Not many people enjoy software contract negotiations. This is because not many people think that they are good at it. There’s an anxiety that you’ll run up against a smooth-talking salesman who will spin circles around you until you’re signing your life away on the dotted line. This fear is only exacerbated when we consider the hyper complexity of software licensing that makes it difficult to understand on the best of days. Software negotiations may not be an exact science, but they are not derived solely from born talent either — you can learn to be good at it.
At MetrixData 360, we have spent 20 years going through software contracts, and as a result, we have successfully negotiated over a billion dollars in software contracts for our clients. In this booklet, we will go over how best to get ready for your negotiation with your software vendor, whether that negotiation is a contract renewal, the arranging of a new contract, or looking for a concession at the end of a software audit.
Table of Contents
- Understanding the Vendor
- Inventory and License Knowledge
- Trained Responses to Suite Their Goals
- Cultivated Relationships
- Tactics at Your Disposal
- Focus On What You Need, Not What You Want
- Prepare and Surround Yourself with the Right People
- Follow Your Own Timeline
- Know Your Data
- Come to the Table with the Right Attitude
- Know Your Vendor Better Than They Know You
- List of Talking Points
Understanding the Vendor
It may be unfair to paint the vendors as the villains of this scenario, but while they don’t have forked tongues and horns coming out of their foreheads, it is important to remember that they and you sit in adversarial roles with opposing goals in this arrangement. They want sales, maximum profit, and a push to popularize certain platforms (Microsoft has been aggressively pushing Azure as a good example of this tactic). You, on the other hand, want software that will only bring value to your company, and you want to pay a fair price for only the features you need. By their very nature, these goals will butt heads and therefore you must keep in mind that for this moment, the vendor is your opponent, no matter how much your sales rep will act like they want to be your friend or business partner. To start this battle, it is important to get to know your opponent first. So, what advantages will your software vendor’s sales rep have when they come to the negotiations?
Inventory and License Knowledge
Usually when vendors first hire new sales reps, they will have them go through extensive training that forces the new hires to learn the ins and outs of all the vendor’s products and the licenses to go with them. They will most likely have a strong understanding of contract templates and will be trained on customer relationship management. A seasoned sales rep spends their days going over these same products again and again, however, their knowledge of software licenses only really covers how to effectively sell the software to you. In addition to this, the software that they are pushing on you might have very little to do with your goals for cost-saving or value, it’s simply what they were told to sell. Often, we have seen software sales reps, when pressured, produce more cost-effective deals that fit our client’s needs far better. So, whatever you do, do not let the mind-set sink in that the sales rep knows what is best for you, only you can answer that question.
Trained Responses to Suit Their Goals
Any objection you could possibly think of to why you shouldn’t buy a product, there’s a guarantee that your sales rep has heard it before, and they already have a perfectly timed answer ready. It’s important that you let go of the idea that both of you can come to a win-win scenario. That’s not how the sales reps will be thinking, at least, because sadly we live in a world where behavior is controlled by business objectives and annual reviews. This means that no matter how much they might like you as a person, the software vendors are always going to work solely with their own victory in mind, so you will need to take the same approach.
The software vendor will work hard to cultivate relationships with the C-level employees of your company; doing research to figure out where the upper levels of your management went to school, past employment, favorite charities or civil organizations, searching for any and every connection. If you aren’t on “golfing buddy” terms with your CEO and you need to walk into a software negotiation with people who are, it could leave you at a disadvantage. If you aren’t necessarily the be-all-end-all decision maker of your company, then that means the software vendor will be especially rigid towards you, because whatever progress you make with the software vendor, the sales reps will have to go through the same process again with the people above you in your company, only this time the starting price will be whatever progress you made.
Software vendors will often pressure you to wrap up the deal quickly. The truth is that the software vendor has the advantage of time on their side. The situation is exacerbated if the software the vendor is selling is critical to run your business because there’s only so long you can wait before not having that technology impairs your business’s productivity. In many cases, if the vendor doesn’t like what you’re proposing, they can simply fold their hands and wait in order to outlast you.
