Let’s face it, most procurement teams in corporate America are battling the clock. There are not enough hours in the day to get through the work that needs to get done. The IT vendors know this and they also know that a shortened review cycle from a procurement team can lead to key items that are missed during the IT negotiation process. If you’re about to start a software negotiation process at your organization, you need to be prepared.
Contract details that often get missed
Before you can begin negotiating a software renewal, there are specific details that you should be aware of. Let’s go over every detail you and your team should be caught up on ahead of the negotiating meeting:
- Complex renewals should be reviewed at least 3-6 months in advance of expiration.
- Understand what you are actually using because that could be very different from what you are paying for under contract. Why renew a product that is not being used.
- Take control of what you can control. Put a gag order on the business teams that often give too much information away to curious sales executives.
- Always take the time to note any contractual language that references price increases. This clause is often hidden toward the end of a contract, so be sure your team pays special attention to the context surrounding price increases. Find out if the price can be increased and if there’s a range of an acceptable increase.
- Make sure your team takes the time to look at the renewal length term. If this detail gets missed, you could be stuck using a tool for longer than you’d like. It’s common for many teams to assume the renewal term is only for one year, regardless of how long you signed the initial agreement for.
- Pro-tip: question whether or not your team can get a better price if you sign for a longer term.
- Don’t miss out on the opportunity for access to the newest versions of the software you’re paying for. Tools within your tech stack may renew on their own, but not for the latest and greatest versions. If there’s a newer version of an on-premise application that your team is using, see if it’ll be automatically part of your stack or if you’ll need to pay an extra fee for it.
Aside from proofreading, be sure that you’re going over all of the pertinent information in your contracts. Keep an eye out for these details ahead of the negotiating process so nothing slips through the cracks.
Common mistakes when negotiating contracts
In addition to details getting missed, there are other mistakes that are often made during the process of negotiating a software contract. Position yourself as a smart negotiator. A smart negotiator will always ask for multiple options – especially when it comes to the price. When negotiating, it’s common to want more insights regarding price and you should ask for pricing ranges for one year, three years, and five years. Depending on how much the vendor reveals during this conversation, you may be able to get a better sense of their pricing floors. When you have this information, you know what you can try to negotiate down to.
Additionally, it’s often a mistake not to ask about add-ons within your contract. For instance, let’s say your team is interested in Software X, which is listed as $7 a user. The vendor said that if you buy 1,000 licenses, your per unit cost will decrease to $4 a user. What would happen if you call back in six months asking for more users? Will they be sold to you at $7 or $4? A volume discount is often not in the contract, so be sure to ask about add-ons.
Parting thoughts
A vendor renewal agreement represents an opportunity to “test and adjust” for your business. More often than not, business needs change over time. Make sure your agreement fits. In some cases your business needs may outpace your agreement size. Either way, fitting a win-win is the best way to ensure both parties achieve value.
Give yourself and your team enough time to get a renewal negotiation done right. It is difficult to properly evaluate your partnership and agreement for “fit” when under the pressure of a short timeline. Time gives you leverage. Use it wisely!
We have years of experience and over $1B of negotiations under our belt. We’ve gathered best practices when approaching these types of negotiations. We can help you improve your negotiation strategy and stay up to date. Contact us to learn more.