The top 10 SaaS buying mistakes and how to avoid them
SaaS buying is a time-consuming process with a lot of moving parts and players. So it goes without saying, sometimes mistakes happen. Some are the result of time constraints, others due to miscommunication. In any event, these issues can cost you time and money.
Here are ten of the most common mistakes made when buying SaaS, with tips on how to get ahead of them and keep your purchasing process running smoothly.
1. SaaS buying without shopping around
Competition isn’t just healthy, it’s financially savvy. When purchasing software or renewing a contract, it’s a mistake to go with the first supplier you evaluate (or blindly stick with the same one you’ve always had). While it might save time, you could be leaving a lot of money on the table, or paying more for features you don’t need.
We suggest a “three bids and a buy” process that helps you make an apples-to-apples comparison of top suppliers. Doing so ensures you’re getting the best pricing. It also means you can make a data-driven decision based on the features, contract, and pricing that will serve you best.
2. Purchasing software last minute
Negotiation takes a lot of time. When you wait for the last minute to buy SaaS software, you leave tons of leverage and money on the table. It means you’re stuck with the deal a supplier is willing to offer. When you don’t plan your SaaS renewals ahead of time, you also run the risk of getting caught in an auto-renewal. This may increase your SaaS spend (especially as companies increase their pricing terms year over year) and reduce your ability to get the best software for your business.
Don’t get caught up in last-minute negotiations. Instead, set a 90-day review period before your cancellation or auto-renewal date. This will give you the time to evaluate your current contract, request and make changes, or seek another solution. This practice can save time, frustration, and budgets.
3. Buying software under pressure
Scarcity is not your friend, and neither is limited-time negotiation. If you’ve been offered a huge discount from a supplier, you should still evaluate your options. At times, reps will offer a deal like this in order to solidify a commitment.
Related: Should you discount a deal when it's in procurement?
While it can be tempting to sign the deal, it sometimes pays to stay the course and follow the evaluation process to its logical conclusion. You may find this discount is attractive upfront, but bundles unneeded features or requires a longer commitment than you need. It’s important to carefully consider your options and vet each proposal with your other bids.
SaaS negotiation doesn’t have to feel bad or adversarial. Some of the best negotiators know that collaborative negotiation yields great results and longer-term, stronger client relationships.
4. Ignoring long-term contract issues
Some costly SaaS spend issues come out of the woodwork long after the contract is signed and sealed. For instance, you may endure price increases unless you have a price-lock included in your contract. If payment terms and renewal clauses aren’t scrutinized carefully, you may be in for some costly surprises down the road.
Therefore, it’s important to carefully review your contract and consider the long-term outcomes you may face in pricing or service level. Taking the time to negotiate for favorable renewal terms or extended payment not only reduces SaaS spend and waste over time, but it can also prevent future frustrations like budget rejections or searching for an alternative when the price goes up.
5. Not knowing your internal lead-times
Everything takes time, and SaaS buying usually takes more than we think it will. Knowing how long a standard approval process takes from end to end is an important data point. First, it creates goodwill between your departments, allowing everyone to schedule their limited time and give the contract proper attention. It also prevents the types of backlogs that can lose leverage and create waste spending.
Talk to your department heads, Finance, Security, and Legal, and get a granular understanding of their process. Ask for estimated lead times and use those to build your approval process. Doing so respects everyone’s time and reduces the chance that issues will arise on the way to contract completion.
6. Having too many approvers
Sometimes, it’s not just the amount of lead-time, but the number of players involved that inhibits the SaaS buying process. Having too many people in the approval chain creates more dialogue, more back-and-forth, more schedule conflicts, and more places where the deal can hit a barrier. While there are certain approvals you must pass, every extra approver bloats the process and impedes a speedy outcome.
Review your approvals process to avoid any redundancy. One approver per department, from the requestor or stakeholder up through the executive heads, should provide enough oversight to ensure good choices. If you have many people signing off, evaluate the rationale for your approval workflow and find ways to streamline it. We recommend the “four yes’s” as mentioned above:
1. Department head: Individual approvers for every team. We usually see this as Head of Marketing, Head of Engineering, Head of Sales, etc.
2. Finance: We’ve seen this being the VP of finance at orgs with up to about 250 employees, FP&A for 250+, and procurement for larger companies.
3. Security: Typically this is the Head of Information Security, or the person in charge of the security questionnaire.
4. Legal: This may be internal or outsourced general counsel or an outsourced council.
7. Pulling Legal in at the wrong time
Legal needs a heads up when a new contract is coming over their desk. However, if you get them involved in the SaaS buying process too early, they won’t have all the information needed to wrap up the deal. They might also waste time working on a deal that doesn’t pass muster with IT and Finance. By the same token, if you get them involved too late, they won’t have time to properly evaluate and approve the contracts by your desired deadline.
Legal best practices when buying software is to include them in the discussion is after Security and Finance have given approvals, while still providing time for review, revision, and questions. Give your Legal team at least a few weeks to do the necessary due diligence. It may take up to a month for high-value or complex contracts.
8. Agreeing to a deal without approvals in place
Since Finance, Security, and Legal all have a stake in whether the software is acquired, you need to wait for the green light. Sometimes, enthusiasm or time pressure will make it tempting to give a preliminary “yes” to a sales rep. However, it’s best to work through the process. Other times, this premature verbal approval is the result of another mistake on this list.
Committing without the right approvals means you run the risk of having to walk back the agreement. For instance, if your Security and Legal teams have contract issues they can’t remedy? The deal is dead in the water. This means starting again from scratch, causing significant delays or service disruptions. Before you agree to a price or a commitment, be sure all your SaaS buying decision-makers are on the same page.
9. Choosing the wrong contract term
One-year or multi-year terms? It’s the age-old question, with many different rationales for one or the other. But having the wrong contract term can cost you money and lock you into services you may not need for the whole term. Therefore, it’s important to understand what the software or service provides, how mission-critical it is, and how long you’ll need it when purchasing software.
Which is best? It depends.
- If you’re unsure how you’ll use the software or service over time, or if it’s a smaller, simpler contract, consider a one-year term.
- For more complex or high-value contracts that require a long-term implementation, multi-year contracts can make sense under the right conditions.
Be sure you understand generally what your usage expectations are, and how they might change over time. Consider the longevity and mission-criticality of a solution before committing to the long-term.
10. Not negotiating for logo recognition
For large and well-known companies, your logo and reputation come with currency. When your rep asks for permission to add your logo or testimonial to their site, it’s an opportunity for both parties to benefit. Too often, customers purchasing software allow a supplier to benefit from that logo boost without getting anything in return.
If a supplier wants to use your prestige as social proof for other potential customers, ask them to make it worth your while. This may take the form of a discount, additional seats or licenses, or other preferred perks. This way, both parties benefit from the business relationship.
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By understanding the top ten mistakes even the most seasoned teams make when purchasing software, you can build a better procurement process that keeps everyone on the same page while saving money in the bank.
