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Why You’re Paying More than Your Competitor for Software

Why You’re Paying More than Your Competitor for Software

How Software is Priced

Just about every department is heavily reliant on software. As we all know, prices can range anywhere from a few dollars a month per employee to millions per year. With every department deploying different services and employees using between 70 and 200 apps, the cost of buying and maintaining software (known as SaaS) is steadily increasing, but transparency around pricing seems to be decreasing.

With these costs increasing and budgeting becoming tighter every year, buyers are asking, how is the software you’re buying priced?

In regards to pricing, software companies don’t fit the mold of supply and demand. Instead, most SaaS companies focus on the ‘perceived value’ of their software to set their prices. This may sound obvious if you’ve ever been pitched by a SaaS salesperson, but it is largely an outlier model among industries. Since software services can help businesses drive down costs by increasing productivity, prices are based on the amount buyers are willing to pay, and not on the amount of space, resources, or employees needed to run the program.

Further complicating pricing for software is hidden prices. Most software as a service (SaaS) companies hide their prices and invite buyers to contact sales representatives to negotiate a contract for an annual or monthly subscription. SaaS sellers emphasize customer interface because it increases their odds of gaining a paying customer by 70% and selling at the highest price. 

All of this comes at your expense as you research, contact, and negotiate with every competing software company in order to find the best price for a tool, or any prices at all.

As former software salespeople, we know this is what companies have to do to hit high targets for investors, but it can be damaging to the buyers. By determining price based on perceived value and hiding listed prices, buyers are left without knowledge of the actual value of the product to use as leverage in negotiations.

Contract Negotiations Can Increase Costs of Software Purchases- Above Your Competitors

Being the only party that holds information on actual costs and absolute minimums that the company is willing to set during negotiations, SaaS vendors have the upper hand. Those with the time and resources to spend on lengthy negotiations can find themselves with a drastically different monthly price than a company with a different contract. If you’ve been through this process recently, it’s worth asking yourself: how do you know you got a fair price?

In addition to the information problem, there is a pretty basic resources problem when it comes to SaaS negotiations. Companies are placing increasing importance on controlling software spend, but hiring a new FTE specifically for SaaS procurement is not cost-effective. This leaves most businesses no choice but to deploy top-brass CFOs and VPs of Finance to negotiate contracts with an endless stream of vendors. All this is time away from more strategic projects like financial planning and fundraising, and it doesn’t solve the problem of wildly different prices for the same services between companies. SaaS companies benefit from the negotiation fatigue that often sets in across these leadership teams, leading to premature settlement in the deal. 

The pricing model used by software companies puts buyers last during negotiations, and leaves CFOs and VPs of Finance to navigate the purchasing process without enough relevant information to level the playing field. 

The Argument to Outsource

Outsourcing the negotiation process is the most effective way to expedite the process of negotiation. Outsourcing software negotiation to a third party returns the time spent on negotiations and research back to you to focus on running and growing the business. 

Outsourced negotiation services can also often de-risk their agreements to ensure performance. The thesis of these companies is to deliver a higher caliber of negotiation for less money than an FTE by staffing industry veterans and working with several similar clients at a time. Negotiators working on the same contracts across multiple companies at once are better equipped for a high-leverage, high-efficiency negotiation through volume and can deliver much better transparency into prices. 

And that’s where Tropic comes in. 

If the above story sounds familiar, you may benefit from our outsourced software purchasing service. Our experts work with you to keep your software costs down and to give you back the time spent researching and negotiating software prices. Tropic guarantees lower costs on contracts that we negotiate and has all of the benefits of an outsourced negotiator. We build connections with software vendors to ensure you get the best price for the software most important to you. Let’s make buying software manageable, inexpensive, and easy. 

For more info:

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Zylo’s Guide to SaaS Cost Management

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