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Is it just me that feels stuck in annual SaaS Contracts?
19 points by jas194 5 days ago | hide | past | favorite | 20 comments
SaaS contracts have all been quite the same for far too long, specifically, always requiring 12 month minimum commitments.

Having worked at companies big and small, I've experienced a range of issues with this lack of flexibility. Would love to hear if the community has as well, and if so, any ways around feeling "stuck" in a contract?

To start the discussion, here are some issues I've had:

1. The software doesn't meet expectations, or a feature is missing. Forced to twist things around and spend my eng. time fixing gaps

2. Roadmaps change. 6 months after buying a tool, we realize it's not solving for a high priority project / challenge

3. A competitor emerges that seems far better suited to my needs better than the current vendor. We all know how quickly solutions pop up, especially in the martech space

4. Implementation is a mess, and an inflection point is reached where the cost of continuing to implement will lead to negative ROI. This has been a super tricky spot for my teams!

5. At scrappy companies, 12 month commitments are a big challenge from cash flow and risk factor perspective

What experiences have you all had?

12 month commitments are the ideal time frame for the team selling you the SaaS. They are trying to make sure they keep you around long enough that you are onboarded, then get through the bumpy road of seeing its warts, and have time for it to becomes normalized into your organization before anyone asks whether or not you should be using it. It also gives them the ability to solidly hit ARR numbers instead of MRR.

While that is completely biased towards the vendor, I don't actually mind it. Because it also forces me to really think about their pricing -- if an app is cheap and can be cancelled monthly, I don't do as much due diligence on it, which is just lazy on my part. A year long commitment also means you have a year to find out not only if the product is solid, but whether their ongoing support is high quality. You get to see what they truly deliver over the course of a year in terms of new features, and how many of those features came from listening to their customers.

One point on which you are 100% correct is implementation. If that is bad, odds are everything else will be too. The kind of company who is worth committing to is the kind that cares about the experience their customers are having. Poor implementations are not a good sign that you have signed on with a vendor that deserves your loyalty.

Even so, my recommendation is not to push for monthly contracts, but instead to research all your potential vendors. Check their NPS scores, and talk to their customers before buying.

Can you give an example of some of the services you are using where you are seeing these problems?

Perhaps you shouldn't be purchasing a 12 month advanced contract, instead of going month to month which would solve many of your issues.

Or perhaps you don't need all the shiny-newness of every new services?

Maybe your business is different than ours, (or any business I've worked at in the past), but from my experience, we pick a tool - MailChimp for example. Does it have every feature of every other mail service? No. Does it do 90% of what we need? Yes. What about the other 10%? Well, does some feature that MailChimp doesn't have provide a significant improvement to our business? If so, then you need to have it. Do you build it yourself? Find another supplier? Or, more likely, it doesn't have a HUGE impact, and you can figure out how to make things work.

I'd be curious to understand what is so unique about how your business is using these services that you are experiencing this problem.

Or, are you looking for a problem to solve and this is how you posed the question?

Great perspective. ESP, analytics vendors and BI tools are a few of the categories where "usage' has forced me into licenses that require annual subscriptions. Seems many of those companies do offer month to month options, but those are typically situated for low volume levels (emails/month sent, # of monthly API calls, etc.).

Personally, the biggest pain I've had is around poor implementations and core missing features that are only realized during implementation (some of my projects have had tricky technical & privacy requirements). In all those cases we either made do or spent far more time than estimated in building workarounds.

You’re not alone. I can justify it more for a LoB platform app vs something like a user’s Acrobat license. Adobe is perhaps the single worst software company I’ve ever dealt with.

As in if you buy 50 acrobat licenses and 6 months later you only need 30?

As in god help you if you ever need to resolve a dispute with Adobe, whether you screwed up or they did. I think they have several dark patterns baked into their servicing and support flow. Like it’s so bad it must have taken work. I don’t often think of companies as assholes, but Adobe is right there.

