5 Software as a Service Contract Scams to Avoid

As an agency who fully supports our clients, we purchase contracts for applications and platforms quite a bit to fully support our clients’ efforts. Most of those relationships with Software as a Service (SaaS) vendors are fantastic – we can sign up online and we can cancel when we’re done. In the last year, though, we’ve literally been taken on quite a few contracts. Ultimately, it was fine print or misleading sales that led to us losing quite a bit of funds. I’m not going to name names here, but some of the companies are quite popular – so be careful. Companies that take advantage of these scams will never get my business or my recommendation.

  1. Minimum Contract Lengths – Software as a Service companies with account management and onboarding processes spend a lot of money on acquiring and getting a new client up and running. It’s A LOT of money – trust me. Working for an enterprise ESP in the past, we might spend tends of thousands of dollars getting a client sending their first email. As a result, requiring a minimum contract length was imperative to the health of the company.The problem is that many self-service SaaS have decided that they’re going to hide minimum contract lengths in their terms.If you can sign up with a credit card and begin using your account today, you should be able to cancel your account today. Look up the fine print. We found an SEO engine we signed up for and didn’t live up to expectations had a 6 month minimum contract. I’m quite confident the minimum requirement was simply because their platform over-promised, under-delivered and they were just scamming customers for more money.
  2. Sign Today, Bill Tomorrow – Your SaaS sales representative is your best friend right up until you close. There’s another word for a sales promise that isn’t written into a contract. It’s called a lie. We signed an annual contract with a major platform vendor late last year. The sales person was under a lot of pressure and wanted to get the close in under the wire for the year so he promised us they wouldn’t bill until we started to use the platform.We signed and and promptly were invoiced for the platform. When I didn’t pay the bill promptly, it was sent to collections. Now the collections company is harassing us. To this day, I’ve never used the platform and I’m not paying the bill. They can sue if they’d like to. I’ll be sure they spend more in legal bills than ever get a dollar from me.
  3. Agency Packages – A company that I had a personal relationship with encouraged me a couple years ago to sign an agency contract with them. Under the agency contract, we would pay a minimum monthly fee and then a per client discounted monthly fee of about ~75% of the retail cost.The agency package enabled us to get premium support, full access to all the features, a seat on the product advisory committee, and get listed as an authorized agency on their site. It sounded like a perfect deal – until we read that we had to provide 100% of the support to our clients. Folks – that’s where all the costs are! I would have had to sign dozens of clients to be able to afford a dedicated support staff and still profit from the relationship. We’ll continue to refer clients to this provider, but we’ll never sign the agency paperwork.
  4. Usage and Overage Fees – Great software companies are very transparent about their usage fees – especially when it comes to overage fees. We love models like Amazon that charge for usage and discount the greater you utilize their platforms. Companies like Circupress will nicely move you up or down on your contract based on the number of records and emails you’re sending. The more you send, the lower the price per send.Other companies actually penalize you for usage.We were surprised when a HUGE inbound marketing platform notified us that they were quadrupling our costs when we imported all of our contacts into their system – something not discussed in the sales process (it was disclosed on their site but we missed it). Other companies charge a premium when you go over your allotted usage of their system (bandwidth, accounts, emails, campaigns, etc.). Be sure that usage and overage fees are relative to your return on investment and actually encourages use of the system rather than discourages usage.
  5. Auto-renew – I can’t tell you how many times I’ve been ripped by companies who I signed up with to test their software, I canceled it, and then the next month I was charged again. It doesn’t matter what size the company, this has happened to me with small engagements and enormous ones. Find out ahead of time if contracts are auto-renewed and make sure the company requires your permission before renewing or moving forward if you have no immediate plans of renewing.

Contracts, Terms of Service and Billing Terms are critical to understanding your relationship with a vendor. Find out what happens to your contract and relationship with a vendor if your company runs into these issues:

  • Cancellation – you no longer require or can afford the Saas platform. Self-service companies will typically offer a 30-day notice or even an immediate cancellation via their platform. Beware of the company you sign up online with a credit card but have to phone to discontinue your account. It’s just as easy to stop billing online as it easy to start it! For companies with onboarding, consultation and support, minimum contracts of 6 months or so are more typical.
  • Usage – You might change usage significantly – either increased or decreased. You should be discounted for non-use or minimal usage of a system and you should not be penalized for excessive use of a Software platform. Pricing should adjust for usage and your return on investment should increase as you utilize the system more.

Having an attorney at the ready is always the best plan! Many times that we were ripped off it was simply because we didn’t pass the contract by our fantastic attorneys at Alerding Castor Hewitt.

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