract negotiations?

Top tips for preparing for contract negotiations include: 

• Clearly define requirements and business objectives. 
• Research multiple providers and understand the industry standards and best practices for that product or service. 
• Develop a list of key contract terms that need to be addressed. 
• Identify areas of potential compromise. 
• Develop a negotiation strategy that balances your business’s needs and interests with those of the supplier. 

What’s the best way to negotiate a new SaaS purchase? 

Leverage Vendr’s specialized team of negotiation experts. We will help you negotiate every new purchase, free of charge.

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