Of course, you will be able to tell if you have a good vendor on your hands if they don’t resort to any of these ploys: if they don’t take their merry sweet time about closing a deal; if they don’t leap-frog over you to get cuddly with the C-levels; and if they offer deals based on your business’s interests and needs, you should reconsider your relationship. If you find a vendor who makes it clear that these underhanded strategies are not how they roll, cherish that relationship.
Tactics at Your Disposal
Despite the seeming unevenness of the situation, there are a few tactics you can use when approaching a software contract negotiation that can ensure the best outcome for the situation.
Focus on What You Need, Not What You Want
We all like shiny new things and getting the latest and greatest software always seems like a tempting offer to give into, but it may not be what your company needs. Even just going for a discount may not serve your company the best in the long run. You need to know exactly what your company needs based on the following factors:
- Use: What do employees at your company use, and what do they not use? There is no point renewing products that your company’s employees have used only once or twice in a year. This may be due to lack of education on the new software, or it may be that they just don’t need it to get their jobs done.
- Future Growth: Buying based only on what you have purchased in the past does not allow your company to grow.
- Manageability: Do you have the processes in place to manage this software? Does it look too complex for your current SAM processes to handle? Signing up for overly complex licensing models may lead to disorganization and compliance risks later down the road.
- Full Cost: Subtle expenses like maintenance and upgrades can easily add up to outweigh the overall value of the software.
Prepare and Surround Yourself with the Right People
When it comes to software contract negotiations, there’s no such thing as too much information. We have often seen customers rush into a conversation with their suppliers about features and needs before they are completely ready to do so. You need to start preparing for your contract negotiations long before you start arranging a kick-off meeting. Make sure you have a firm understanding of your business’s requirements, the full extent of the features and benefits your desired product offers, and the particular licensing metrics of the software vendor you’re dealing with.
Take the time to prepare a meeting agenda outlining any and all outstanding questions or issues you may have.
As part of your preparation, you should surround yourself with a team of experts. Expertise sits in many different departments, including procurement, IT, and the legal department. Remember, the ones who are arranging the purchase of the product are often not the ones who will be using it. Seek insights from a variety of sources and don’t get caught up in the petty squabbles between departments; despite the fact that many organizations often create internal walls that are difficult to overcome, it’s important that you face the software vendors with a united approach.
Follow Your Own Timeline
The vendor will often press you and make it seem like they need your answer quickly but that hardly means there is anything tangible behind this pressure. It’s not like the vendor’s main office is going to collapse into the sea unless they get your answer; if they can meet with you tomorrow, odds are they will also be available next week or the week after. It’s important that you pick a schedule that works for you, and that you resist the vendor’s pressure whenever possible. Try breaking your contract negotiation into parts, instead of taking an all-or-nothing approach. This strategy will compartmentalize your efforts, which can allow you to track your progress and will give you a feeling of accomplishment rather than slogging through one giant battle.
A negotiation can be broken down into four parts:
- Preparation: In which both parties prepare their stance and approach before meeting.
- Negotiation: In which an agreement is reached between both parties.
- Execution: In which the terms of the deal are carried out.
- Further Cultivation: In which the deal is completed but the relationship between the two parties is nurtured and further partnership opportunities are explored.
Know Your Data
This is the key to developing a strong approach to a software contract negotiation. If you don’t know what you have deployed, if you don’t know what you are using or how much value your company is getting out of it, then you won’t be able to make smart purchasing decisions. We have often seen companies buy simply based on what they have purchased in the past or they make an educated guess at what they need. However, if you purchase based on what you have bought in the past, then it both fails to account for any future growth your company may experience and opens you up to rebuying licenses that you never needed. Guessing will also lead to similar problems since guessing a license number that is too high means you are losing money and guessing too low leaves you exposed to heavy penalties in the event of a software audit.
The best way to gain insight is through effective software asset management procedures. If you want to know how you can get started, you can check out our article, Implementing Software Asset Management for Beginners.
Come to the Negotiating Table with the Right Attitude
While emanating charisma might come easier to some than to others, it is a skill that can be learned given enough practice. Bringing the right disposition to negotiations will allow for the meeting to go smoothly.
- Be optimistic and positive, even if you are frustrated.
- Be bold, don’t let the software vendor push you into deals you don’t like.
