This is the second part in a series on CRM software pricing. The first focuses on how SaaS has changed the game for pricing CRM software.
Software as a Service
SaaS CRM is usually priced on a per-user per-month basis, but purchases typically involve a three-year contract. When the time comes to renew those contracts, the same deals may not always be in place.
"We have been hearing complaints where [Salesforce.com] priced aggressively to get the business and because contracts were not written well people were surprised when it came time to renew," said Bill Band, research vice president and analyst with Cambridge, Mass.-based Forrester Research.
However, according to Eric Pozil, managing director of CRM Northwest, a Seattle-based consultancy, that's not always the case. When companies reach year four or five of a Salesforce.com implementation, they're usually in two camps, he said. The first is set on Salesforce.com as their CRM application; they’ve customized some applications and they're happy. The second group thinks of CRM as more of a commodity, and those are the companies that are really starting to look toward price-sensitive offerings from competitors.
As for renewals, Pozil said he's generally seen that go smoothly.
"Every client we've worked with gets the same or better terms when they renewed, though that may be because we were involved," he said.
In fact, it's difficult for SaaS vendors to keep negotiated discounts under wraps because of one obvious fact.
"Companies talk, especially at the user group meetings," Pozil said. "It's an easy conversation. 'Hey, how much are you getting Salesforce for?’ ‘We get $110.’ ‘Oh, we're getting $92.'"
Additionally, with the SaaS market in general, most vendors don't pay commissions to their salespeople for renewals unless there's an upsell of some sort, Pozil said. That means it's usually a lower-level person handling the renewal process internally and an opportunity for competitors (like Microsoft, which is currently offering a discounted rate on its upcoming SaaS CRM product) to get in the door and get people to switch.
WSI, a Toronto-based digital marketing company, selected NetSuite CRM three years ago and renewed its contract in November 2009. In fact, the company was able to negotiate a discount a few years ago, when it realized its four divisions had been set up as four different accounts with NetSuite. It got a break when all 300 users were treated as one company, according to Nick Lattanzio director of sales and marketing at WSI.
But if companies aren’t happy with renewal terms, what options do they really have?
Despite claims by SaaS vendors that they need to "earn your business" every month, switching systems is not an easy task. On the other hand, it's a whole lot easier than it used to be when switching applications meant swapping out software, reconfiguring hardware and retraining users on applications that were far different than they are today. Though switching SaaS CRM vendors still requires data migration and re-training users.
"I do believe that the on-demand model does align the buyer and vendor more closely," Band said. "They do have to worry about renewals and subscriptions. That said, once they do have you, your flexibility is not what you may have thought it might be."