Posted by William Band on July 27, 2010
As a consequence of the ever-rising popularity of CRM solutions deployed through the software-as-service model (SaaS), I get a lot of inquiries about pricing and contracting with vendors like Microsoft Dynamics CRM Online, NetSuite, RightNow Technologies, and salesforce.com. Sage CRM products (Sage CRM and Sage SalesLogix) are now offered through “the cloud”, and specialty CRM players in the life sciences sector, such as Cegedim Dendrite, StayinFront, and Veeva Systems, also offer this deployment option.
The individuals responsible for choosing to deploy a CRM SaaS solution are often business users, not IT people or solutions sourcing professionals — the director of sales and marketing, vice president of sales, and director of customer service, for example. These business executives are often unfamiliar with the more technical and commercial aspects involved in choosing a SaaS application. Obviously getting a good price is important, but there are additional considerations to keep in mind. Here are some guidelines to help you to negotiate a sound agreement:
- Strive for a price lock-in at renewal time. Firms are often able to negotiate substantial discounts when signing initial contracts with SaaS vendors. But these companies don't always consider what happens at the end of the initial contract term. A discount of more than 50% might be offered, but once the contract is up for renewal, you may be in for a surprise if the discount is no longer available. Make sure to have renewal pricing rules stipulated in your contract.
- Clarify the impact of scaling users up or down. CRM SaaS contracts can prevent you from scaling down the number of users or the edition (e.g., enterprise versus professional). Firms seeking SaaS solutions that can scale up and down with demand spikes should ensure that this is clearly spelled out in their contracts. This can generally be accomplished using some kind of band system, spelling out pricing differences if the numbers scale up or down.
- Understand the fees for getting your data back at the end of the contract. Unlike on-premises software that physically resides in a firm's IT department, SaaS buyers' data sits off-premises, often in a multitenant architecture. This means that you’re faced with new challenges if your company decides that it doesn't want to renew at the end of a contract. To avoid surprises, you should stipulate in SaaS contracts how and when you expect to get your data back at the end of the SaaS relationship, including whether you’re expected to pay a fee for the return of the data.
- Protect yourself from being abandoned by the vendor. What happens in a worst-case scenario where the vendor goes out of business or decides to no longer support your company? One of the senior IT executives I spoke with told me: "We were worried about vendor viability when we chose a SaaS solution. The space is still young and in a state of flux. To protect ourselves, we decided to only look at the CRM SaaS solutions from the most prominent and well-established companies. And we stipulated in our contract that the vendor must provide to us a version of the software, including source code, if it decides to walk away from the relationship."
- Understand hidden cost drivers. Many buyers have told me that they were not aware of hidden cost drivers in their contracts with SaaS vendors. As the amount of data and the number of transactions increase, so too do the costs escalate for the SaaS deployment. Make sure the vendor makes these cost escalation elements transparent in your contract.
- Protect against painful service outages. Most buyers I have spoken with have no complaint about the typically 99.5% guaranteed uptime built into their SaaS SLAs, but few contracts include planned maintenance windows into that uptime — and few users track actual uptime. When unexpected outages occur, payout should come in the form of service credits or months of free service. Although some SaaS providers claim to track outages proactively, users generally shoulder the responsibility for tracking and requesting payouts themselves.
- Be wary about declines in customer support. I have found that SaaS buyers are very satisfied with the level of support included in their base contracts. Help desk support is often available 24x7, both electronically and via telephone. However, some users I have spoken with cite decreasing levels of support over time. One user told me that in the early days of the contract, the provider was attentive to support issues, even setting up weekly conference calls with key developers. Over time, however, it became increasingly difficult to get a senior developer on the phone. And now the customer claims to be stuck behind two tiers of technical support.
- Understand disaster recovery procedures. Although the SaaS providers can talk at length about their security and disaster recovery capabilities, I find that users have still have far less conviction when asked what security and disaster recovery clauses are included in their SLAs. Make sure to perform due diligence around disaster recovery prior to signing the contract.
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