But yeah, I can see the year-long commitment for line of business apps as pretty rational, but for commodity tooling software, it seems like there’s room for more competitive subscription terms, like maybe 30-day adjustment windows after initial/renewal billing event, or 5-10% flexibility in license commitment over the term, things like that. Like everything, small businesses feel the pain of these things more acutely than large corps., so maybe it’s a matter of designing targeted/qualified price plans that think more like an actuarial. Pay a buck extra per seat but have more flexibility, with the idea that the majority of customers are on point the majority of the time?

Agree that would be a really interesting model particularly for those small businesses

You get a very short window (if I recall correctly, 2 weeks) to cancel an annual subscription.

I've experienced a lot of other unpleasantness in my dealings with Adobe (a company I only have dealings with because I have to read their proprietary files) but that one in particular cost me about $500.

Overheard in a co-working space the other day:

"Hello... yes, could you please tell me how I should manage this relationship... NOW THAT I'M MARRIED TO RANSOMWARE?!"

As far as I know, a lot of companies offer monthly contracts at a premium. Why not use that until you're comfortable with the Saas product?

Everything is negotiable, including contract length. Reasonably, you should expect a higher monthly price in exchange for flexibility.

Interesting. I've found that for some earlier stage startups, but best in breed tend to have annual contracts as a non negotiable. Payment terms maybe, but I'm still contractually obligated for 1 year from my experience

Don’t ask for a shorter term, instead ask for a break clause to be added on the 3rd month that can be exercised for any reason.

They still have a 12 month contract, but you know you can walk away with 30 days notice in month 3 if implementation is poor.

That’s meeting in the middle and usually accepted by most businesses if you push.

If they say they risk not making a profit if you leave, offer to pay a setup fee that is entirely refunded if you stay past the 3rd month.

It means you’ll lose some more money if the implementation goes bad, but not as much as the whole 12 month term.

That's essentially a POC. Be prepared for many vendors -- including the company I work at -- to refuse, at least for most prospects.

The reason is some mix of 1. we have real onboarding / startup costs, and those costs are frontloaded; 2. like many saas companies, we don't make much money on the first year; 3. if a prospect can't commit, it's a sign that implementation is highly likely to fail. We require work and resources from the customer to make this succeed. To use examples you've given elsewhere, an ESP requires training, engineering to import workflows, creation of new mail rules, etc. An annual contract is a component of our executive buyer's leverage to hammer through the work to realize value from us.

What OP may be able to make happen is a POC with written success criteria. Be prepared for vendors to be hard asses about the success criteria however. We refuse these for small (enterprise small) contracts.

OP should consider that perhaps their vendor selection process sucks? Or maybe -- if they're a high enough contract value -- getting references from other customers?

Note also that people here decrying annual -- or multiyear -- contracts will be the first to scream if a vendor raises prices. Which is absolutely fair play if a customer doesn't want an annual or multi-year contract. A customer's right to alter a deal with 30 days notice is a vendor's right to do the same.

You are absolutely right. POC is always a great option but there are frequent challenges of vendor rushing, a later change in requirements, or insufficient Eng resources to check every box (we'll typically rely on the word of sales team in that case).

Vendor selections can definitely always be better, but there doesn't seem to be too much flexibility for buyers when all said and done. At bigger companies annual commits (or longer) are welcome, but we've certainly had tool that are a total failure yet we're stuck with the bill. Someone on the buy side ends up seeing blame too, even if not our faults i.e. missing key feature that was misunderstood in buying process

Maybe try better communicating your success criteria? Again, from the vendor side, contracts that churn after a year are widely viewed as a failure. Eg the CS leader at your vendors is (probably) comped on positive net renewal rate.

Thank you! Def. room for improvement there. Still wish there was a way out that could work for all sides if for whatever reasons things weren't working out ( ;

“at least for most prospects”

I guess the answer is to negotiate hard to get what you want.

It’s absolutely a POC but with shared risk and a real concentration on onboarding/implementation - I’ve done this for lots of the software we use internally and it works well for us.

Depending on how sophisticated your AE is, ask them when their quarter closes :D

Super interesting I've never heard of the setup fee ask -- great perspective. Will definitely use that moving forward

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