How software salespeople will try to screw you (and how to fight back)
Jun 07, 2024
At PostHog, we sell software. We also buy a lot of it – $320k in 2023 and that’s not including AWS or Stripe fees. This means we’ve spent a lot of time negotiating software contracts.
I’m going to share some of the things we’ve learned that will hopefully help you negotiate a better deal with your software vendor, including PostHog!
Charles is the exec who oversees sales at PostHog, among other things. He is doing his best to try and save you money.
Play the sales cycle
Many software contract prices and terms are set by a salesperson trying to hit quota. If you know the end of their quarter, you can wait until that point to get a juicy discount.
There are a couple of reasons why this happens:
Companies have quarterly revenue targets set internally. Public companies have quarterly earnings reports to make too, which affect their share price.
Salespeople often get paid commission quarterly or monthly, and they can get paid an ‘accelerator’ for exceeding targets, so they are incentivized to cram as much as possible into a single quarter.
Salespeople aren’t totally making up the prices of course – they have to work within certain limits set by their company. But they still have a surprising amount of flexibility!
If you ask for a discount and your salesperson makes a big deal about 'getting a special exception made’ or ‘needing finance approval’, this is probably BS. They will probably quickly ping their manager to check it’s ok then deliberately wait a couple of days, so it sounds like they had to fight really hard for you.
Oh, and that $10k training and implementation line item which they have so kindly comped you? Yeah, that was always going to be free.
The PostHog way: Transparent pricing helps a lot here. We are also up front about exactly how we pay commission – no accelerators in there, so the price you get on March 31st is exactly the same as what you get on April 1st.
Buy in bulk to lock in a better rate
Pretty much every SaaS company will give you some sort of discount for an up-front commitment - it helps their revenue retention, which is an extremely important metric for the business.
This commitment can be time-based (e.g. 1 year contract) or usage-based (e.g. X seats or Y volume). A couple of things here:
Some companies will default to a two or three-year contract, so it feels like you have to negotiate to get them down to one year. This is bogus - assume you can get the one-year contract at the 2-year price if that’s what they open with.
After you have agreed to a one-year contract, ask if you can pay quarterly or monthly instead. If you decide part way through the contract you don’t want to pay anymore, it is extremely unlikely a company (especially startups) will sue you to enforce the rest of the payments.
If your contract is usage-based, ensure that any overages have a discount applied as well, rather than the ‘list’ price. This protects you if you get your usage calculations wrong in the first place (which is often).
In terms of the discount itself, you should ask people you know what discount they got (easier), or provide a quote from a competitor (more work). We have literally seen people we know mention discounts of 90%+ here.
The PostHog way: Our sales team can’t make up the discounts – they’re literally written in our handbook. If you ask them if a discount is available, they’ll just send you this link – how disappointing!
Assume that everyone you are negotiating with will disappear once you sign a contract
You know the feeling - you negotiate hard, the salesperson makes you feel really special, they really get you, you’ve built a rapport, wait is this actually kinda fun?
Then contract signed and boom... you’re handed over to another team where all of a sudden your questions take a few days to get a reply, not hours. It felt like they were bending over backwards to help at every stage, but now you’re left out there on your own.
This is the classic 'sales throws the customer over the wall'. The incentives of customer success and support are very different - they basically need to do just enough to ensure that you stay. No extra special effort is needed now you’re locked in!
This is why you need to agree before you sign the contract:
- Exactly what level of support you can expect. Negotiate what happens if they break this.
- Who your ongoing point of contact will be - meet them first. Ask for someone else if they aren’t helpful.
Put it in writing. If someone isn’t willing to put something in writing, they will definitely not do it. You are not friends. There is no social obligation to help you out here.
The PostHog way: The technical account executive who sells you the software is also the person who manages your account in the long term. They’ll get to know you and your company really well and are financially incentivized to make sure you stay happy. We also tell you up front exactly what to expect from onboarding.
Avoid the nasties in the legal docs
You’ve negotiated hard and agreed on a price you’re happy with - hooray! Wait, it’s not quite over yet – here are a couple of nasty bits in contracts that SaaS companies will include by default:
‘We will renew your contract each year by default unless you give us 90 days notice of your intention not to renew’: Take. This. Out. Your salesperson will make a lot of noise about getting that secret approval we talked about before, but you do not want to rely on a random calendar reminder you set yourself 9 months from now. You also want to give yourself an opportunity to renegotiate and improve your contract.
You don’t have the right to terminate the contract, only they do: You want to be able to terminate the contract if they breach the terms, so this should be mutual. In practice, performance is the number one thing you will probably want to terminate for, so make sure some kind of SLA is included.
Automatic price increase by X% at renewal: The easiest way to avoid this is not having auto-renewal in the first place. However, if they really won’t budge (which can be the case in very large companies), make sure that they haven’t hidden something dumb like "inflation + 10%". Reasonable here is sub-5%.
The PostHog way: You know the special enterprise contract you asked for so finance can sign it? Yeah, it’s just our terms copied and pasted into a Google Doc to look more corporate. Read it in advance, not right at the end of a process when you are tired. And no, we don’t do auto-renewals. Unless you ask for it.
But Charles, I am le tired and can't be bothered to negotiate
Maybe you’re already happy with the price, or don’t really care to spend a bunch of time negotiating – that’s fine!
You can use my Low Effort Negotiation Framework for Busy People instead:
Sometimes you’ll get a decent chunk knocked off or some goodies thrown in - and you didn’t even care!
The PostHog way: The answer is always ‘yes’ because it’s all in our handbook already, but we are very generous with swanky merch if you're nice to us.
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