We are the process of negotiating a SaaS agreement and looking for advice on how to negotiate flexibility and tiered pricing when vendor's number one priority is locking in multi-year contract. Difficult to know how many users/licenses we'll need in 5+ years and want to avoid underutilizing subscription fees. Any best practices?
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In addition to Kevin's great suggestion, if there is uncertainty on your license utilization sliding up or down, you may want to consider including shelving language. This could read that at the end of each Term (year, or a defined period), any licenses that remained unassigned or had no usage (meaning "shelved") will receive a deduction in the next Term for the same amount or a reduced amount. This would allow you to step into an agreement with ideal pricing and tiers and reduce the risk of paying for something you're not using.
Since this is license-based, you can list a cost per license with tiers so you can lock in the price but only pay for what you need. I completely understand the desire for a vendor to 'guarantee' your business for 5 years, but it's also puts you in a good negotiation position with bringing down the cost per license. I have several contracts like this (license or volume based) and it's a fairly easy process to manage.
This is the practice our company has adopted ... while also performing a quarterly review internally to ensure assigned licenes are being used to avoid license 'creep'.
Great suggestions so far. Defining the pricing tiers for reductions / increases when you renew are a good solution to make sure there are no unit-rate surprises. Another solution could be to define a financial tiering model. In such model the money you pay for the SKU defines the quantity. It makes it easier to allocate cost out to BUs if you procure centrally and keep unit-rates in the allocation the same for all participants.