5 Key Considerations When Planning A Major Software Contract Negotiation
Our experts offer five key recommendations to consider when you are preparing for a major software contract renewal.
Throughout your software contract lifecycle your business requirements may well have changed, the size of the company may have increased or decreased following growth or shrinkage, mergers, acquisitions or divestments.
Your business may have gone through a transformation program and now requires different software or different usage of existing software. However your business has changed, this will undoubtedly leave opportunities to leverage the software contract negotiation for your renewal to uncover areas for optimization and substantial cost benefits.
Here are five recommendations from our experts to consider before you start your contract negotiation process:
1. Give yourself plenty of time to plan the renewal
With all major contracts, the more time you have to plan your negotiation strategy will most certainly ensure that you are well prepared in every way before engaging with the vendor. Depending on the size of the contract our experts recommend that you begin planning 6-12 months beforehand and the likes of ULAs and EAs may well need more. In many cases our Anglepoint experts see that the person or team involved in the last software contract negotiation are no longer with the business, meaning they now need to search a paper trail to gather information on all the necessary contracts and paperwork (both electronic and hard copies).
By carefully planning and documenting each contract renewal, putting processes in place and updating this information every time the process is repeated, you can ensure your bargaining power is secured when the next contract needs to be negotiated.
Leveraging a contract renewal calendar that is based on accurate information is always recommended for a successful negotiation. This will flag up the renewal at the right time to allow you to uncover every opportunity for optimization and ensure that the Bill of Materials (BOM) you bring to the table with the software vendor is accurate and future proofed for your organization’s needs.
2. Ask for expert advice & insights
Just as your business changes, so too does your vendor and knowing what these changes look like and what the leverage points are will be vital to your software contract negotiation strategy. Publisher experts that have experience in software contract negotiations for different organizations of every shape and size will most certainly have a myriad of knowledge that can only be obtained by going through this process repeatedly.
Having insights into how the software vendor is incentivizing its sales team and the products they are keen to promote will allow you to see where the best discounts may be achieved. You can decide just how much you want the experts to be involved. Different software vendors may simply be there just to stand beside you through the negotiation.
Engaging with experts earlier on in the process will ensure that you are negotiating for exactly what you need now as well as taking into consideration what your business may need in the coming 3-5 years and using this information to bring to the table if it will benefit the negotiation.
3. Optimize, optimize, optimize
Before preparing your final BOM, utilize the lead time before your renewal date to optimize wherever possible. Having access to accurate data and good visibility of your cloud and software estate will enable you to understand what software you have deployed and what is actually being used. Remove unused software wherever possible as this can contribute to substantial savings. For example, one of our Anglepoint clients had 3k unused licenses for a Microsoft product that was costing £500k a year (read the full case study here).
Review the access levels and the cost impact of paying for functionality that isn’t being utilized. The best example of this is Microsoft E3, E5 and F3 licenses. These each vary vastly in price and offer very different levels of functionality. While a good deal may have been achieved through purchasing blanket E5 licenses for 10k employees, it is unlikely that all of these employees will be using all the functionality being paid for. Through a process of reviewing personas and understanding whether there is a group of employees that would be able to perform their function using E3 licenses, spend could be reduced considerably with a switch to the less expensive product.
Expert advice here has the potential to uncover millions of dollars’ worth of savings as your provider is likely to have seen scenarios similar to your business’ and know what delivered savings for other clients. Leveraging this experience will undoubtedly deliver opportunities that may have otherwise been missed during the software contract negotiation phase.
4. Build an accurate Bill of Materials (BOM)
Before entering into a negotiation it is important to have a clear and accurate BOM. Think about the ’extras’ that you add to your shopping cart when you go shopping, this works in the same way. Sometimes there are special offers and it may make sense to buy a multipack to get a great discount. But, will you actually need or use the extra product? If you will then great but, if it will sit on your shelf for three years unused then it’s a false economy. You will be paying for unused software.
If you are offered a trial of a new product, again, consider whether you need it or if it will be used. The product may be offered at a hugely reduced price now, but that can increase substantially in the future. You may end up with a ‘nice to have’ that is actually costing much more and other products that you have may provide the same solution at a lower price.
Creating an accurate BOM, agreeing where you are prepared to consider other options, where you want to continue with what you are using and what you will truly need is key. Stick to the plan and don’t be tempted by offers that look great in the short term. This will accelerate the buying process and reduce risks.
When creating your BOM, use the product ID with a description. This will remove any ambiguity around the product that is required. Document any changes and additions and make sure that all stakeholders agree on the requirements for their department or function. This documentation will be invaluable next time the renewal comes up and it will ensure that there are no duplicated requests with product functionality. Keep the document updated with any problematic products as you may wish to replace these or remove them altogether. Including the contract information in this document will be important too as this will enable you to highlight contractual concerns that can be discussed and rectified.
5. Negotiate with knowledge of your vendor
Maintaining a good relationship with your vendor and striving for a win-win outcome must be kept front of mind throughout the software contract negotiation process. Consider who will engage with the vendor and their seniority as this may affect the tone and leverage of the software contract negotiation. Do your due diligence; know the vendor but also the sales person and what their drivers are and how they are being incentivized. A good personal relationship will drive the desired win-win outcome if both parties know which ‘buttons to press’. By timing the negotiation carefully a year/quarter end may achieve further discounts if the salesperson is focused on achieving these targets.
Consider where you buy! Companies with various global offices may benefit from purchasing software in other countries as the pricing structure may be different. Be sure to check contract terms as this may also determine where the software may or may not be used.
Benchmarking your requirements against similar companies in your industry is a great way to ensure the best commercial and contractual deal. It’s one thing to negotiate a price that is discounted for you but another to understand what has been offered in other negotiations. You should understand not just what the vendor will discount, but what they can discount.
Make sure you negotiate on the price and the contract terms. Ensure that there are no price increases built into the contract or clauses that may cause complications further down the line if you decide to retire a product. Split out products onto different contracts if flexibility is required that may not be available if they are tied together. Be sure the terms are not stored online and subject to change without notice. What you agree to now may alter if terms and conditions change and notifications are missed.
Check the product you want is the newest version to ensure you won’t be paying for support on older products. Be aware though, new products may offer better deals, but you may be duped into paying more for a newer, shinier product that you don’t really need. Equally, as stated previously, the deal may be heavily discounted now to onboard a new tool and the price may jump up considerably on the next renewal.
Consideration of future usage and renewals is often overlooked. Carefully weigh up whether it’s better to buy a product in larger volumes in the renewal as you may find when you go back to increase users outside of the renewal negotiation, the price has doubled. If you have other renewals coming up with that vendor, an early renewal may offer further discounts or opportunities to consolidate.
Check the renewal dates and terms and record these to ensure you have time to prepare for the next renewal and are not caught off guard with an auto renewal.
Ask for various pricing options to compare costs, agreeing to a longer term may get better pricing but be sure that you will need the product for that amount of time.
Consider what you have used in the past, what you are using now and what you plan to use in the future.
Finally, once you have signed on the dotted line, it’s already time to start thinking about the next renewal. Make sure everything is carefully documented and recorded to provide the platform for the next one.
To find out more about our services and get help from our experts check out our Software License Management Services or contact us here to arrange some time to discuss your requirements.
