Do you have a catalog of licenses that have been purchased over a period of years? The systems they support have been growing and changing and it is no longer clear what licenses are extended or reduced? Your company could be spending too much on software renewals for a capacity you don’t even use! There are almost always opportunities to save on an IT renewal, but it calls for a bit of forensic analysis to reveal your options. Preparation is key – and it needs to begin months before the expiration of your current term!
Here are a list of questions to ask and data points to collect:
- Has an internal audit against licenses/users/devices been performed to validate consumption?
- Are the right types of licenses being purchased?
- Is the functionality of this product similar to or does it overlap the features of another product that is being purchased?
- Are there any additional features or options key stakeholders would want/need?
- What features or options are being paid for yet remain only partially used?
- Is a multi-year renewal under consideration?
- What is the estimated growth trajectory over the next 3 years?
- What are the fiscal quarter and year-end dates for the vendor?
Consider Timing Carefully
The optimal time to begin your IT renewal journey depends on whether your initial deal was/is fairly priced. Sub-optimal pricing and/or oversubscribed scenarios should begin the renewal discussions far in advance versus 3-4 months prior to renewal. Additionally, the complexity of a renewal should be taken into account. For example, a $100MM IBM renewal with 400 hundred different skus is clearly more complex than a $5M Adobe renewal with 10 different skus. Give yourself 6-9 months for the IBM example. Lastly, leave time for your software asset management (SAM) team to confirm what you are utilizing. SAM and IT sourcing must be join together for the best outcome in the renewal process.
How timing intersects with vendor motivations is also key. If the customer can control the renewal timing, they can sometimes find a discounting opportunity in an early renewal. This option is often tied to quarterly sales goals and financials of the company. If an early renewal can deliver better sales numbers for a company, they will often be much more amenable to price reductions.
Initiating the renewal conversation months ahead of the renewal is a tactic which can sometimes cause concern within the vendor organization. The rationale for the early ask should always be tied around “more accurate budgeting and forecasting of spend.” Discussions about budget and spend are indirect and subtle hints to vendors that spend is being analyzed. Again, the goal of the exercise is to leave small messages within your words and actions that enable the sales teams to build uncertainty into the renewal and pricing.
Demand Pricing and SKU Transparency
It’s always a red flag when a vendor packages its renewal offer into a slide presentation. Never accept a PowerPoint-style offer where the details are not being shown. Line-item pricing is a must. Ensure the proposal contains these critical data points: SKU, Product Description, Quantity, Term, List Price, Price. Most vendors will omit one or more items to allow their teams multiple avenues to manipulate pricing in their favor. Bundled pricing is simply not acceptable.
Refine Your IT Renewal Narrative
If you find yourself in the situation where the renewal is pretty straightforward, but you want to reduce the number of licenses, the typical vendor reaction is to raise the unit price to neutralize the loss.
Ask the vendor to share alternative possibilities that might exist to allow the pricing to remain flat. Often there are individual or team incentives that can be leveraged. The simple act of opening the door for that conversation can play into an IT negotiation fundamental – to create a win-win scenario.
Consider building a renewal calendar
A vast majority of IT Renewals come with automatic renewal, so the contract period is renewed for another subscription cycle if you don’t reach out to the vendor 60 or 90 days prior to the specified date. If you miss the deadline, you’re stuck in another contract even though you might not need the application anymore.
An easy way to keep track of all upcoming renewals is the use of a renewal calendar that notifies you ahead of time, so you always know when it’s time to take action. With a good renewal management plan, an organization gets to make proactive renewal decisions by reviewing original purchase agreements and contracts and creating negotiation strategies that don’t leave them at the mercy of the vendor.
Ensuring you get the best possible pricing, terms, and conditions is our focus. Contact us to learn more.