Dear SaaStr:  In SaaS B2B, how do you handle the situation where an enterprise customer wants to buy an unlimited use, site license?

This can seem like a tough one in the early-ish days.

A BigCo wants to write you a six-figure check, for a site-license. Sounds great in the early days. Then, in Year 2, you see it was a so-so deal as the usage exceeds expectations. And in Year 3, as you’re more established, and the usage and value is even stronger … it blows up on you. They end up with a way undermarket deal, and there’s lots of frustration on your side.

I have no magic answer but let me throw out some thoughts:

  • Don’t sweat it too much in Years 1 and 2 as long as it’s real cash, paid upfront, in the door. You have so much growth ahead of you, the customers you get in the early days will just be a tiny fraction of the total number of customers you end up with. It’s OK if the economics for your early customers aren’t optimized. In the early days, close as many good deals as you can. Don’t worry about closing so many great deals as you’re getting going.
  • Try to put in some sort of cap. A cap on total seats, total usage, total something. Most customers will push back at first but ultimately be OK with that as long as the cap is commensurate with the value they are paying.  This solves most of the issue, ultimately, over time.
  • Put in a tail to the duration, e.g. 3 years max.  Even 5 years.  That may seem like forever, but really, it gives you a chance to renegotiate later, when it really matters.
  • Hire a Great VP of Sales. Once you do, the problem will mostly solve itself. First, he or she will negotiate better, smarter deals than you. Second, the great ones know how to renegotiate the crummy site licenses you negotiated. 😉 Not that it’s easy, but it can be done if you’ve been a great vendor that has delivered amazing value. Customers will honor the social contract you’ve established with them, by and large, even if that means the paper contract has to change.

My learnings.

Later, you probably won’t do these days.  But sometimes, in the early days, it makes sense to just put points on the board with a few Big Customers.  Even if the deals are suboptimal.  Ideally, just cap them or time-limit them as best you can.

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