3 savvy leverage tactics to use when negotiating technology deals
A little knowledge goes a long way with technology vendors, says IT negotiation specialist Phil Downe
TORONTO – Leverage is the most powerful advantage that accountants in procurement roles can use when negotiating technology deals. We can define leverage simply as using something you possess to its maximum advantage to influence the other side and improve your side of a negotiation. It comes in many forms — some obvious, some subtle — but here are three leverage tactics you can use when negotiating your next technology deal with your vendor.
1. Time the deal.
The first question accountants should ask is, “What are the vendor’s financial deadlines?” Recognize the power this gives you. You have the money. The vendor wants it — preferably before the end of the next financial quarter. The pressure on the sales team to close the deal is significantly higher as the end of the quarter approaches.
Microsoft’s year-end is June 30. Oracle closes its fiscal year on May 31. Salesforce on January 31. Try to time the purchase for signature just prior to the vendor’s year-end or at least a major financial quarter. Be prepared — or at least give the impression you’re prepared to walk away — or at least delay to the end of the next quarter.
2. How does the vendor get paid?
Is the vendor account team paid higher commissions on software licenses, support or services, such as systems implementation work or training? The areas that are the most difficult to improve on price points are typically the ones that pay the highest commissions to the sales team.
Those areas always include the latest, most strategic vendor product line. No vendor representative wants to sell licences for older versions of their product if they only get half the commission on it.
They also may not get paid at all on support upgrades or pre-paid support. I’ve often seen them discount heavily or even give it away to get the deal. As a buyer, you can create significant savings in areas that hold little value for the other side.
3. Create the perception of competition.
Whether you have it or not, create the perception of competition with another vendor or an older technology.
The best leverage is the alternative of another vendor’s product line. With a net-new application there’s nothing better than having two highly-competitive vendors vying for your business. In an upgrade scenario, however, a switch to another vendor might not be a viable option.
Instead, staying with the incumbent vendor’s older technology is an effective tactic to put downward pressure on the newer product’s price points. Additional functionality is great if you can make use of it to achieve a business goal. But if you can’t, then it’s just more useless code.
A little knowledge about a competing product goes a long way towards building leverage. Ideally, the competing product should be a viable alternative. But, even if it’s not your ideal solution, knowing how it’s licensed and some of the module names can pave the way to solving many outstanding issues.
It’s safe to start with the assumption that your software sales representative has a significant advantage over you with product knowledge, both theirs and the competition — so please don’t get dragged into a feature debate. Only pick the fights you can win. A well-timed, product name-drop can work wonders.
In my next column, I will give you a full scenario for a 36-month deal with extensions, and show how you can earn mutually beneficial concessions from your vendor. In the meantime, I recommend returning to my last article on Canadian Accountant, “How to save money when negotiating software subscriptions.”
You’ll learn the basics of software negotiation and how initial price-point transparency can lay the groundwork for initial agreement discussions and future renewal negotiations. Until then, check out the articles on my website, ITnegotiations.com.
Phil Downe is an independent IT negotiations specialist and principle with Relations Management Group Inc. based in Toronto. He can be reached at 416-804-7445 or by email.