There is a long-standing belief that negotiating your ERP contract at year-end will bring the best possible financial results. Essentially the “Black Friday” of ERP. While there is some truth to this, it is not as simple as calling up your selected vendor in December and asking for a discount. Following are a few pointers to keep in mind as you navigate your year-end software negotiations:
Not all vendors recognize a fiscal year-end: What this means is that from some vendor’s perspective, December 31 is not anymore a viable period, and potentially less viable than their actual year-end for negotiations. Oracle, for example, recognizes a May 31 fiscal year-end and Salesforce is January 31. To navigate this variance, consider the following discussion points with your vendor of choice:
- Make it about YOUR company’s year-end processes rather than theirs. Talk about locking in budgets for 2021 or explain how your board or executive directive is to sign before year-end and you need some help getting this approved.
- Always keep an alternate vendor as a backup and remind your preferred vendor that while they may recognize a bizarre fiscal calendar, other vendors are offering significant discounts for new business signed by December 31.
Navigate the balance between software and system integration negotiations: This is a common hiccup in the negotiation process, where you are negotiating a number of contracts that may include master agreements, ERP software and licensing agreements, bolt-on solution agreements, integration service agreements, and system implementation agreements. It often works to leverage one against the other to get a deal made. For example, if your Microsoft Dynamics systems implementer is holding back on terms you need, let them know that you have a standing discount on licenses that expires at year-end you need their help to get this deal made.
Stand firm in your resolve: We have found that some vendors are catching-up on the year-end “bluff”, and are simply not agreeing to any additional discounts by December 31. In these cases, there is no reason for you to budge, either. They may threaten that the discounts they are currently offering are the best you will get and that they will disappear come January. We have never seen this to be the case, and most likely what is happening is they are testing you. Hold firm, and you may actually have better luck getting what you want following the New Year.
Remember that ERP implementation is a long-term game: The “year-end” rush is simply a tactic to get sales in and meet quotas, but don’t get caught in this if you are not ready. I still remember the case of a year-end purchase based on a great licensing discount, and the purchasing company still had not implemented the software two years following the original purchase because they were not yet ready to implement. “Shelfware” is expensive at any price paid.
Understand what you are negotiating: To put it bluntly, there is very little cost behind an actual software license. True, millions and millions of dollars have gone into the development and continued R&D (and your vendor will remind you of this), but the costs you are negotiating are made up, and so are any quarter or year-end discounts. If a vendor wants you as a client, the costs can be negotiated accordingly at any time of year and the “year-end” discount is simply used to pile up a few extra sales to make their books look better for the next earnings report. Additionally, license costs themselves are only a portion of your negotiation leverage. Be sure to have a negotiation strategy outlined in advance of simply asking for a cost discount.
Ultimately, software negotiation is a game, and software sales representatives are professionals at this game. If you are going to challenge Roger Federer to a tennis match, you will need a coach who has been there, done that. Likewise, reach out to your favorite independent software advisory firm (hint: Third Stage) to help navigate your year-end negotiations.