Save Money by Renegotiating Your Business’ Software Contracts

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NOTE: This article is intended to inform our readers about business-related concerns in the United States. It is in no way intended to provide legal advice or to endorse a specific course of action. For advice on your specific situation, consult your legal counsel.

Small businesses can revisit their current Software-as-a-Service (SaaS) contracts and renegotiate terms to save money in light of the COVID-19 crisis.

For wedding and portrait photographer Alana Lindenfeld, the decision to renegotiate her SaaS contracts was an easy one. The COVID-19 outbreak halted normal business processes, and Lindenfeld needed to cut costs to stay afloat.

“I’ve had to downgrade some software to help cut costs during a time I’m legally not allowed to shoot any sessions or weddings,” Lindenfeld said.

She was able to save money on her Adobe and Pixieset subscriptions by reaching out to both vendors, and encourages other small businesses to do the same:

“Not everywhere will give you a discount or free credits, but it doesn’t hurt to ask, and it doesn’t take long. Even a $20 savings right now on a few different programs adds up.”

Small businesses can renegotiate SaaS contracts to save money during this economic downturn. According to Gartner, 36% of businesses have negotiated or plan to negotiate new terms with suppliers and vendors (full research available to clients).

Here’s a breakdown of how you can do the same, and how the renegotiation process works.

5 steps to renegotiate your software contracts.

1. Re-evaluate your software needs

COVID-19 changed the way businesses operate, forcing many to quickly pivot from an in-office work culture to a remote one. These businesses’ software needs have changed as well.

Girdharee Saran, head of marketing for SurveySensum, realized it was time to re-evaluate the business’ software contracts after calculating COVID-19-induced losses:

“Our revenue came crashing down by almost 25%, and it became a priority to negotiate with the SaaS providers we were using.”

To start this process, Saran and his team made a list of all active software subscriptions and divided them into three categories:

  1. Must continue: Software that is critical to their businesses process, even if the provider won’t offer a discount.
  2. Can survive without: These monthly subscriptions are nice to have but not completely necessary.
  3. New needs: This category has emerged from the company’s remote work transition, and needing software to facilitate distant collaboration and communication with other team members and clients.

Businesses can get a better sense of which SaaS contracts they should renegotiate by categorizing by business need.

What to do: Categorize your SaaS subscriptions based on your current needs to gain insight into which contracts you need to renegotiate.

2. Read your contract, including the fine print

Once you identify the contracts you want to renegotiate, it’s important to read the contract and understand its terms before reaching out to your software vendor.

Maria Veronica Saladino, a corporate attorney currently helping businesses with software contract renegotiation, suggests businesses answer the following questions for the software they’ve designated for renegotiation in step one:

  • What does the existing contract currently provide?
  • Under which conditions is the contract set to terminate?
  • Does the contract have a renegotiation clause in the event of a crisis or economic downturn?
  • What would the existing contract consider a breach?
  • What actions would the vendor take if you were unable to make payments?
  • Is there a force majeure clause that would free you from the contract in the face of circumstances beyond your control (such as a pandemic)?
What to do: Read the contract you want to renegotiate and answer these questions to help you better understand the terms of the SaaS contract.

What is force majeure?

A force majeure clause relieves parties from the contract in the event of circumstances beyond the parties’ control that may make it unreasonable or impossible to expect the party to fulfill contractual obligations.

These circumstances may include war, natural disasters, strikes, or unexpected legislation, and, usually, pandemics.

According to Gartner, 18% of organizations have already invoked force majeure contract clauses because of COVID-19, and 37% are considering it (full research available to clients).

18% of organizations have already invoked force majeure clauses in contracts because of COVID-19, and 37% are considering it.

The decision to invoke a force majeure clause should not be taken lightly, and you should consider how this will impact your long-term relationship with the vendor.

“A disadvantage of trying to trigger a force majeure is that you may be poisoning the water in a relationship you want to have with this supplier for years to come,” said Eric Talley of Columbia Law in an interview with Gartner (full research available to clients).

Force majeure clauses are designed to protect businesses but can also damage relationships with vendors. Before invoking this clause, you should seek outside council.

3. Find out what your SaaS provider is already doing to accommodate customers

Before Lindenfeld reached out to software vendors, she researched what these vendors were already doing for customers:

“I had heard from some other photographers that they [Adobe Suite] were offering a few months free or credited toward your account, so I knew what to expect.”

Many SaaS providers are already providing free or discounted access to tools to help businesses stay afloat.

