Vendor negotiations are a critical step in the software selection process. Purchasing enterprise software is a hefty investment for companies and negotiations should be treated with care. A good negotiation focuses on mitigating cost as well as risk. The lowest cost deal may not necessarily be the best one if the vendor shifts the majority of the risk to the buyer. Although Panorama cannot give away our complete process, below are what we consider to be three important areas of focus during vendor negotiations.
User License Costs: A good place to start is your user license costs. It is important to clarify how many concurrent vs. named users are in scope, as they are priced differently. Make sure to take into consideration the escalating costs of licenses and try to negotiate a flat price for the first number of years – especially if you anticipate growth.
Annual Maintenance Fees: While the proposed annual rate for maintenance is often nonnegotiable, there are still ways to mitigate this cost. Be sure to check if the annual maintenance fee will increase by a percentage each year. Check to see if you are able to hold the proposed rate steady– or at least cap the amount the vendor may raise it by. Occasionally it is possible to defer maintenance fees to the second year of the contract.
Modules: Be sure to review your scope and ensure all modules you may need are included. It is often more expensive to add modules later on. You could even attempt to lock in the price of modules for future purchases.
Finding the balance between risk and cost can be tricky to say the least. Engaging an experienced partner to assist with vendor negotiations will help lower total cost of the software as well as mitigate risk. Savings from bringing in the pros for the negotiation process often more than covers the total cost of software selection consulting fees.
Written by Kiersten Williams, Business Analyst at Panorama Consulting Solutions.