Zooming In On Downsizing a Renewal 🚀
Renewals are never a simple “copy-paste” exercise. Companies grow, shrink, or pivot—and with those changes come evolving software needs, usage patterns, and priorities. On the other side of the table, software vendors introduce new pricing models or bundles, aiming to increase revenue with minimal friction. This creates a balancing act: how can businesses align contracts with their current needs while avoiding unnecessary costs? 🤔
For vendors, renewals often focus on revenue maximization. Increased usage? They frame it as an upsell opportunity. Declining usage? They might lean on auto-renewals or delay engagement, hoping to avoid discussions of downsizing altogether. 📉
Buyers, however, face challenges, especially when looking to cut costs. Vendors prioritize metrics like retention and expansion revenue, leaving little room for proactive discussions on downsizing contracts.
Understanding the Vendor’s Playbook 📘
For SaaS providers, key metrics like Dollar Net Retention (DNR) are under a microscope. DNR measures revenue changes within the customer base by combining upsells and downgrades. A high DNR signals a growing, healthy customer base—critical for investor confidence and long-term growth. 💡
This is why vendors often push back on downsizing requests. Lowering your contract value threatens these metrics, so they might justify price hikes by citing “updated pricing structures” or “volume discount thresholds.” Sound familiar? You’re not alone.
We recently worked with a UK communications provider facing this exact situation during their ZoomInfo renewal. After a 30% workforce reduction, their existing license allocation was no longer sustainable. Here’s how we helped them navigate a successful downsizing. 🔍
What the Client Needed
The goal was simple: reduce the ZoomInfo license count by 33%, aligning the contract with current operational needs. This wasn’t just about cutting costs—it was about ensuring the company paid for what they used while keeping essential features intact. 🎯
We recommended starting negotiations early. Engaging ahead of time is critical because vendors often use delay tactics to limit the buyer’s leverage as deadlines approach. Starting the conversation with data in hand can prevent last-minute compromises. 📅
The Challenge
When vendors face contract reductions, they often inflate per-user prices to offset revenue loss. It’s a strategy designed to preserve metrics like DNR, but it makes it harder for buyers to determine what’s fair and competitive. Transparency is rare in these scenarios.
For our client, the renewal presented a familiar problem:
- Despite a 33% reduction in licenses, the total cost only dropped by 9%.
- The per-user cost increased by 37%.
This was no accident—it was a calculated move to anchor high. Knowing this, we needed a well-prepared strategy to counter it. 🧠
How We Turned the Tables
We began renewal discussions 70 days before contract expiration, giving ourselves plenty of time to negotiate. Here’s the step-by-step approach we took:
1️⃣ Conducting a Savings Audit
Preparation is everything. Before negotiations, we gathered insights to establish leverage:
- Benchmark Research: Analyzed pricing data to determine what other companies paid for similar services. The renewal quote was at the top end of the range, and discounts others had secured ranged from 10–30%.
- Competitor Analysis: Explored alternatives like Apollo.io, which offered comparable functionality at nearly 50% lower costs.
- Feasibility Study: Assessed the effort required to switch. Migration to Apollo.io was realistic within 30–40 days, making it a strong Best Alternative to a Negotiated Agreement (BATNA).
This prep work gave our client confidence—and negotiating power. 💪
2️⃣ Strategic Negotiation Execution
True negotiation isn’t about saying “Your price is too high.” It’s about influencing the other party to want to work with you. 🗣️ Using a mix of data and empathy, we took these steps:
- Early Signals: During a quarterly review with ZoomInfo’s account team, we emphasized the client’s ongoing tech stack review and subtly mentioned Apollo.io as a viable alternative.
- Empathy-Driven Approach: While expressing disappointment in the initial proposal, the client reinforced their positive experience with ZoomInfo, showing they wanted to remain if terms improved.
- Escalation When Needed: When progress stalled, we leaned into our BATNA—highlighting Apollo.io’s 50% cost advantage and a potential migration timeline. This created urgency for the vendor to respond with a competitive offer.
The Outcome
After a few rounds of back-and-forth, the final renewal terms included:
- An 18% reduction from the initial quote. 💰
While the result fell short of the 30% target, it was a significant improvement over the vendor’s initial proposal—and a testament to the power of early preparation, patience, and strategic escalation. ✅
Key Takeaways
1️⃣ Start early: Proactive engagement gives you the upper hand.
2️⃣ Prepare thoroughly: Research benchmarks, explore alternatives, and establish a strong BATNA.
3️⃣ Balance empathy and pressure: Building goodwill with your vendor can go hand-in-hand with assertive negotiation.
If you’re struggling with SaaS renewals, you don’t have to navigate it alone. At ITSR, we specialize in turning tough negotiations into actionable wins. 🎯
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With the right approach, renewals can work for you—not the other way around. Let’s make it happen! 🚀