Even if your business is fortunate to enjoy a long honeymoon phase with your enterprise software vendor, there’s always a risk of price-gouging and predatory behavior as that business relationship evolves, especially during software negotiations.
The longer you work with a vendor, and the more integrated those IT software services become with your business, the more leverage the vendor ultimately gains in that relationship. Before long, what used to feel like a partnership can start to feel like a hostage situation: prices increase, service quality declines, and the services being paid for aren’t properly aligned with your business goals.
The strain of this relationship can be most pronounced when procurement specialists and business leaders feel like they’re forced to choose between the lesser of two evils: accept the vendor’s increasingly burdensome terms of service, or embark on a complex vendor transition that brings additional migration costs and business disruption to the company.
Eager to avoid this no-win scenario? The best defense is by maximizing your organization’s leverage in software renewal negotiations. Read on for some tips on growing your leverage to keep software providers honest—and to protect the value of these vendor relationships.
Negotiate Fixed Fees in Advance
When vendors raise their prices and force you to make a quick decision on your contract renewal, it can feel like the vendor is holding a gun to your head. Both sides of the negotiation know that replacing an IT software vendor is a complex and time-consuming process—and one that requires due diligence to get it right.
The problem for your business is that, as contract renewal time nears, the disruption of leaving your vendor gives that company more leverage in your negotiations. The simple solution? Take that leverage away by negotiating fixed fees, including price increases, well in advance of your contract’s expiration.
Whether you choose to structure your contract with fixed rate hikes on an annual basis, or you start the negotiation process early and set an artificial deadline to either finalize new terms or commit to leaving, your business can gain better leverage and protect yourself from high-pressure pricing and sales tactics.
Find the ‘Sweet Spot’ When Negotiating Software Contract Length
Too short of a service contract puts you in the constant position of renegotiating terms and pushing back on price increases—especially if you’re renewing on an annual basis. While the shorter contract may give your business flexibility, it also puts pressure on your organization to renew your service agreement or undergo the time- and resource-intensive process of switching to a new provider.
At the same time, too long of a contract length can lock you into services that may grow less valuable to your business over time. Enterprise IT software is a fast-changing industry—and while it’s nice to lock in consistent service and competitive rates, you also need to preserve your ability to adapt your software services as your needs change.
For many businesses, three years is an ideal length for an IT software contract, giving you greater runway to negotiate the next deal without the pressure of time, but also giving you the option to adjust your software procurement strategy as your needs evolve. While this is far from a hard-and-fast rule, it can be a good starting point when negotiating a renewal, or even a new contract with a new vendor.
Conduct Regular Market Comparisons
Knowledge is power—and when your business denies itself the knowledge of larger market pricing and trends, you hand over leverage to your existing vendors.
Even if you’re satisfied with your current service, market comps will help you compare the cost and value of your existing services to the alternatives available on the market. Don’t wait until your vendor puts forward a proposed contract renewal that sends prices sky high: conduct this research ahead of negotiations so that you can quickly counter their offer and accelerate the timeline of making a decision.
Perform Regular Audits of Software Solutions
As your IT software needs change, so does the optimal mix of software and services supporting your business. Regular audits—at least annually, but ideally every six months—will help you evaluate the value of these services and guide your negotiations as you seek to strip out less valuable services and software, controlling costs and optimizing your vendor relationship’s ROI.
If you’re planning to transition away from a legacy IT software provider and migrate to cloud-based alternatives, these audits can also inform your migration strategy as you slowly scale back your current vendor services and switch over to a more efficient and cost-effective cloud provider.
As you build and execute this migration strategy, a trusted migration partner can help you reduce expenses and free up resources to minimize business disruptions and ensure a smooth, gradual transition. Origina’s team of experts have decades of combined experience in helping businesses leverage software renewal negotiations to lay the foundation for an eventual move to more sustainable, scalable cloud-based providers.
Find out how we can help your business—schedule a consultation today.