For example, HubSpot is offering its suite for small businesses at a reduced price and increasing limits for existing customers, and Adzooma is offering its entire platform for free through June 1, 2020.

These SaaS providers and many others are already offering free or discounted access to their platforms to echo the “we’re in this together” sentiment and show their support for the business community.

What to do: Find out what your software provider is already doing to help customers during these extenuating circumstances by researching public announcements, press releases, and what other users are saying on social media or online forums.

4. Decide what you want to get out of the renegotiation

Know what you want to get out of the negotiations before reaching out to your software vendor. Neil Andrew, founder of PPC Protect, said:

“Be prepared for some give and take. Your vendor will likely have contracts in place that don’t allow cancelation or non-payment for any reason, so consider any movement from that stance to be a success.”

Some businesses may need or want to cancel their contract, while others look to pause or delay payments, apply discounts, reduce functionality to save money, or temporarily increase functionality to meet the new needs of their business.

Think about what you want to get from the renegotiation and what you’re willing to compromise on. Some SaaS vendors may not be willing to cancel the contract entirely, but may reduce the cost of your subscription by reducing functionality or number of licenses.

“SaaS vendors would rather make sure that they are getting at least some cash flow than no cash flow at all,” Andrew said. “Good SaaS vendors will be looking to provide a valuable long-term relationship by offering as much assistance as they can.”

What to do: Set realistic expectations about what you hope to gain from the renegotiation by considering the contract’s current terms, where it leaves room for flexibility, the vendor’s own financial situation, and what the vendor is already doing to help customers.

5. Be transparent and empathetic, and have a backup plan

Businesses should be transparent about their financial situation and empathetic toward software vendors.

“We sympathize with our clients and never want them to feel as if they are in over their head,” said Josh Sanders, a project manager at Alpha Bravo Development. “If a business describes how their business is hurting, something can be worked out.”

Girdharee Saran reached out to his company’s CRM provider and clearly explained their financial situation: Their payment to use the platform was now a financial strain in light of revenue losses due to COVID-19. As a result, they were able to work out a deal.

Be transparent in your conversation with the software vendor, but don’t forget to also be empathetic. This is a stressful time for everyone.

Sean McDermott, founder of RedMonocle and Windward Consulting Group, wanted to remind businesses that software vendors are also struggling at this time:

“Businesses have to remember that their vendors have employees and their own vendors to pay, and they might be applying for loans like other small businesses. We are all struggling with the impact of COVID-19, so have some empathy for their business too. Focusing on a win-win will bring loyalty to both parties for the long-term.”

SaaS vendors heavily depend on subscription revenue, and while they may not be able to forego a contract entirely, they may be willing to help customers find a reasonable solution. If not, consider alternative software solutions.

Saran had a positive experience reaching a mutually beneficial solution with his CRM platform but wasn’t able to reach a similar solution with his video conferencing and webinar software providers.

Before COVID-19, his company was paying for a 100-attendee plan. As teams went remote, demand for remote communication increased. Saran wanted to temporarily upgrade their plan to host up to 500 attendees, but couldn’t afford the cost increase. He unsuccessfully tried to negotiate with the vendor, but ultimately moved to an alternative, comparable solution with a lower cost and increased functionality.

“Features can be replaced, good customer service can’t be,” said Ethan Taub, founder of Goalry, who also opted for alternative solutions after a company refused to compromise on contract terms.

What to do: Explain to software vendors what your business needs, be empathetic toward the vendor’s own limitations, and have a plan to switch to an alternative platform if the renegotiation doesn’t succeed.

Renegotiating software contracts during crises can help small businesses save money

Cutting costs during a crisis can help small businesses stay afloat and avoid layoffs, and one place businesses can look is their SaaS contracts.

COVID-19 has put unique strains on every industry, making flexibility between businesses a necessity to weather this economic storm. Work together to find mutually beneficial solutions and be mindful of other businesses’ challenges.

Want more resources?

Visit our business continuity resource hub for more COVID-19-related information, including remote work tips and popular software solutions.

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NOTE: The applications selected in this article are examples and are not intended as endorsements or recommendations.

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About the Author

Toby Cox

Toby Cox

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Toby Cox is a senior content writer for Capterra covering the accounting and business intelligence markets and contributing to the marketing and small-business trends markets. A journalist by trade, Toby enjoys the art of digging through the noise to find compelling narratives that provide clarity to her audience. She holds a B.A. in Foreign Affairs from the University of Virginia. When she's not typing away at her computer, you can catch her on the mats with her boxing gloves or tending to her beehives.

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