Dear SaaStr: What’s The Typical Enterprise SaaS Cancellation Policy For $100k ACV/Bigger Deals? Should The Contract Have a Fine?

Generally,  just track to the cash:

  • If a customer has signed a pre-paid annual or multi-year contract in exchange for a discount or other terms, then there’s generally no reason to return any pre-paid cash. The contracts are generally not cancellable by their terms, and so you keep the cash.

 

  • And if cash isn’t pre-paid AND a customer stops using your contract … at a practical level, there isn’t much you can do. Are you going to sue the customer? Threaten them? Some sales reps might — and in fact, if you aren’t careful, this becomes pretty common.  They’ll talk about threatening the customer. After all, their commission is at risk. But don’t let them. There is zero upside in threats, and it is impractical to sue. Sending a customer to a collections agency? That doesn’t really work out well in the end, either.

In the end, cash + usage are key here:

#1. If the customer hasn’t paid (no matter what the terms of the contract) but also doesn’t use the product, let it go. You didn’t earn the next payment from the customer. It’s not a real customer if they aren’t even using your product.

#2. If they’ve 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 default to No if they got a material discount for it. That was the deal. But if they got nothing for pre-paying, it may make sense to refund them a pro-rated amount.

Remember, when a customer is gone, they are gone.  If the revenue no longer recurs, it’s almost like it was never there at all.  The best you can do is to leave things in a great place.  So that when that other vendor stumbles … they just might come back.

A bit more here:

Maybe Every SaaS Contract Should Have An Automatic Out Clause

(an updaged SaaStr Classic answer)

Related Posts

Pin It on Pinterest

Share This