Once you choose your ERP software, you’ll be asked to review and sign a licensing or subscription services agreement. Most companies sign the vendor’s standard contracts form as is. This is a mistake, particularly for mission-critical business solutions such as ERP software. Others negotiate some basic price protections but fail to consider terms that shift a disproportionate amount of risk onto the buyer. 

If the ERP software stops working, does the vendor have to restore service quickly enough to minimize disruptions to your business? If there’s an information security breach, is the vendor on the hook to fully protect you against third-party lawsuits?  

The ERP contracts will answer these questions and many more. And, once you read the fine print, you might be surprised to learn that your company’s not as well protected as you might have hoped.  

In this ERP SaaS subscription contracts primer post, we give you the tools to make sense of the pages and pages of legalese and build a playbook to negotiate valuable commercial and legal concessions.

Step 1: Organize the Contractual Terms and Conditions 

As a first step, we recommend organizing the various terms and conditions into logical groupings. When assessing ERP contractual risk, liabilities, rights, and obligations, our approach is to categorize the terms and conditions into at least six groups: 

1. Software use rights and obligations 
2. Commercial terms 
3. Vendor’s rights and obligations 
4. Intellectual property and data protection 
5. Risks and liabilities 
6. Miscellaneous terms and conditions 

As you go through the cataloguing exercise, don’t get hung up if the contracts section doesn’t fit neatly into one category or another. Some might straddle a few categories. Apply judgment. The goal of the exercise is to make sure you have a way to efficiently filter and sort the contract sections by priority, risk, and impact.  

For our clients, we use a second sub-category grouping called “Term Type”. This allows us to further slice, dice, and catalogue the various rights, obligations, and risks. So, for example, when we need to assess a client’s particular exposure to a data breach caused by the vendor, we’ll drill into the “Risks and Liabilities” category and filter by “Liability Limit” and “Indemnification” term types. And, because we’ve applied the same taxonomy to multiple contracts, we assess overall IT contractual risks by running the analysis across the entire portfolio of our client’s IT contracts. 

Step 2: Prioritize your Company’s Positions on the Terms and Conditions 

Once you’ve categorized the terms and conditions, build a negotiations playbook that allows you to assess which contractual concessions you’re going to pursue. It’s important to anchor your asks in business value. Which concessions drive my investment? Which minimize my business continuity risks? Which protect my intellectual property and information? And so on. 

The first step is to articulate the key business drivers in a way that’s easy to relate to the contract terms and conditions. That way, as you build your negotiations playbook, you’ll be able to point to the business value and importance of the desired concession. For example, if your three-year approved budget is critical, you can cross-reference applicable terms relating to pricing, price escalation, and overages.  

With the strategies defined, move on to the detail-level work of evaluating each term and condition and assigning a priority or weight to its importance.  

Step 3: Prioritize the Vendor’s Positions on the Terms and Conditions 

It’s just as important to assess what’s important to the vendor. With a clause-by-clause analysis of your positions and the vendor’s positions, you’ll have the key ingredients to building your negotiation strategies. Notably, you’ll be able to see:  

• • Low-hanging fruit: these are deal points that are of high importance to your business and low importance to the vendor. 

• • Trade-bait: these are the deal points highly important to the vendor and of low importance to you. Define your preliminary views on the relative importance to the vendor.  

• • Contentious critical items: these are the deal points that require the most thought. They represent differing positions on terms and conditions that are important to both you and the vendor. 

If you don’t have direct experience with a particular category of software or with a particular vendor, take your best guess to start and refine the priorities as the vendor’s positions crystallize through the negotiation process. 

Step 4: Execute a Planned Negotiations Strategy 

Don’t wing it. A good approach can bridge the gap between a good deal and a great deal.  

Certain technology vendors have very sophisticated sales and negotiations processes. Oracle-NetSuite and Salesforce rise to the top of the sales sophistication list for enterprise software. They and other technology vendors have proven, statistically-backed methods to try to extract the most favorable price at the lowest risk. 

For example, in a recent 11th-hour negotiation, a leading global ERP company used every tactic in its playbook to try to protect millions of dollars of sales. They brought in corporate executives, tried to discredit our firm, and applied hardball negotiations tactics. 

Ultimately, our client held its ground and secured concessions that put it in the top 5% of our negotiated deal benchmarks. This client isn’t bigger or higher profile than others.  

So, why did this client succeed where others haven’t? 

• • Planned communications. We were deeply aligned – the ownership group, management, project core team members, and external advisors. Key people were equipped with talking points to ensure consistency of messaging when the vendor’s representatives inevitably called in looking for information to leverage.     

• • Clearly defined roles. Different stakeholders had clear roles in the negotiations process. Despite repeated vendor requests, we kept certain key executives and project sponsors out of the discussion until we received what we perceived to be a directionally-correct offer. At strategic points, we brought in certain senior executives to reinforce key messages and positions.  

• • Held ground. We presented a very aggressive counteroffer, one that was just inside of our most optimistic scenario and one that we knew would be controversial. The vendor baulked, challenged our credibility, and came back with an offer that showed little to no movement. But, we held our ground and we didn’t bid against ourselves.    

• • Put time on our side. The vendor was using its period-end as a lever to force the deal. We saw certain signals that indicated that this publicly-trade vendor needed this deal to close to hit its targets. We used that deadline to our advantage.    

Ultimately, the vendor backed off of its offer and accepted our client’s optimistic scenario offer. It also agreed to significant concessions that more equitably distributed the contractual rights, obligations, and liabilities. 

Next Steps to Negotiating your SaaS Contracts to Win 

Don’t wait to start building the foundation for a strategic negotiations strategy. Get a head start by defining your key business drivers and contract term categories. With that foundation, you’ll be prepared to launch into your next negotiation – be they for contract renewals or net new technology acquisitions.