Contract Renewals Guide: SaaS Procurement Experts Explain How to Get the Best Terms

Contract renewal strategy is a critical aspect of your organization’s SaaS procurement process, as unfavorable terms can negatively impact ROI. Contract renewals give you an opportunity to right-size business licenses, negotiate better terms, secure a lower price, and more. To help you get the most out of your contract renewals, this guide will cover: 

• An overview of contract renewals. 
• How to get better terms when renewing contracts.
• Best practices to consider when renewing your contract.
• How to get expert insights and support for contract renewals.
• Contract renewal FAQs.

An overview of contract renewals 

Contract renewals are part of the contract lifecycle management (CLM) process for businesses across industries. They occur when an existing agreement reaches its expiration date and each party has the option to continue their business relationship by signing a new contractual agreement. Depending on the type of agreement your business has with the other party, renegotiation of contract terms is often part of the contract renewal process before assigning a new agreement. 

Contracts including an automatic renewal clause may seem the most convenient option for the contract renewal process, requiring no input from your organization or the other party, but auto-renewals are not always in each party’s best interest. An example of when contract renegotiation might be a good idea before renewal is when your company’s usage of a SaaS product has decreased, though the software is still necessary in some capacity for operations to continue. In this instance, without taking the time for contract review before the contract’s renewal date, your business could end up overpaying for services you no longer need. 

Many businesses use CLM software — also known as contract management software — to automate contract processes during key stages and help streamline the contract lifecycle management process. CLM software assists with contract initiation, authoring, process and workflows, negotiation, approval, ongoing management, tracking, compliance, and contract renewal.

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How to get better terms when renewing contracts 

Let’s take a look at some of our best, tried-and-true strategies for negotiating better contract terms when it’s time for renewal: 

• Give advanced notice for the agreement to not auto-renew.
• Check for overlap and opportunities to consolidate.
• Review utilization.
• Identify alternate solutions.
• Outline an offboarding plan.
• Determine your “gives.”
• Get bids from alternate sellers.
• Request “best and final” from the preferred product.

Give advanced notice for the agreement to not auto-renew

For your organization to avoid being locked into SaaS contracts with unfavorable terms, ensure you’re tracking contract renewal dates so auto-renewal can be canceled if you’d prefer to renegotiate terms or end the business relationship. 

Giving the supplier advanced notice that your business doesn’t want to auto-renew provides time for contract review, usage analysis, assessment of operational needs, and time to negotiate better terms. 

Check for overlap and opportunities to consolidate

Identify overlapping tools to evaluate the potential for consolidation. Use this information to negotiate better terms with SaaS suppliers and monitor usage to adjust your SaaS procurement strategy as time goes on and your business evolves.

Review utilization

Accurately tracking and monitoring SaaS usage gives your business solid data to use when negotiating new terms and renewal provisions. You can get this data internally or from your seller — we recommend both. 

To get utilization reports from your seller, ask a representative to provide reporting of total usage and active usage over the last 12 months then ensure that it matches up with what you are seeing internally. Once usage is confirmed, compare the new contract offer against the previously signed contract and make sure it aligns. For long-term scalability, your contract should ensure that as you increase your usage, your per-unit cost decreases.

Identify alternate solutions

Identifying alternative SaaS solutions that provide a similar suite of features and functionality introduces competition that creates a sense of urgency for your software supplier, sometimes resulting in better terms. This works particularly well when you have a strong business relationship with the other party, who will likely take extra measures to keep you on board. 

Outline an offboarding plan

If looking to reduce the scope of your agreement, outline an offboarding plan well before the contract renewal date. Identifying unnecessary users and removing their credentials in advance reduces the pressure of the renewal timeline. Additionally, be sure to evaluate the features your business is using so you’re not paying for unnecessary services and capabilities. 

Determine your “gives”

Determining your “gives,” or things you are willing to offer the seller, is a negotiation tactic that helps reach the most favorable outcomes for both parties. Keep your “gives” on a “need-to-know” basis — they’re valuable secret weapons, and you may not need all or any to achieve your desired outcome.

