While not common, we have seen situations where companies implementing ERP software press a little too much. Generally, ERP vendors will walk away when the terms fall out of their favor, but there are times when they may enter into an agreement that they are not fully comfortable with.
When negotiating, there are two things to consider: 1) how to negotiate your ERP software license and 2) how to negotiate your system integrator or reseller contract. This is an important consideration whether you are negotiating with Deloitte, Accenture, Capgemini or other system integrators.
As you begin ERP vendor negotiations, here a few things to keep in mind:
Software license negotiation and software implementation services negotiations are night and day
Software and associated licenses, for the most part, have already been developed and any associated sale is essentially profit (minus sales costs, etc.). Vendors have significant leverage on license fees and can use this leverage to win deals, especially if your company will be a nice logo to add on their home page.
Implementation services, on the other hand, include people’s time, which greatly narrows their margin and ability to negotiate. The biggest risk with negotiating hourly fees follows the best advice my grandfather gave me, “You get what you pay for.” This is something to keep in mind as you negotiate with your ERP system integrator.
If you negotiate too hard on rates:
- You will get the “B” team. You will get less experienced and potentially undertrained resources. With this, more complications will likely arise, increasing the end cost of your implementation. Good resources are paid more.
- If you do get top resources, there is greater risk that they will be pulled from your project to a more profitable one as soon as it signs.
- With lower margins, vendors are more prone to short-cutting your project and necessary tasks, potentially increasing risk. They may be incented to reduce testing rounds, slack on training, etc. as they will want to get finished and on to the next.
You should negotiate beyond ERP software licenses
There are far more points of negotiation than just license cost and resource hourly rates. Consider maintenance costs, accelerators, license structuring, future module and user license purchases, support structure, etc. As you push on license fees or rates, you will likely be sacrificing in other areas.
Software vendors negotiate on a daily basis, but you probably don’t
Even if you are using a well-trained attorney, you are probably still on the losing end. Keep this in mind as you negotiate; they have seen and heard everything you throw and them and have a response ready and waiting. This is good reason to work with a consulting firm that also deals with vendors on a daily basis and knows their ins and outs. This should be a key part of your ERP software selection process.
Understand how negotiation tactics affect your vendor relationship
Pushing too much may just frustrate them, delay negotiations or force them to lose interest in you as a client. If you are seen as trouble, they may consider that you will be difficult to deal with on-going and decide to pass. If you do end up in a contract that a vendor considers a “lose-win” deal, you may find that you are not treated with love as you work with them through upgrades, support or maintenance. While the larger vendors have so many resources and resellers that you can get lost in the shuffle, the niche vendors and most of their support team will remember you.
Conclusion: negotiate well, but don’t poison the pond
We recommend that you have some knowledge of a particular vendor’s negotiation history, know a bit about how they are structured, where their R&D is focused and their financial status. We are not suggesting that you don’t negotiate, this is expected and necessary when purchasing and implementing ERP software.
What we do recommend is that you have a sense of where and when to push so you get the best deal you can while maintaining a “win-win” scenario. Negotiation is one of the higher value-added tasks to ask for help from your favorite independent ERP consultants.