Introduction: Getting Started on Software Contract Negotiations
Before getting to the contract negotiation table, the most important piece of advice to consider is how to pick the software that is right for your organization. It is key to realize that the enterprise software you choose, is much more important than the “deal” you can negotiate. It will not matter how good your negotiation skills are if you aren’t making sure to realize that enterprise software represents a long-term, capital investment. Choosing the wrong software can save you money in the short term, but in the long run it will only lead to frustrations and increases in expenditures.
Now that we have that out of the way, once you are confident that you have matched the appropriate software with your company’s needs, the next logical step is to consider the cost. In doing so, we must know and understand how price is calculated in the first place.
How Price Is Determined
There are several key factors that most vendors will base the cost of their software on. These are the number of user licenses an organization/customer will need; the configuration of the software, including any customization that you may require; the cost associated with the deployment and maintenance of the software, which often includes the expensive implementation phase; and finally, any after sale service or support agreements.
Shopping around for enterprise software does not hold the same real world application as say, buying a car, where you can price out the same model at a few dealerships. Because one vendor sales team or value-added reseller (VAR) works in geographical areas, it will be very hard to get a side by side comparison. The best option is to create a shortlist of two or three solutions that are best suited for your organization and using said list to spur up some competition with multiple vendors. Remember, you must get creative when shopping for enterprise software. This is a key concept in negotiation software license agreements.
Starting the discussion: How to negotiate software price
First step in negotiation prices is to make sure you are entering any enterprise software selection process with a clear understanding of what features and functionality your company requires. Some of the best tools at your disposal are either an RFI (request-for-information) or RFP (request-for-proposal) template. This helps you capture and describe exactly what it is you are looking for. By having this information readily available at the start of contract negotiations, you are able to ensure that your company’s needs are clearly delineated. This also makes sure to put vendors in a position of having to meet your specific needs, rather than trying to sell you a software solution that might not be the right fit.
Making sure you have a clear starting point to your negation will be crucial to you being successful at contract negotiation strategies. Sending out a comprehensive RFP to vendors will allow you to receive detailed proposals to compare. Which should – theoretically – allow you to find one that fulfills your company’s needs. Of course, it is important to consider exactly what each vendor proposes, to compare functionally gaps (should there be any), and to find out how the vendor will address those gaps. It is the answers to these questions that are your starting point in any negotiation. It is reasonable to let the vendors know that they are competing for your business as well.
Let’s take this for example: Software Vendor A offers a solution that is equally as well matched to your company’s stated requirements as Software Vendor B. However, vendor A also offers it at a price 10% lower. Assuming that there are some parts of Vendors B’s solution you prefer, you can now use Vendor A’s lower price as a bargaining chip. With all being said, it is likely that your preferred vendor will be willing to negotiate, either by matching Vendor A’s quoted price or perhaps by offering a partial price break. It is important to remember that not all vendors will be willing to negotiate, but it never hurts to try. Remember, if you cannot get a deal on the price, you may be able to get one on a different aspect, perhaps you can get a customization or add-on patch at no additional cost. Even an extended maintenance agreement or discount on implementation would be considered a good option.
Contract Negotiation Techniques: Getting Down to the Details
When you are ready to enter into final purchasing talks, it is key to make sure that you are speaking to the most senior rep for that vendor and ask if he or she has the power to negotiate. As it is so important to not miss any details and get every point in writing, it is preferable to have a legal representative with you during this part of the negotiation process. Whether this attorney is a regular employee at your company or a contractor, it is important for them to be there in order to make sure that any negotiated points can be duly followed up later on.
One of the key questions to ask is how many user licenses the vendor is including in the proposed price. Keep in mind that each employee who needs to use this software solution will need a user license. It is also wise to ask the vendor what will happen if you need to add more licenses later on. What happens if your company acquires, is acquired by, or merges with another company—will the current number of licenses be transferable? In addition to this, make sure the purchase contract includes a provision for one or more licenses to be used by an outside party such as a contractor or auditor.
If it hasn’t already been touched upon, be sure to clarify what type of deployment the vendor is proposing. Is it an on-premise, cloud, or a hybrid deployment? Does the vendor have other options available (assuming you have the capacity to consider them)?
Find out when each vendor you meet with expects to issue an upgrade of their software. What will be your company’s options at that point? Is the vendor prepared to offer a free or reduced-cost upgrade? What about acting as a beta tester? Would the vendor agree to offer your company free access to any added features or functionality while they are in beta stage?
As a final question, find out what sorts of extras, if any, the vendor is willing to include. Some examples could include user training, an enhanced or discounted maintenance agreement, help desk services, etc.
When a Vendor Says No to Price Negotiations
What can you do when a vendor simply refuses to negotiate? Assuming you have at least one or two other software options on your shortlist, ask how the vendor plans to close the gap with their competition for your company’s business. Here is another example of why it pays to use a comprehensive RFI/RFP and have very detailed proposals. If the reluctant vendor points out that their software is “superior to the competition,” as they likely will, you can counter with the argument that one or more of the competitors are equally h3 or perhaps even a bit h3er in one or more features that are important to your company. As much as vendors might like to believe software is “one-size-fits-most,” it simply isn’t. One vendor’s solution might indeed be superior for some companies, while another might offer something that fits better for others. To be able to make this argument, however, you need to have a clear picture of exactly which features and functions are most important to your company.
If you find that you have been given no options by the vendor for negotiating price or any other viable options, ask what can be done in lieu of price adjustments. An example might be getting the vendor to provide training to the users at no extra cost, or a maintenance contract, or perhaps a free upgrade when it becomes available next, and so on. Be creative here, make sure you are trying to get all you can out of these negotiations. Do not be afraid to think long term, what might come up that you will need later, and get that into the contract now.
Finally, ask yourself if you—and your company—are prepared to walk away from a deal. Should you not get what you need, or get anywhere negotiating, you need to decide if you are going to just turn down the deal. This might mean going with a less-well-matched alternative in order to meet your needs. Or should your current system suffice for the time being, would it be more beneficial to just wait for something that fits your needs better. If nothing else, it might be just enough of a wait to make the vendor nervous about losing a contract so that they are willing to make some sacrifices to benefit you.
Additional Tips to Remember
- Check on expirations. You will want to make sure that the license you buy doesn’t expire. It should be valid even if your company does not renew the maintenance contract or is acquired or merges with another company.
- Get a training manual. For the sake of your future employees, make sure you are allowed to copy user documentation/training instructions.
- Set a firm date. Make sure the vendor provides a strict date for software delivery and/or implementation.
- Access for outside consultants. If necessary you want your outside consultants to have access to use the software.
- Ask for free access to any bug fixes as they come up.
Not Feeling Confident about Negotiation? Look into hiring an expert!
Even with the assistance provided in this article, software negotiations can still be a daunting task that many do not feel comfortable undertaking. Look outside for help! There are highly experienced professionals out there for negotiating software purchases from vendors. They are able to guide companies like yours in identifying their precise requirements, setting priorities, and then matching those prioritized requirements against every currently available software option.
While there is a fee for outside consultations, in many cases, it is more than likely that you will make up for that fee in negotiating a better deal. So not only do you get the right software, but it is a pretty good return on your investment as well.