Examples of “gives” include: 

• Case study and/or logo use: Offering a case study or the use of your organization’s logo on the other party’s website is a good way to demonstrate your commitment to a mutually beneficial business relationship. Additionally, this provides the supplier with valuable marketing materials. 
• Multi-year contract period: Committing to a multi-year contract period may help businesses negotiate better software procurement terms. Multi-year contracts assure the seller’s stakeholders of predictable revenue streams coming in from your organization for the duration of the renewal terms. 
• Committing to business growth: Committing to increasing your business’s service levels as it grows is another powerful tactic for negotiating more favorable contract terms. 
• Annual payment upfront: Offering to pay for the entirety of your contracted agreement upfront in a lump sum provides the seller with a fast influx of cash flow, giving you room and leverage to negotiate better terms. 
• Expedited signature: Another strong concession is an expedited signature, giving your seller an opportunity to close the deal with your business on a truncated timeline. This saves the seller valuable overhead and gives them some peace of mind that the deal is officially done.

Get bids from alternate sellers

Coming to contract renewal negotiation with bids from alternate sellers in hand sparks a sense of urgency in the seller, often resulting in more favorable terms. You should consider using Vendr Bids to anonymously submit requests and evaluate seller responses for the best price points. If you have an established mutually beneficial relationship with a SaaS provider, they’ll likely make certain concessions to retain your business.   

Request “best and final” from the preferred product

To finalize the negotiation process and secure the best possible terms, request a “best and final” offer from the preferred product’s supplier. Communicate your desired terms and ask the software supplier to present their best offer based on your desired terms.

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Best practices for specific renewal scenarios

There are a few common scenarios that businesses encounter when renewing contracts and relevant best practices to help navigate each specific situation most effectively. Before renewing a contract, ask yourself the following questions:

Do you need more flexibility? 

Maybe your SaaS product is helpful for your business right now, but you’re unsure how it fits into future growth plans. In this case, you might need more flexibility in your contract terms. The best course of action in this scenario is to move from annual to monthly contract terms. That way, you can reconsider the relationship as things shift within your organization instead of committing to a lengthy and expensive contract.

In this situation, it’s important to recognize your need for flexibility well before the original contract expiration date, so you can give plenty of notice to the provider that you’d like to update your contract terms. Come to the conversation with your provider prepared with information about alternate solutions and a plan for how to offboard unnecessary users and seats, if relevant, so you can lessen the pressure around the renewal timeline and get flexibility to make the right decision for your business. 

Is your usage going up? 

If you suspect your usage is increasing, the most important step is to validate that hunch so you don’t risk over-purchasing on your next contract cycle. You can request data from your seller’s representative on total usage and active usage over the last 12 months and then validate that data against your own internal reporting. Once usage is confirmed, you’ll want to negotiate for more seats or units accordingly. 

As you negotiate, consider long-term scalability. If you expect usage to grow throughout the renewal timeline, introduce pricing tables and specific contract language to protect against linear pricing growth over time. You’ll want to ensure that as you increase your usage, your per-unit cost decreases to reflect economies of scale. During your negotiations, communicate to your seller that a business requirement is that growth is rewarded with lower unit prices. If a seller is unwilling to reduce rates as users and usage grows, take a step back and inform the seller that you’d like to evaluate alternatives that are more friendly to growth. 

Committing to additional users is also a powerful negotiation tactic. Be conservative with growth expectations so you don’t pay for seats that aren’t used, and make sure to ask if you can add additional seats on a monthly or quarterly basis, depending on growth projections.

Is your usage going down?

You may also find yourself in the opposite scenario — with decreased usage. In this situation, the most important step is again to validate usage by comparing seller reporting to your own internal reports. Check to see if it’s worth renewing a contract with a decreased scope or if you can consolidate existing tools to cover your needs, the latter of which provides significant leverage in your contract negotiations. 

