COVID-19: What Are the Effects on ERP Software Pricing?

Written By: Brian Potts
Date: April 14, 2020

Over the past month, this is probably the most commonly asked question we have received. Does the current environment offer a greater opportunity for software discounts? Many companies are looking at the current economic slowdown as an opportunity to implement new technology and take advantage of employee bandwidth, ultimately coming out ahead when business is “back to normal.”

While we haven’t seen drastic price reductions just yet, we do believe they may be coming as part of the inevitable ERP and HCM project restructuring about to take place. Here are a few indicators and recommendations for those who are considering purchasing new software in the coming months:

Variance between software deployment models

Negotiation leverage may vary based on whether you choose Software-as-a-Service (SaaS) or perpetual licensing. With SaaS, you are paying an on-going subscription for your software, whereas with a perpetual license you purchase your software in full. Regardless of the model you select, consider that what software vendors really care about is residual income. In the case of SaaS, this comes in the form of licenses, for perpetual licensing this comes in the form of maintenance contracts.

Watch out for escalation clauses on costing

You may be able to score a greatly discounted rate, but make sure it’s going to last. The longer you can maintain your negotiated rate, the better. For a perpetual license you should be able to negotiate a greater discount on license purchase than on maintenance, but at least try to define limits on maintenance escalation. For SaaS, watch for offers and discounts on annual versus monthly or quarterly billing, as well.

Don’t expect much discount on implementation services

ERP licensing is easy for vendors to discount and use as leverage as the code has already been built. Implementation and consulting fees, however? Not so much. We are starting to see headcount reduction in the enterprise software arena; however, this is not likely to impact hourly consulting fees and may actually increase demand as more organizations decide to move forward with ERP. As we have stated many times before, be careful pressuring ERP vendors too hard on implementation services. You ultimately get what you pay for.

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Consider using your vendor as a negotiation advocate

In the majority of software implementations, we are seeing vendors bringing their partner solutions to the table in order to provide a complete enterprise suite. It may be an advanced CRM, warehousing or tax solution, and the partnership between the two firms is critical in meeting all of your needs. While the vendor may offer some initial discount on their own licenses, ask them to help negotiate reduced rates on the partner solution(s), as well. The entire deal is being managed through the core ERP vendor, so they should be open to helping you get a fair deal that will benefit all parties in the long run.

Consider leveraging vendors beyond just license fees

This is common negotiation advice in any day and age and should be especially relevant in the current environment. In addition to negotiating for license fees, consider working with your vendor on things like delayed payment plans, structured payments for perpetual licenses or free months on SaaS solutions. You may also be able to increase discounts on first-year maintenance, advanced functionality or post go-live support.

There are also plenty of opportunities to renegotiate any agreements that you may already have in place with your vendors. As we pointed out in our top 10 recommendations for ERP projects in the post-coronavirus world of the 2020s, this is also an opportunity to consider force majeure and other rarely utilized contract clauses.

Avoid the ERP software end of year fire sales

While we do expect to start seeing discounts across the enterprise technology market, we are not expecting any form of a fire sale. What this means is that we don’t recommend purchasing and implementing a new ERP in any case you are not ready. Similar to companies making rash purchases at the end of the year, you will not benefit if you are not ready.

If you are considering now to be the right time to implement new technology, reach out for help. While it is good time for many to take advantage of slow times and reduced licensing, there is probably not much room for error. An independent ERP consulting firm can help navigate your selection, implementation options and help through negotiations.

Please feel free to contact us if you are looking for advice on your negotiation process. We are happy to act as an informal sounding board as you continue your journey!

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