Ever too often companies find themselves 30 days out from a software renewal or net-new purchase with limited support or resources available for successful negotiations. Software negotiations can be complex, especially when it is heavily relied on by the business for continuity. This holds true for all variations of software and my intention with this blog is to relay some best practices that I have adopted to successfully negotiate these services, specifically renewals.
Plan ahead and gather appropriate information in order to make sure that you are fully prepared for the upcoming negotiation. My rule of thumb is to start prepping 90-120 in advance for software renewals that are not business critical. If it is a product from Microsoft, Google, or a larger OEM and it is relied on throughout the business, I recommend starting the process at least 6 months prior. Use this time to gather contract information, how many users are currently leveraging the software, what countries it is currently used in, active modules or potential modules end-users may want to adapt, determine the utilization rate, and any other data points that are key indicator of the products performance (think SLA violations, if applicable).
Create competition, now that you’re armed with the data from above, it’s time to start evaluating the market. More often than not, there is an alternative option to any software solution. Depending on the actual appetite or willingness for the stakeholders to make a move you will want to gauge whether you should issue a full RFP (meaning, yeah they’re ready to switch providers) or a quick RFI/RFQ to just get a pulse check of where other providers pricing is falling in relation to your current. It may make sense to request a renewal proposal from your software provider at this time to make sure you can evaluate each bid well in advance of needing to make a decision. If there is currently no desire to look into alternate suppliers, I would recommend auditing what’s already in the environment. If your company already engages with another software provider that has a similar suite of services, it would be beneficial to compare their prices to see if they can be leveraged.
Rally the troops; it’s important to make sure that your stakeholders are aware of what you are trying to do and how it may impact them, their budget, or their end-users. It’s critical that they are supportive and knowledgeable of the sourcing process, and I’ve always found that full transparency is the best model to gain their trust. This goes both ways though, make sure you are listening to what they need as well to make sure it does not disrupt your relationship with them or theirs with the vendor. You also want to make sure that the team is understanding of what information can and cannot be shared with the vendor to ensure your leverage is not impacted.
Control the negotiation by managing the renewal process. This includes outlining action items for your colleagues and the supplier, as well as defining the timeline. Regarding action items for the supplier, it is important to give them targets. Developing targets can be done by using pricing collected from the market (e.g. pricing in the market is 10% lower than current/renewal pricing) or put a dollar amount on any SLA violations or low utilization rates. Try to make sure that when you communicate the targets that you are doing so in a cohesive manor that has the full support of your stakeholders. In addition, hold the supplier accountable to a timeline for having answers back to you.
Finally, it is important that you are constantly in the know during the renewal process and you may want to consider joining any calls your stakeholders have with the vendor. This does not mean you need to be an active participant, but being present keeps you in the loop on any service related updates, especially anything coming in and out of scope. There are so many moving parts throughout the course of a negotiation that it is best to have as much information and interaction as possible to move it forward.