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Here's a table I've prepared on who a long term contract is beneficial to as it pertains to a SaaS purchase:
To a good negotiator, there is almost no advantage in signing up on a long-term contract with a SaaS vendor. Let me also list a few advantages of a rolling short-term contract (preferably monthly):
What's with the long term contracts for SaaS products?
Long Term Contracts have served a critical purpose in the history of buying specially when you take industries like manufacturing, construction, etc. But is it time to re-look at long-term contracts specifically ones for B2B Saas purchases? I'd say, hell yes!Here's a table I've prepared on who a long term contract is beneficial to as it pertains to a SaaS purchase:
Benefits/ Disadvantages of Long-term contracts | Buyer | Seller |
| Better Contract terms | yes | yes |
| Economies of scale for suppliers to pass back | no | yes |
| Revenue guarantee to motivate investments in R & D | no | yes |
| Less Frequent Procurement | not much | N/A |
| Complete Solution | no | N/A |
| Helps suppliers contract long-term with their suppliers | N/A | no |
| Flexibility to take advantage of newer technologies | no | N/A |
| Take benefits of commoditization | no | N/A |
| Onus completely on the buyer to extract ROI | no | N/A |
| Risk mostly on the buyer | no | N/A |
| waste/ redundancie in usage | no | Not |
| create longer term objectives, factor in disruption | no | N/A |
| Uncertain evolution of demand and supply | no | N/A |
To a good negotiator, there is almost no advantage in signing up on a long-term contract with a SaaS vendor. Let me also list a few advantages of a rolling short-term contract (preferably monthly):
1) You'll get better customer support
2) You'll keep pace with demand, changes including disruptions, price drops (can you remember the last time the price of a SaaS product increased? I can, but it's a rare phenomenon), competition etc
3) Risk is minimized
4) Onus also on the vendor to help you get the ROI
What parts will most likely be affected:
Certain SaaS products require longer implementation times (which may include adding masters, helping you with configurations, trainings etc) and consultation which the SaaS vendor will now ask to be paid upfront for:
What do you do? Pay upfront after proper negotiations: You were going to pay for this anyway, now you know how much this specific piece costs and can factor this in to your investments' calculations when making ROI analysis, choosing a vendor etc. Some vendors might be able to not charge extra but still reduce the term from 3-5 years to 1 year..
About the Author: Raj Nadar is the founder of Inside Sales On Demand setup to handle outsourced Inside Sales closures for B2B SaaS Startups. His inside sales orgs have sold into Startups to USD 4.5 billion revenue firms in US, Canada, Spain, South Africa, Iceland, Brazil, UK and Mexico, Sweden, India, Australia, New Zealand, Norway, Finland, Austria, Germany, Ireland, Belgium, Netherlands with deal sizes ranging from USD 600 to 250k per year.
Current Projects: Inside Sales for Making Sense of Large Team Communications | Teamchat, Crowdsourced Software Testing | 99tests (monthly rolling contracts only!)
Connect with me? Raj Nadar on Linkedin
Raj Nadar on Twitter
I am available on demand as your inside sales resource.
Want to launch your own Inside Sales org?
Current Projects: Inside Sales for Making Sense of Large Team Communications | Teamchat, Crowdsourced Software Testing | 99tests (monthly rolling contracts only!)
Connect with me? Raj Nadar on Linkedin
Raj Nadar on Twitter
I am available on demand as your inside sales resource.
Want to launch your own Inside Sales org?
When does it make the most sense to start an Inside Sales Org..
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This post first appeared on Blogs On Startups, Inside Sales, B2B SaaS: How I Created A Good First Blog Post.., please read the originial post: here
