Since the end of the year is only weeks away, it’s a great time to secure some price or contractual concessions from vendors whose books close Dec. 31. For inspiration, take the following software deal that was completed just before the end of a vendor’s fiscal year. The customer had a vendor software license that was several years old. The customer acquired a new division, which had its own license with the same vendor that was about a year old. Because of the acquisition, the customer needed an additional $500,000 worth of the software. As we’ve discussed many times before, to do a good deal, you need great leverage. As negotiations for this deal began, it appeared to be nirvana for the vendor, since it thought it had all the leverage. There would be incremental additional revenue from a dependent customer with little or no sales or negotiation effort.
But another basic negotiating tenet is to know your opponent. The customer’s procurement professionals prepared for negotiations by first researching the vendor. Thanks to the Internet, this once time-consuming process has become a snap. They checked out the vendor’s Web page, its press releases and the security interest filings of financiers on company assets. The customer team also found the vendor’s financials, along with a warning of a projected drop in fourth-quarter profits. This set off a bell that the vendor might do more than what was normally expected to land the business.
One key piece of information the negotiators learned was that the vendor’s fiscal year ended June 30. They knew most vendors get really negotiable at year’s end. The date when the parties planned to negotiate was June 25 – what a break!
With that knowledge, the customer team turned its attention to the more appealing of the two license agreements the company had with the vendor. It provided much more flexibility in using the software throughout the corporation, better remedies and a cap on maintenance price increases. The customer would also need fewer additional copies of the software if it could preserve the agreement’s terms permitting license transfers within the enterprise.
When negotiations started, the customer insisted on getting better pricing and using the more favorable license agreement to govern the new transaction. The vendor responded with multiple ploys. Its representatives said the following things:
- This price is good only until the end of our fiscal year (five days away).
- We can’t give you a better deal than we give the federal government, because of a contract requirement guaranteeing the feds the best price.
- There’s a price increase coming in July.
- We don’t use that old license agreement anymore. We have a new and improved one.
The customer’s negotiators responded perfectly. They said, “We don’t have to do this deal now. We can do this deal later. As a matter of fact, we don’t have to do this deal at all. We can’t sell your deal to our management as it’s currently structured. If you want this deal this fiscal year, do it our way – or hit the highway. It’s your choice.”
The vendor complained, whined, pouted and threatened to walk away. The customer’s representatives just listened and repeated their position.
After a few days and some phone calls made behind the negotiating team’s back, the vendor’s representatives realized that all the key customer players were aligned as a team and solidly behind the negotiators.
The vendor caved. On June 29, the customer signed a deal that more than doubled the software discount from 20% to 41% on a comparable number of licenses and extended the more favorable license to cover the merged organization. This was a better deal than the customer thought it could get at first, but year-end pressures undoubtedly gave the vendor incentives to give special concessions. So, information is power!
This case study should also remind you that you must be aggressive to extract meaningful concessions from vendors.
JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at email@example.com.
Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.