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Using SaaS Customer Agreements To Drive More Revenue

Most SaaS clients (well, most clients period) view legal as a cost-center. In fairness, there’s plenty of evidence to support this view. But it’s not always the whole story.

One area where legal can help drive revenue is in implementing SaaS customer agreements.

For many early-stage SaaS companies, the first significant legal project they may pay a lawyer to help with is their customer agreement. A good lawyer will work with you to draft a good customer agreement. But a great lawyer will also help you use the customer agreement to make more money. Here’s one way I’ve done this.

A SaaS founder calls me and asks for help with the customer agreement. Founders who are thinking ahead often ask what happens if customers want to negotiate the terms of the agreement. This question sets up one strategic use of the customer agreement.

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If you’ve taken the time and expense to have your lawyer draft a customer agreement, you’re not going to want to vary those terms for every customer. This is particularly true if you have low prices and rely on high customer volume to make money, but the principle applies in almost any setting. Negotiating terms takes time and, if you’re involving your lawyer, it can get expensive very quickly. If you don’t involve your lawyer, then you’re just disadvantaging yourself in the negotiation. It’s usually a lose-lose, unless the proverbial juice of the deal is worth the squeeze.

That’s the key question here: is the deal worth negotiating? With most customers, it won’t be worth negotiating, as they won’t pay you enough to offset the increased legal fees and administrative burden. So for those customers, it usually make sense to take the position that the agreement is a take-it-or-leave-it one. But there is a way you can structure and message this that may help to convert more leads and drive more revenue.

It’s not complicated and many SaaS companies already do it. If a customer tries to negotiate, you can tell them nicely that if they want a custom agreement, that’s available but only if they sign up for the enterprise tier. In fact, rather than waiting for the customer to try to negotiate, you can specify in your pricing tiers that to unlock a custom agreement, the customer has to sign up for the enterprise tier.

By doing this, you’re nudging clients toward a higher tier where it’s easier to set custom pricing, which, in the short term, can help offset legal fees you’ll incur in negotiating a custom agreement; over the long term, these higher fees will, of course, lead to increased revenue. Even better, customers tend to be bad at estimating their own anticipated needs, and so by starting them in a higher tier, you may save yourself the hassle of having to bump them up shortly after onboarding when you realize their needs are better suited to the enterprise tier.

When properly deployed, this strategy, more than anything, helps customers choose the right subscription tier for their needs. It’s not manipulative—legal is expensive and administering agreements with custom terms is burdensome. To justify the increased overhead with doing this, it’s not only reasonable but essential to insist that customers are making this worth your while.

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