pirate

🦜☠️ Account Executive

3 Year contract as standard in SaaS?

Hey all! Curious to hear what's the average length in months/years of the deals you close?

Has this changed with the recession?

Background:

My current company has a big push to sign customers for 3 years. Product can be implemented in a week, sales cycle is between 1-2 months, and it's customers in SMB segment. They can't end the contract without paying.

I know in some SaaS companies it makes sense to go for 3 years because it's quite a big process. I get it for Enterprise companies because they have the money. I'm conflicted however that these businesses might be out of business in 3 years and that it's a big investment for small companies to make... Maybe I'm too soft and nice 🙈

👑 Sales Strategy

☁️ Software Tech

📳 SaaS

32 comments

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Diablo

Politicker

Sr. AE

SMB 3 year is quite a challenge. Are they going to pay each year or all upfront? What’s the goal of the company - retention, profitability, account expansion?

pirate

Big Shot

🦜☠️ Account Executive

Yes it is a challenge. Each year upfront and there's no getting out of the contract. I'd say profitability and growth but not sure if it's a working strategy in current environment

Diablo

Politicker

Sr. AE

It’s not going to work long term as the SMBs are mostly funded and at a growth stage that would focus on a year or 2.Rather try to get them on a 2 year - any reason why just 3 year?

TennisandSales

Politicker

Head Of Sales

ive worked for 5 saas companies.
1 - 2 year agreement was standard, almost always was reduced to 1.
2. - 1 year contracts were standard. no extra incentive to sell a multi year.
3. 1 year contracts only.
4. 1 year contracts only.
5. 3 year agreement is standard.

pirate

Big Shot

🦜☠️ Account Executive

Thank you! Sounds like majority of those SaaS companies operated on 1 year contracts which makes a lot of sense to me

TennisandSales

Politicker

Head Of Sales

at least in my experience that is the most common thing. if i was a buyer, i would always look for a one year agreement.

1nbatopshotfan

Politicker

Sales

Can you find a middle ground? Treat any one year deal a POC and not negotiate on paperwork?

pirate

Big Shot

🦜☠️ Account Executive

I still have 1 year as option but would get paid differently and wouldn't hit targets on a multi year deal and get a lot of question so then I need to negotiate the paperwork really?

Kosta_Konfucius

Politicker

Sales Rep

Are you getting push back from the client? With implementation 1-2 weeks I am surprised by a 3 year minimum

pirate

Big Shot

🦜☠️ Account Executive

A lot of pushback from the customers yes and I feel like we don't even get to a point of 1Y after the shock of a standard 3 year contract

CuriousFox

WR Officer

🦊

Mine range 3-5 years.

Sunbunny31

Politicker

Sr Sales Executive 🐰

I have worked enterprise deals for years, with 3 year standard that we'd always negotiate down if the customer had a compelling reason. Usually I was paid the majority of the comp on ARR, with a slight bump for multi-year. I'd rather take the 12 mo/24 mo deal and lose the bump rather than hold the line and lose the whole thing because they don't or can't get a 3 year deal done.

That said, I'm sorry you have internal challenges with that. I did have to explain why the 1 year was going to be the best path forward, and since I knew my business and didn't just say "they asked", I got it approved. Reasons for short term: would like POC but will take a 1 year deal to prove out the concept; board won't approve a deal of longer than 12 mos: our CFO will not approve a deal of longer than 12 mos unless there's an out clause.

pirate

Big Shot

🦜☠️ Account Executive

Thank you for sharing! Yeah I think in Enterprise space it makes sense as I've sold to that size of companies and the reasoning for 1 year was usually thanks to government organizations/ complex RFP that didn't allow for 3 years. Or a negotiation technique really. Hell some signed for 4-5 years.

I like the way you positioned 1 year internally!

coletrain

Politicker

Account Executive

1, 2, or 3 where I am now. Typically for one but have seen a couple go multi-year.

pirate

Big Shot

🦜☠️ Account Executive

Yeah makes sense that most would be 1 year

Pachacuti

Politicker

They call me Daddy, Sales Daddy

3 years is very common.

Maximas

Tycoon

Senior Sales Executive

Almost 12 months!!

Coastal_crusher

Politicker

Sales Director

I used to do 3 years minimum, sometimes up to 5

Mendizo

Opinionated

Sr. Director

Yes, I would say that a 3 year contract is pretty long, especially if they are going to take a financial hit to end it early, as you mention.

Even in Enterprise, 1 or 2 year contracts are very popular, much less SMB as you mention. My largest customer has a 5 year contract, but that is for $1.6 billion... so it makes sense for them given how much they are getting (massive discounts and support).

Which brings me to the question I would normally ask... what concessions is your company giving customers for a 3 year? If this is a lightweight SMB product, there's likely not much room or margin for reduction, so why would a customer sign a 3 year? Of course, I'm reading this as 1 year options exist, but the company wants you to sell a 3 year. So... what is the give? Discounts? Free implementation? If the give is worth the get, then it may be worth it. I wouldn't worry about yourself being 'soft and nice'... put yourself in the customer's shoes... would it be worth it to you?

pirate

Big Shot

🦜☠️ Account Executive

Thank you.

Yeah it seems like quite a commitment for smaller organizations. Wouldn't want to doom their business.

1.6 billion, wow! Congratulations

It's pretty much discounts that they would be getting and better price protection as they're in for 3 years. No it wouldn't be worth to me to be honest. I suppose I just need to push this better internally

antiASKHOLE

Tycoon

Bravado's Resident Asshole

We do 12 month..

punishedlad

Tycoon

🧙‍♂️

We do 1 year contracts to ease people's minds and make it easier to say yes. Our churn is less than 1%.

pirate

Big Shot

🦜☠️ Account Executive

That's amazingly low churn! Yeah I believe that's crucial keeping customers happy

WhoDey

Opinionated

VP of Sales

Current company: 0 (customer can cancel at any time with 30 days notice, although we're looking into long-term contracts).

Last company: minimum 1 year, but most were 3-5 years.

activity

Politicker

VP, Business Development

Contract length has varied widely across the positions I've been in. 1-5 year contracts and depends on the solution.

Justatitle

Big Shot

Account Executive

Recurring revenue is what makes SAAS companies valuable so a 3 year term is great to be able to get if you are selling something that has that as a standard, however for hospitality, skilled trade, etc… you will find it next to impossible to get a 3 year term as standard. When I sold to hospitality if we got a 2 year agreement they were ecstatic.

DungeonsNDemos

Big Shot

Rolling 20's all day

1 Year is standard for us. 3 is standard for our enterprise level deals.

Baylor24

Executive

Senior Account Executive

You are presenting a company with an opportunity to make a business decision based on the value it provides them. Ultimately it’s up to them to make the right decision for their business. IMO it isn’t fair to either party to try and predict where each will be in three years.

SaasSlingin

Politicker

Sr AE

I’ve found it’s a bit tougher but defenitely a possibility. Some CFOs budget for 8+ quarters so if there’s some sort of incentive involved it can totally make sense for the prospect.

BlueJays2591

Politicker

Federal Business Dev Director

3 years is usual. Sometimes I'll see 4 or 5 but it's not extremely common at the places I've been

slaydie

Big Shot

Account Executive

I've sold MM at a few companies now and they always seem to be 1 year deals. Sold a few 2 year deals but that wasn't standard. I haven't seen any 3 year deals sold even in ENT at the companies

CadenceCombat

Tycoon

Account Executive

Pretty standard in my opinion

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pirate

3 Year contract as standard in SaaS?

32 comments

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