When economic uncertainty strikes, organizations tend to cut back on their spending, and IT budgets are no exception. This can be a major hurdle for teams that need to keep delivering and innovating despite limited resources. However, there are ways to overcome these challenges through effective sourcing strategies. In this blog post, we’ll explore a few strategies that can help you do more with less and keep your team moving forward.
During times of financial strain, one strategy is to examine existing contract obligations, especially those with minimum commitments and upcoming renewals. By prioritizing these commitments, you’re better able to alleviate financial pressure and ensure the provision of high-quality services. This approach has been successful in past economic downturns and can be a valuable resource in managing budgetary shortfalls.
In the process of renewing term subscription agreements, the primary concern is usually centered around pricing and reducing any potential year-over-year price hikes, especially in times of economic inflation. However, there have been cases where there is potential for even greater cost savings – specifically, in agreements where subscription fees are determined by usage and there is a minimum commitment. These instances present a unique opportunity for sourcing and cost optimization.
Be Cautious About Minimum Usage Requirements
It’s important for clients to be cautious of committing to aggressive minimum usage requirements in exchange for vendor discounts. While these commitments may seem like a good deal, they can also be risky if the client is unable to meet the minimum usage requirements. However, if the client is able to meet these requirements, it can be a beneficial arrangement for both the vendor and the client.
When companies commit to a minimum usage with a vendor, they may end up paying a hefty “true-up” cost if their actual usage falls short. This cost can outweigh any benefits gained from the discounted promotional price offered by the vendor. To avoid this, it’s important for companies to review their actual usage versus their minimum commitments before renewing subscription agreements. While this may result in a slightly higher base price, it can ultimately save you money in the long run. It is important to regularly review and adjust your usage to ensure that you are optimizing your resources and minimizing unnecessary expenses. Additionally, vendors may not increase pricing as much as you expect after “right-sizing” because they anticipate potential growth that could bring you back to prior commitment levels.
Finding a Balance
When entering into a contract, it’s important to find a balance that works for both parties. A minimum commitment that is appropriate for the situation can lead to a positive outcome. On the other hand, if the commitment is too high and the capacity is not fully utilized, it can result in a seemingly good price but ultimately a bad deal. It’s crucial to find the right balance in any contract negotiation.
At SCS, we pride ourselves on our vendor independence and dedication to helping clients optimize their IT costs. Our team is comprised of top-notch professionals who are committed to maintaining our high standards of integrity and excellence. Whether it’s negotiating software, telecom, professional services, or hardware contracts, we work tirelessly to ensure our clients get the best possible deals. Schedule a FREE consultation with SCS, today!