Software Renewals and the Art of Negotiation

Written By: Allison Hopkins
Date: March 14, 2021

Navigating a software license renewal is a tricky dance. How can you be certain that you’re really getting the best deal for your organization? If you are unschooled in the art of negotiation, it’s hard to avoid certain financial pitfalls. However, with the right strategy, you can leverage the latest tips and tricks to optimize your deal and set the right expectations out of the gate to help avoid ERP failure. Here are a few best practices to help you negotiate a strong contract when your software renewal date approaches.

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Decipher Your Vendor’s Renewal Process

There’s a reason why many software vendors tend to offer deals at the end of the year. Their sales team needs to meet quotas and secure commissions before the new fiscal year begins. The thing is, not all vendors recognize the same fiscal year calendar. Oracle’s fiscal year-end falls on May 31, where SalesForce places it on December 31 - so the timing on these deals is a bit arbitrary.

This end-of-the-year sales push can make your negotiation feel hectic. Luckily, there’s really no need to lock down a deal by your vendor’s fiscal year-end. In my experience, once a deal is offered, it will usually be honored past the deadline. Most of these contract offerings must be approved by the vendor in the first place, so once the deal is on the table, you can usually come back to it down the road. This way, you don’t have to worry about locking down a better deal on a narrow timeline. Instead, make sure that the terms of your agreement are satisfactory, and most of the time, the deal will still be waiting for you.

Leverage what you can

Before you head into negotiations, it’s important to have a negotiation strategy in place rather than settling for a blanket discount on the price. Sometimes, vendors will have more room to make a deal when it comes to manipulating certain fees or upgrades. Getting creative before going into a negotiation with your vendor not only gives you more areas of potential cost savings, but it can also open up more potential moves in the game of chess that is software license negotiation, helping you secure a better deal overall.

The costs are made-up and the points don’t matter

As I mentioned above, those year-end deals put forth by software vendors are arbitrary, but did you know that the actual software licensing fees themselves are made-up as well? There’s actually very little cost behind an actual software license. While the software itself costs millions of dollars in research and development, practically nothing goes into licensing said software. This can help you as you head into your negotiation. Whatever number they come up with, it’s up to you to negotiate it down. It’s also important to note that as soon as you sign a contract from a software vendor, you set a benchmark for negotiations. So you may be competing with yourself during a software renewal since you have already paid a certain price for a year already. However, don’t let this discourage you from negotiating the best deal possible for your business in the renewal process.

Negotiate for tomorrow, not today

Your renewal period is an excellent time to renegotiate rates for your software licenses, especially if you didn’t negotiate when you first signed your contract. When you head into a negotiation, it’s important to consider your future needs as well as your current situation. Negotiating a better deal can really pay off, especially if you can lock in a rate for multiple years. You can really future-proof some aspects of your digital transformation by doing this, not to mention saving money down the road.

It is also important to consider negotiating additional aspects of your license agreement. This is especially relevant if your vendor won’t budge on licensing fees. At the negotiating table, everything is fair game, whether that’s maintenance costs, accelerators, license structuring, future module and user license purchases, or support structure. It can be tempting to try and negotiate all of these aspects to your advantage, but usually, it’s a push and pull situation where you have to give up one thing to get another.

Hire a third party to represent your interests

When it comes to renewing your ERP software at the end of a contract, mishandling the negotiation process can have serious consequences for your organization. While many businesses are perfectly able to negotiate an adequate deal for themselves, it never hurts to have someone else on your side when making deals with your software vendor. Think about it — software vendors negotiate on a daily basis. And you probably don’t. An independent, third-party consultant, like Third Stage Consulting, can help you ask the right questions, compare prices, and get the best deal.

If you’re headed toward the end of your software licensing agreement and would like an expert to weigh in, please don’t hesitate to reach out to me directly. At Third Stage Consulting, we’ve helped hundreds of companies negotiate the best terms for their ERP software, no matter where you currently stand on your digital transformation journey.

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