When pursuing a renewal with a reduced scope, get bids from alternative suppliers. Communicate to those suppliers that price will be a major factor in your decision so you can get an aggressive bid. Then, you can communicate information about that aggressive pricing to your preferred seller and use that as leverage for your reduced scope. When negotiating with a supplier, try to avoid communicating anything regarding sentiment around which bid you are moving forward with (e.g., using phrases like “supplier of choice”). Allowing the supplier to have any inclination about which way you are leaning could lead to weakened pricing leverage.

In addition to competitor pricing, it’s also important to come to the table with an offboarding plan to remove unnecessary users/seats ahead of your renewal date. Having this cleanup effort done in advance, preferably 30 to 60 days prior to the renewal, will lessen pressure around the timeline.

Is the supplier’s pricing model changing? 

If a supplier’s pricing model changes in a way that is unfavorable to your business and contract, you’ll want to negotiate to keep your original rate. To protect yourself from getting locked into the higher rate, ensure your agreement does not renew automatically and provide the supplier with advanced notice that you don’t intend to auto-renew (at least 90 days in advance for agreements that require 30 days’ notice). This will give you a better runway for negotiation.

Communicate to the seller that your business requires the old price model to be honored and/or that you pay the same amount as the previous year’s contract with the new pricing model. Anchor on a flat contract price YoY to move forward and introduce a timeline and future-proofing requirements (ex. price protection and the removal of auto-renewals) to protect your contract moving forward.

Another tip in this scenario is to ask the seller if advanced notification was given about the pricing model change and to whom it was sent. In some cases, sellers only let customers know about change upon renewal. You can use a lack of notification as leverage in your negotiation to keep your original rate.

Is the annual uplift upcoming? 

If an annual uplift is coming, you’ll want to negotiate for a better price on your contract. Again, in this situation, it’s important to ensure your agreement does not automatically renew and lock you in at a higher price.

When requesting to reduce pricing, communicate that budget is a driving factor for this renewal and that a flat YoY cost has been set as the requirement to move forward. Set the stage that the finance team has budget planning periods well in advance of service dates expiring. This will give the supplier the optics that proposed increases fell outside of that planning period and that the deal is being driven by the finance team accordingly.

Be prepared to include any additional “gives” that you can provide and seek to implement future-proofing elements into your contract, like rate reductions as users/seats scale and price protection language. Reset expectations with the seller that increased usage necessitates pricing improvements rather than an annual uplift and negotiate the removal of uplift language from future agreements. 

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Get expert insights and support for contract renewal negotiations with Vendr 

Vendr can help you arrange contracts and obtain the best terms and pricing when beginning new software agreements and negotiating renewal opportunities. In addition to a vast trove of data that offers transparency into pricing benchmarks and commercial terms, our negotiation experts can help you identify opportunities to enhance your SaaS procurement processes and achieve cost savings through more favorable terms. 

Contract renewal FAQs 

Here are some of the most frequently asked questions that arise from those getting ready for a contract renewal. 

What is the difference between a contract renewal and an extension?

Contract renewal entails signing a new agreement when the previous contract expires. Contract extensions add an amendment to the existing agreement, extending the existing, previously-negotiated contractual terms. 

Should my SaaS company auto-renew our contracts? 

While auto-renewals can be convenient, it’s possible that auto-renewing every contract your business holds isn’t in the best interest of both parties. To ensure your organization is getting the best available deal and the other party is also satisfied with the terms, it’s essential to review contracts and negotiate more favorable terms if necessary before the renewal date. 

What happens if I miss a contract renewal deadline? 

Missing your contract renewal deadline frequently results in an automatic renewal of previous terms or renewal for a certain period of time, often a month, quarter, or year. In some cases, the other party may have the right and wish to terminate the contract and business relationship at this point. If your organization had contractual terms with lower rates than those currently offered, such as after the industry-standard annual uplift in software pricing, you may need to renegotiate terms. In this situation, it’s unlikely that you will receive as good of a deal as your previous contract.

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