The importance of pricing benchmarks in software negotiations

When it comes to software negotiations, vendors typically have the upper hand. At least they do when they are aware of the value of their offering and are subsequently in a position to dictate the terms of the agreement — including the price.But this doesn’t have to be the case.At least not when you have leverage. More specifically, at least not when you have leverage in the form of pricing benchmarks.But what exactly do we mean by pricing benchmarks? How can you use them to shift the balance of power in your favor? And how do you even go about obtaining them?Here’s what you need to know.,

What are pricing benchmarks?

By definition, price benchmarking is the process of comparing the price of something — in this case the cost of software — to that of a competitor.But while this is a strategy that many buyers adopt when purchasing or renewing their SaaS tools, mainly in the form of obtaining quotes from multiple providers to compare and use as leverage during negotiations, this insight alone is unlikely to secure you the best possible deal on a contract.Why?Because the prices that SaaS providers quote are rarely set in stone. There are often always savings to be had. In fact, according to our own data here at Vertice, 90% of buyers are overpaying for their software by as much as 20-30%.Which means that when it comes to benchmarking the cost of SaaS, the focus shouldn’t be on what a provider is quoting compared to their competitors, but rather what they are actually charging their customers. In other words, the prices that companies of a similar size and profile to your own are actually paying for the same subscription., , , ,

Why these pricing benchmarks are crucial in software negotiations

While it’s certainly possible to secure a discount on your software by arming yourself with industry pricing trends and using the best software negotiation tactics, the reality is that it will only get you so far.Without knowing exactly what other companies are paying, and therefore what you could be paying, you’re unlikely to achieve the best possible savings.Before we dive into how you can obtain this intel, it’s worth understanding why it’s happening.,

How lack of transparency is causing huge pricing disparities

When it comes to buying software, perhaps the biggest challenge is the lack of transparency in the market.In fact, as many as 55% of vendors obscure their pricing on their site, requiring you to enter into sales discussions to find out what they want you to pay. But as we’ve already mentioned, there are often huge disparities between the prices that different companies end up paying — something that happens even when a vendor does publish their pricing, but that is even more prevalent when a buyer has absolutely no frame of reference on cost.Of course, many companies will pay what the company wants them to, either because they’re unaware that the vendor may offer a discount, they don’t have the time to deal with back and forth negotiations, or they’ve left it too late to negotiate a renewal. But there are almost always customers with discounted rates.Inconsistencies in pricing isn’t unique to the software industry though. Just take an industry such as car insurance, where any two individuals could very well be paying a different price, despite having the same amount of driving experience, the same postcode, years of no claims discounts and so on.But as with insurance, there’s no way of knowing exactly what the other customer is paying.What we do, however, know is that the difference in what any two customers will be paying is likely to be far greater in SaaS than it is in insurance. In fact, we’ve seen examples where a business is paying $50k for its software subscription, whereas another user of a similar size is paying $13k for the exact same usage, features and terms., We’ve seen examples where a business is paying $50k for its software subscription, whereas another user of a similar size is paying $13k for the exact same usage, features and terms., At Vertice, we look at how consistent pricing is across similar customer profiles for thousands of SaaS vendors. We then give them a parity rating, giving you an idea of just how willing they typically are to offer a discount.But again, this insight alone can only get you so far. You also need the numbers.,

How to find out what other companies are paying for SaaS and use it as leverage

While there are various best practices that can be actioned when it comes to negotiating your SaaS contracts, the most effective way to secure the best deal on any contract is with intel into what other companies are paying.With access to the pricing and discounting data of more than 13,000 SaaS vendors worldwide, Vertice can access this intel.Better still, our team of SaaS specialists can use it as leverage by negotiating on your behalf, not only guaranteeing you cost savings, but also saving you the time and hassle of back and forth communications with your vendors.Why not see for yourself how much we could save you on your annual SaaS spend by using our free cost savings analysis tool. Alternatively, read more about the benefits of using SaaS purchasing software or learn more about how our pricing is entirely risk free.,

How to conduct price benchmarking

Achieving competitive pricing for your SaaS solutions is impossible without actually knowing what ‘competitive’ is. Pricing benchmarks are the best way to understand a given vendor’s pricing strategy and its context in the wider market. Here are the essential steps of a robust price benchmarking process:

1. Identify key vendors and products

Start by listing the SaaS vendors and products relevant to your business needs. For example, if you’re procuring a CRM, you might need pricing benchmarks for Salesforce, HubSpot, and Zoho.

2. Gather pricing data

Collect information on pricing from various data sources. Don’t just limit yourself to vendor websites — industry reports from the likes of Gartner and Forrester can be immensely helpful, as can real user stories from sites such as G2 and LinkedIn. This way, you’ll find a mixture of list prices alongside actual customer preferences and costs within your specific market segment.

3. Analyze pricing models

Understand the pricing models used by each vendor. You should take into account subscription tiers, per-user pricing, feature-based pricing, and any additional costs. Vertice can help here, our vendor pricing guides contain easy-to-digest feature and pricing structure breakdowns for different SaaS solutions – essential information for pricing managers.

4. Compare feature sets

Like-for-like vendor pricing analysis isn’t always easy as there’s often significant disparity between pricing models and feature sets. One way to get a more accurate comparison is using a benchmarking matrix that lists vendor features against overall cost.

5. Engage with vendors

Contact vendors directly for quotes — you’ll get a better idea of pricing flexibility and any potential discounts for things like longer commitments, bulk purchases, or more complex supply chain requirements. You might also be able to get bespoke pricing for the exact solutions you need without paying for unnecessary features. Enhancing your vendor relationship management with simple communication can significantly optimize pricing and overall procurement.

