Three common mistakes made by Account Managers in their SaaS contract renewal negotiations
For those that work in Account Management and Customer Success roles in SaaS businesses, the contract renewal cycle is where significant commercial gains and losses of the relationship are crystallised. It’s a cyclical negotiation opportunity with large upside, and sadly, where planning and execution is poor, also downside.
BreakPoint Black has partnered with a rapidly expanding group of SaaS businesses, to ensure AM and CS teams have the negotiating capability to maximise this critical commercial cycle.
Here are three common mistakes we see SaaS Account Managers and Customer Success Managers make, leaving significant contract value on the table at renewal time.
1. Do not gather sufficient information before they plan for their negotiations
Negotiation is 90% planning. This is the boring reality. A rigorous, consistent planning process is required to unlock all the available value at renewal. This planning process relies on essential information and data gathering in order to get inside the head of the other party, whether that’s their procurement team or a commercial leader. Without proper focus and method given to information gathering, you will not understand your counterpart’s needs, incentives, fears and concerns and your negotiation will be planned and executed in the dark (if it’s truly planned at all).
As tempting as it might be to jump straight in and send proposals out, without the essential information gathering stage, the likelihood is they will badly miss the mark due to poor understanding of the other party and their world.
2. Overestimate the power of the customer
This second problem is a symptom of the first mistake. Typically, negotiators tend to over-estimate the power of the other party. This is because of a tendency to focus on one’s own problems, needs, concerns and pressures (very natural). We must first understand the perspective and needs of the other party (information gathering – point 1!) and then employ appropriate analysis of the balance of power – both real power and perceived power. How dependent are they really on your product?
For example: overestimating the risk of your customer going to a competitor is the first step to conceding far too much at renewal, in an effort to avoid customer churn which was never likely to happen in the first place!
3. Lack of ambition in proposals
With poor information gathering and resulting overestimation of the customer’s power, comes overly cautious proposal making. For example: if you don’t understand that the customer is seeking stability of their software environment, has a strong balance sheet and wishes to pursue a strategy supported by a core suite of software systems (including yours!), then it’s entirely possible you’ll renew at flat on another 1-year contract… When you could easily have achieved a 3-year deal, increased price and an upsell with more than triple the total contract value.
Poor info gathering begets poor understanding of the other party, leading to proposals and concessions which badly miss the mark and leave huge contract value on the table.
If you have seen some of these mistakes in your contract renewal negotiations, get in touch and talk to us about our negotiation training programs. Don't leave that value on the table any longer!