- Be creative, problem solving is often met with favor.
- Be generous with your willingness to supply equal opportunities for growth and prosperity for both parties.
- Be humble. Approach the situation with kindness and grace. They are humans, after all. Treat them the way you’d like to be treated.
Know Your Vendor Better Than They Know You
The software vendors will have to go through a few questions while they are considering their partnership with you. Considering these questions can help you direct the conversation in a way that ensures that they are positively answered in the mind of the vendor:
- Do we have ongoing business with this customer?
- Do we have an established relationship with the decision makers within this customer’s organization?
- What are the customer’s goals?
- What is the customer’s budget?
- What is their project schedule? The importance of their project?
- Is there a way we can become their sole supplier?
- Is the customer doing business with our competitors?
- Is the customer doing business with one of our resellers or distributors?
Your knowledge cannot be limited to what your sales rep likes and dislikes. Many companies are not willing negotiate with anyone within the software vendor’s company other than the sales rep, especially when they have developed a friendly relationship. You don’t want to upset the balance within the software vendor’s company and the software vendors are great at making sure things stay this way. It’s critical that you break out of this cycle in order to get the software contracts that you want. Be willing to escalate the situation up the chain of command if needed. A well-placed phone call to a high-ranking member of the company may be just what you need to get your software negotiations moving again.
Have a List of Talking Points
There’s no hard and fast rule to leading a successful negotiation because contract negotiations are as unique as the software that you are trying to obtain. However, there are a few general things that should be addressed during the negotiations, consider the following areas:
- Definitions like Use, Licensee, and Parameters. Ensure they are properly expanded upon.
- How software is defined, will it include everything the licensee is ordering or simply what the licensor is delivering,
- Restrictions surrounding copying, access, transferring, sub-licensing, or providing the software to a third party.
- How both the licensee and the licensor intend to protect their own information; if the licensor will have any access to the software in the licensee’s environment, along with data protection or security measures.
- Auditing rights, whether the licensor is required to provide notice, who can conduct an audit, the number of audits that can occur in a given time period, whether the audit must be conducted during regular business hours while also having minimum impact on the licensee’s business are all important details.
- Where will the software be located? On-prem on designated machines or servers? Third-party host? Cloud Environment?
- Will a third-party need to be accessed by or have access to the software?
- Other than the installation if not provided by the licensor, what will the licensee be expected to do with the software? Will modifications, patching, or maintenance be required?
- Are there territorial restrictions surrounding the software?
- Is the license perpetual or only for a fixed period of time?
- What is the process around expanding the licensee’s rights? If the licensee wants more users, more devices, or anything else similar in nature, what is the process around that increase? If you expect an increase in your counts soon, consider actions that will protect any current discounted rates you’ve gained during the negotiations.
- Test and Development server environments, disaster recovery scenarios and how both pertain to the licensor’s definition of ‘Use’.
- Are there any disclaimers and other warranties within the software license?
Having answers to these questions will give you a lot of the information you need to make sure you will be able to use the software correctly without compliance issues. Most products and services can be purchased in a variety of sizes, models, and shapes, each with their own unique benefits and varying costs. Be certain to evaluate each option carefully.
Knowing what you want to say will also help you in figuring out how you will say it. Messaging will be everything and understanding what to say and when to say it will be critical. We’ve seen simple careless statements like “don’t worry about it, procurement is just playing hard to get,” absolutely destroy months of hard work. Make sure that everyone in your company is on the same page of what can and cannot be said and that all departments’ goals are aligned to deliver the best results.
For More Information
Software contract negotiations can be stressful, and it may seem like you’re surrounded by fake smiling faces that are pressuring you into bad deals for software you ultimately don’t need. But it doesn’t have to be this way, with the right tools in place, you can properly defend yourself against these ploys and be able to counter them effectively. Have insight into your own data, prepare, have questions, and above all else, don’t do this alone. At MetrixData 360, we’ve spent years perfecting the art of business negotiations. We’re here to save you money, to stand for your interests and your goals in this venture. If you’d like to learn more about our approach to contract negotiations, you can contact us using the information below and we can get started on getting you the deals you need.