6. Adjust for volume and usage

Consider your specific usage and volume needs. Price points can vary significantly based on the scale of usage and the number of users. You should factor this into your cost comparisons, as many vendors offer volume-based discounting like increased reductions in per-seat price the more licenses you purchase. 

7. Leverage third-party data

Procurement partners and market research firms can provide access to more detailed benchmarking across a wider customer base. For example, pricing intelligence tools like the SaaS Purchasing Platform from Vertice offer insights into what other customers are paying for similar products as well as current market trends and discount likelihood.

8. Review regularly

SaaS product pricing can change frequently. Continuously reviewing and updating benchmarking data so it reflects the latest pricing trends and fluctuations is crucial. Doing this manually is often time-consuming, so we recommend implementing price monitoring tools to streamline the process and avoid human error.

When and how to use price benchmarking in IT procurement

IT procurement is rarely straightforward. It needs to balance a range of needs, whether that’s software capabilities, market position, scalability, compliance requirements, or budget limitations.

Informed decision-making requires significant market research to deliver a clear picture of current rates. Price benchmarking simultaneously helps you understand what you can get for your money and helps avoid overpaying. As such, you can rest assured you’re getting maximum value from your investment.

Pricing benchmarks are particularly helpful during contract negotiations, a day-to-day component of business operations. With concrete data at your disposal throughout sourcing and procurement, you’re empowered to identify overpriced offerings and arrange a better deal with the vendor. The ultimate result? A significant competitive advantage during software negotiations, better overall pricing decisions, and an optimized purchasing strategy. 

Before discussions with a vendor, gather your benchmarking data and compare their prices with industry averages so you can set a realistic expectation of what’s achievable. Once you’re at the table, you can gauge the vendor’s willingness to match competitor prices and use your data points as bargaining power.

It goes without saying that a delicate touch may help here — rather than attempting to brute-force a discount, you should treat the conversation as one of mutual benefit. Just like your own organization, SaaS vendors are businesses with profit margins to protect. Be prepared to compromise so you can reach an agreement that works for both parties.

Following procurement, continuously monitor and review your agreement in relation to market price and performance metrics. For example, the vendor may have shifted to a more competitive pricing strategy, but you might not benefit with a legacy plan. Likewise, price changes over time can eventually result in the need to change vendors entirely. Of course, this is also a valuable bargaining chip if you’d rather stick with your current solution.

Benefit from Vertice’s exhaustive price benchmarking across over 16,000 vendors

Even with a robust price benchmarking strategy within your organization, there remains strong disparity between what different customers pay for the same solutions.

That’s where Vertice enters the picture. We hold extensive pricing benchmarks for over 16,000 vendors within our database, including average discount possibility, giving you full insight into what a given solution truly costs.

We know when companies are paying significantly below the listed price for a particular product. When you partner with Vertice, our expert buying teams can negotiate on your behalf, leaning on these benchmarks to secure the most favorable contract. 

It’s not just first-time SaaS contract negotiation Vertice can assist with. Come renewal time, we’ll revisit your existing contract to see how it compares to our pricing benchmarks. We often achieve savings of 20% or greater thanks to our competitive intelligence. Furthermore, we’ll help optimize your contract based on actual business needs. 

Don’t just take our word for it. Take a look at how our exclusive pricing benchmarks have helped other Vertice customers:

● FirstVet saved over $100,000 by eliminating auto-renewals and entrusting Vertice with its contract negotiations.

● Spenmo reduced SaaS spending by 25% across more than 50 tools, using Vertice benchmarks to right-size contracts during a period of rapid growth.

● Holidu achieved over $330,000 in SaaS savings after partnering with Vertice. We also provided benchmark information that supported the CTO with further strategic negotiations.

● Crunch reduced its CRM costs by 17% and moved to quarterly billing thanks to negotiations from Vertice.

● Lighthouse achieved ROI in just three days of partnering with Vertice, thanks to our pricing data intelligence.

Along with access to our exclusive pricing benchmarks, our SaaS Purchasing Platform helps you manage your entire software stack, providing clear visibility into usage metrics, contract terms, renewal dates and more through unified dashboards and in-depth reporting. Want to know more? Get in touch using the form below.

Price benchmarking FAQs

How do you perform a price benchmarking analysis in a specific industry?

The steps are generally similar across industries. Start by identifying key vendors and products. Then, compare their capabilities against costs, adjusting for your own volume and usage so you can calculate the effective price.

How can a business effectively implement a price benchmarking strategy?

Considerations when implementing an effective price benchmarking strategy include setting clear objectives, using reliable data sources — including vendor websites and third-party benchmarking data — and regularly updating benchmarks to ensure they remain accurate. Finally, integrate your findings within your procurement operations and pricing strategies.

What are the best practices for conducting effective price benchmarking in a specific industry?

Best practices for price benchmarking remain similar across industries, including use of multiple reliable data sources and maintaining up-to-date information.

However, you may also want to adjust your benchmarks according to regional and market differences. For example, an e-commerce platform may cost more in North America compared to new markets it has yet to penetrate such as Southeast Asia. Similarly, you may be able to drive costs lower in a particularly competitive market.

Other factors to consider include current economic conditions, the vendor’s market share, local competition, and currency exchange rates.

How can I establish effective price benchmarks in a volatile market?

In a volatile market, it’s particularly important to regularly monitor market trends. Use real-time data and adjust your pricing benchmarks frequently — leveraging automation here can  reduce the manual workload. You may also want to consider long-term contracts to stabilize pricing.