How to develop a negotiation plan for optimized software deals

Software is now a key strategic priority for your business. It is not an add-on or an expense where your main concern is simply keeping the price down. Software is driving your business and soaking up a growing share of expenditure and management time. Securing the optimal commercial and technical outcome is critically important. That can be achieved only if IT and procurement are fully aligned on strategy and working together effectively.

Broad decision making

Negotiating software contracts is complex and time-consuming, needing input from all the main stakeholders. After you have that input and have assembled a team, you need to lock down communication and define an agreed negotiation strategy.

When negotiating, you need to follow some basic housekeeping rules. That means all communication should be through one person only. There must be no informal discussions where important information might be unwittingly given away or verbal agreements made. That means everyone in the company, including the C-suite, should be aware that negotiations are ongoing and who the spokesperson is. We often see customers on the brink of signing great deals only for some side discussion to break up the agreement.

Consider the entirety of the contract, not just the price

Consider the terms and conditions as carefully as the headline quoted price. There is often more room for vendors to move in terms and conditions than on price – especially if you are dealing with a strategic tier-one vendor. And there can be big benefits for the customer from getting beneficial terms in place.

For instance, if your company is likely to be active in mergers and acquisitions, it is possible to add a no-audit clause, which will be valid for a certain period – e.g., 2 years to the contract. That means you won’t find yourself in the middle of a complex integration project while also having to renegotiate a deal or cope with an audit – you can focus on getting systems running first. Much in the same manner, this can also be done for a divestiture. When a subdivision or business is being sold or split off from a larger business, it is possible to negotiate upfront a grace period during which the software of the selling entity can be used by the new entity for a certain time, even though this now is a different legal entity.

Some vendors might offer the option of unlimited usage for an agreed price for a certain period of time. At the end of that term, real usage will be measured, and that will form the basis for setting the price for the remaining period of the contract.

We can help you understand what is possible here and make sure you focus on the right areas during discussions. We know that different vendors have different priorities, and that those priorities are subject to regular change.

When is the right time to renegotiate?

Knowing when to do a deal is important. You do not have to wait until a contract is nearly at its end. In fact, you should not wait that long because that hands the advantage to the vendor, which knows you must sign in a given period.

Vendors have targets. They have fiscal quarters; they have promotional campaigns for new products and services; and account teams are sometimes under pressure to move customers away from services and platforms they are phasing out. People change jobs and want to leave with a big deal – or bring one with them. Knowing the levers that can be used to your advantage can make a huge difference to the outcome of your negotiation. It pays to have an expert in your organization or a partner you can trust.

Always have a plan B

Of course, negotiations should always be cordial, polite and professional. Remember that everyone is just doing their job here and it pays to foster long-term, mutually beneficial relationships based on trust.

It is critical that discussions develop and both parties find common ground. However, sometimes negotiations can hit an impasse. When this happens, it is important to escalate issues to higher levels within the vendor organization to keep things moving – understanding the vendor’s hierarchy and decision-making structure can pay dividends should progress falter.

Don’t think you have to do this on your own

Getting the optimal deal for your organization can deliver significant benefits far beyond a lower contract price. With a technically and commercially favorable contract in place, you can reduce management headaches around software provision for the duration of the deal – and ensure that your employees have exactly what they need to do their jobs, even as those jobs evolve over time.

There is plenty of help available to balance the scales. Without careful and methodical preparation and planning, these tend to tip in favor of your strategic vendors – software companies have entire departments dedicated to this activity, and their pricing and contracts can be complex. You do not have to go into negotiations alone – help is at hand.