COVID-19 has had a profound influence on our economy, both in the SaaS sector and well beyond. These ongoing events have changed buying and search habits, price-sensitivity by sector, and growth forecasts. Vendors have had to change their approach to selling to open up new vistas of potential buyers.
It’s unsurprising, therefore, that as the industry attempts to right itself, SaaS contracts are showing signs of change with respect to payment and deal terms, deal structuring, delinquency risk, and more. Revenue organizations and sales teams must be prepared to meet these changes and the challenges associated with them. Here’s how you can tackle these changes head-on.
Shifts in Payment Terms #
The early weeks of the pandemic brought about notable shifts in payment terms for SaaS contracts. Previously, NET 30 was the standard for SaaS companies. These payment terms involved extending a discount credit to your customers for paying their subscription fee promptly within a 30-day period.
In this respect, we can see the way the market has changed and gotten more complex following the COVID-19 outbreak. Companies are still looking to ensure their survival and potential for continued growth. They cannot afford not to invest, and SaaS products will be one of the primary objects of investment. However, those same companies are now more cash-poor and reliant on lower cash flows than before the pandemic.
As a result, more customers are requesting longer payment terms in SaaS contracts (60 and 90 days). Offering these new payment terms can be excellent for building trust with clients in this sensitive initial period. They may be offered a reduced discount credit in order to offset the potential loss.
More Creative Deal Structuring for SaaS Contracts #
Creating win-win contractual situations in market downturns can be exceptionally tough if your sales team is sticking to strictly traditional SaaS contract models. However, you can make your SaaS contracts much more appealing and closed-won much more straightforward with a little bit of creative deal structuring.
Land-and-Expand #
One of the more popular approaches to SaaS deal structuring post-COVID is land-and-expand. Land-and-expand involves deliberately advancing a client a smaller and more palatable contract at the beginning of your relationship, with no additional obligations. The intent afterward is to “sell into the organization to expand your footprint to more seats, additional departments, or more products and services.”
By proving your product’s ROI and your company’s trustworthy and supportive nature during this turbulent time, you can set up your chances for improved contracts down the line.
‘Earn-Outs’ #
You may also want to include in your SaaS contract what’s known elsewhere as an “earn-out.” This involves offering your prospect a discounted rate on future upsells for signing on now at a regular price.
It can be a potentially risky strategy — with the risk of value-lost on future big upsells — but it can be particularly handy deal structuring for signing enterprise-grade clients. Our research has shown that enterprise clients have become more buy-averse in the current climate. But by offering them successive upsell discounts, you can potentially bring them onboard for a comparatively bigger flat-rate before offsetting your losses by selling to other departments in their operations.
Flexible Packages #
Your SaaS contract structure is likely to be based on the subscription tiers you currently offer. To the extent that it’s practical for your company, you can provide flexible feature packages to your prospects. Restructure your contracts to offer prospects the option to demo new features when they come out on freemium terms once your customer has subscribed to a plan.
You can also be flexible with the duration of the subscriptions you stipulate in your SaaS contracts. If your prospect is concerned about your product’s ROI compared to cash flow six months down the line, then offer a flexible duration package.
For example, you might offer a restructured deal with a six-month duration with an option to extend (or extension + upsell) if your product helps them meet performance targets during the initial period.
Increased Focus on ROI and Forecasting #
Increased scrutiny by CFOs has been a hallmark of post-COVID SaaS sales. This can generate all kinds of unexpected complications and deal risk when it comes to agreeing on contractual terms. Even if decision-makers at your prospect company are hot on your product, without due consideration to in-contract ROI and outcome forecasting, a perfectly promising deal might get vetoed.
For that reason, improved terms on ROI forecasts in your SaaS contract may help reduce deal risk and increase the likelihood of closed-won deals. Do what you can to quantify the potential ROI your product can bring in as precisely as possible. The precision of the figures you quote should not lead you (or your prospect) to mistake them for exact figures. They will likely represent a ballpark estimate for establishing expectations on ROI.
Anchoring your costs can be accommodated in a SaaS contract as well but must be stressed in their nature as goalposts, not sure things (even if you have prior experience with tracking and expressing measurable improvements for clients). You may wish to decrease the likelihood of any later confusion by quantifying forecasts through metrics, such as traffic/user volume increase estimates.
A Desire for Greater Stability in Enterprise Contracts #
We are seeing certain SaaS contracts — particularly with enterprise clients — becoming more “traditionalized.” We mentioned earlier that enterprise clients are more averse to higher levels, particularly when making large-scale infrastructural changes at this time. When striking these kinds of deals, we’ve observed a desire for greater stability in the SaaS contracts.
The SaaS business model is traditionally based around retention and upsell, which is sometimes incentivized with a discount in the initial deal. This discount may take the form of a straightforward discount in the monthly rate, a freemium plan, or other incentives. The elasticity of the subscription rate, according to the subscription tier, has always been one way in which SaaS companies can draw more MRR from clients by providing more services.
However, now some larger clients are requesting totally stable subscription rates when pursuing new SaaS contracts. Instead of operating on a potential scheme of deal-and-upsell, enterprise customers are seeking to maintain the rate on their initial contract throughout. As a result, “clients trade price risk for any scope to scale down commitments, thus losing integral elasticity benefits of cloud computing.”
When building a SaaS contract, should you encounter this kind of desire for stability from a potential enterprise client, you might suggest fixed pricing over a fixed term (one likely to cover the pandemic and the recession that may follow). If there is a particular department in your enterprise prospect’s operations that promises special value, you might promise discounted rates when extending your product to other departments, leaving upsell opportunities in the area of greatest potential value.
Changing for Good and for Better? #
The best way to respond to the wild dynamic changes of a chaotic market is with experimentation — tailoring old methods to suit new circumstances. Anthony Cessario, VP of enterprise revenue at Clari, observes that “We’re seeing incredible sales innovation and execution [right now]. The best of sales is really showing up.”
Doing so with your approach to SaaS contracts and terms of client agreements can pay off, and there are a huge number of vectors from which you can angle to do so. Nailing the balance between feature variety, contractual stability, and flexibility in a way that’s appropriate for post-COVID can seem like an impossible task. It might be doing things the old-fashioned way, but by looking at your contracts from a new perspective, that seeming impossibility comes quickly to look like a series of opportunities.
Want more cutting edge sales insights to beat the post-pandemic downturn? Tune in to Chorus’ Weekly Briefing series for the freshest and best hot-takes from top industry leaders.
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