Dear SaaStr: What is the typical enterprise SaaS cancellation policy for $100k ACV/large deals? Should the penalty be in the contract?
In general, just keep track of the cash:
If a customer has signed a pre-paid annual or multi-year contract in exchange for discounts or other terms, there is generally no reason to return pre-paid cash. Contracts are generally not cancellable by their terms, and so you keep the cash.
And if the cash isn’t pre-paid and a customer stops using your contract… on a practical level, there’s not much you can do. Are you going to sue the customer? threaten them? Some sales reps may be – and in fact, it becomes very common if you’re not careful. They will talk about threatening the customer. After all, his commission is in jeopardy. But don’t let them. Threats have zero upside, and suing is impractical. Sending a client to a collection agency? It doesn’t really work out well in the end.
Finally, cash + uses are important here:
#1. If the customer hasn’t paid (regardless of the terms of the contract) but doesn’t use the product, let them go. You did not prompt the next payment from the customer. It is not a real customer if they are not even using your product.
# 2. If they paid in full, keep the cash.
#3. If they’ve paid but don’t want to use the product and insist on getting some cash back… I say no by default, if they’ve got a material discount for it. that was the deal. But if he does not get anything for the pre-payment, it may make sense to refund the pro-rata amount to him.
A little more here:
Maybe every SaaS contract has an automatic out clause
(an updated SaaStr classic answer)
Published on January 16, 2023