Q: How do you re-negotiate an unlimited seat site license SaaS agreement as VP of Sales?
Or even just a “bad” contract you gave to a very early customer that now seems like just, way too good a deal?
This is a scenario a lot of us will go through. It can be done. But you can’t extract every last dollar and expect your customers to remain your champions.
There’s no magic solution here, but a few thoughts:
- First, build a “better” edition they can choose to upgrade to. Even if they have an unlimited right to your Professional Edition, add an Enterprise Edition. Or Global Edition. Or Unlimited Edition. And truly make it better. This worked well for us when we added a localized version of the product. We didn’t force legacy discounts to upgrade but offered them a path to a great deal on the truly better, now more enterprise edition. We used our “Global Edition” to increase prices 50%-100% on legacy enterprise customers that wanted those features. But we left them on their legacy plans if they didn’t want to upgrade, no pressure (well, not too much) and zero drama.
- Tell the truth. This often works. Tell the customer you gave them way too good of a deal, and while it’s fair for, say, up to 100 users, it’s just out of whack today beyond that usage. Tell them you’d like to work on a win-win deal for any larger deployments. I did this with our second-largest customer at the time by usage, and tripled the deal size. They still got one of the best deals of all customers, however. We also upgraded them to the new, “better” edition at the same time. I also told them it was an ask, not a requirement. Not a threat.
- Do the math and decide if it really matters. If you are growing > 80%-100% or even faster, it’s often just easiest to leave the early customers with their nice, grandfathered contract. It just won’t matter over time — you have so many more customers to close. What does matter is their goodwill. Their tiny % of your revenues at $100m+ in ARR won’t matter. I’ve generally found way, way too much energy is spent trying to re-negotiate a relatively small number of early contracts from great customers that took a huge risk on you. It’s rarely really worth it, especially if it creates any material friction with the customer.
- Let them know they get one more year at the Old Rates, but then they need to move to Standard Pricing — With a Legacy Discount. This isn’t perfect, but a lot of times, it creates a graceful transition to market prices the next year. Especially if you still give them a maximum discount for that next, next year.
- Instead of more money, ask for case studies, testimonials, attending your events, referrals, etc. There is more than one way to make money from a customer. Ask them for help getting other customers. Don’t ask for more $$, but do remind them of the incredible deal they have now, and just ask for 1–2 favors a year back. This is almost always worth more than the incremental revenue. I remember when Qualcomm was an early customer of ours and got an insane deal. They got angry when we asked for a more “normal” contract. But instead, our champion did multiple webinars for us, and took tons of reference calls. That was worth more. A lot more.
- Do it Wrong, and They’ll Look for a New Vendor. Often, for the first time. When grandfathered customers feel they aren’t treated fairly down the road, they almost always at least look at a new vendor. Is it worth it? Just make sure you do it right.
- Also, one thing I have learned: the best VPs of Sales are pretty good at this, one way or another. So many wait on this until you have a great VP of Sales!
Learn, and focus more of your time on close newer customers for more money in most cases.
(note: an updated SaaStr Classic answer / post)
Image from here