Whether you’re a startup or a large technology company, cloud computing can propel your business forward. A cloud solution can meet the needs of your company at a reduced cost and with higher reliability. There’s an increasing number of vendors offering cloud-based services, so it’s important to assess a service provider against its competitors.
Analyze the cloud contract before subscribing. The contract terms are critical in shaping your relationship with your chosen vendor. The quality of service you receive may also depend on the agreement you sign. Here are three important tips for negotiating successful cloud contracts.
Understand the Terms of Service
Understanding your provider’s terms of the agreement is necessary before beginning negotiations. Terms depend on scale of service and type of service. The three main service types are software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).
An expert-led negotiation seminar can support and encourage full awareness of the contract terms. It’s important to learn how to navigate through the offer details to claim better value. Avoid skimming through the documents. Don’t assume the fine print will be as you expect. Every vendor is different and may present varied terms and conditions.
Cloud services aim to increase your business efficiency. However, the provider’s contract terms are naturally more likely to favor the provider. Your company should stand to benefit if you negotiate where possible.
Assess the responsibilities outlined in the contract. Understand your duties as the user, and the provider’s obligations.
Go through the service-level agreements (SLA). Some of the cloud SLA metrics vary from one service provider to another. Read and ensure you understand the different areas outlined. Terms may describe the volume of work, speed, quality, efficiency, and responsiveness. Know the expected standards of the responsibilities.
In case the vendor fails to deliver up to standard, negotiate for compensation. Include financial penalties for defaulting on guaranteed terms. A redress is necessary for maintaining accountability. Both the user and the service provider should be clear on penalties.
Negotiate Pricing
Cloud is essential for hosting apps and storing data, but shouldn’t take up too much of your operational budget. Determine costs in comparison to benefits. Negotiation seminars can prepare business owners to claim higher value for lower prices when negotiating with service providers.
When at first signing with a cloud service provider, the rates are often quite enticing. The vendor aims to attract your attention using discounted price tags. Some business owners taking advantage of the reduced rates fail to read the contract further to notice that the rate is an introductory one. Study the fine print to understand future cost implications.
Using your chosen vendor’s services may create a dependency on the provider’s services. Vendors design their agreements to create such vendor lock-in contracts. Vendors may also charge high migration fees if you want to transfer to another provider. You may find yourself with no choice but to renew your subscription.
Renewal rates are an element of the cloud contract you should pay close attention to. Discuss the terms of service beyond the first subscription, the duration, and the fees. Some vendors may insist on a long renewal period (many years). Depending on the nature of your business, you may want to negotiate for shorter periods.
Ensure there’s a specified renewal fee rate in your cloud contract. Clear terms can prevent unexpected price increments in the future.
If possible, negotiate for an extended period of the initial discounted rates. Let the consumer price index (CPI) guide pricing. The CPI clarifies industry standards to avoid overpricing by the service provider.
Prepare for Termination of Contract
Business relationships evolve and sometimes come to an end. The end of an agreement may not be top on your mind when contracting a cloud service provider. Analyze what the cost of terminating your contract would be before signing the agreement. Seminars train attendees to prepare for the end of business relationships from the start.
Various triggers may lead to breaking ties with a cloud-based vendor. Your business may need more advanced cloud services than your current vendor provides. There may be a failure to meet the service-level agreement by your cloud provider.
Either way, ensure your cloud contract allows you to exit without hefty charges.
Most contracts include early termination fees to protect the vendor. Be aware of these charges. Negotiate to ensure the penalties are reasonable. For defaulted service-level agreements, the service provider should waive termination fees. The cloud provider should pay compensation instead of the user.
Also, take note of data migration fees. When you migrate from a cloud-based vendor, you want to leave with your data. Before signing up, clarify the terms for data migration. Agree on a predefined format of the data and the cost implications of exporting it. Negotiate for favorable or zero charges if possible.
Many cloud providers need a notice of non-renewal within a given period. Take note of this timing in case you need to exit.
In Conclusion
When choosing a cloud provider, plan and review the contract details in advance. Carry out a risk–benefit analysis to test whether the provider is right for your company. If possible, have an attorney assist in clarifying terms.
Anne Neumann is a long-time content creator and editor. Through her writings, Anne brings the best and most important negotiating lessons to a business audience. She also enjoys the opportunity to work with skilled negotiators, integrating best practices into her own life.