An Enterprise Software Buying Guide, Part VII: Negotiations

In our last two posts, we discussed the creation of cost models that would allow you to approximate, at least to a well-defined order of magnitude, the total lifetime cost of ownership of the software solutions under consideration, which can then be refined during negotiations to understand the true cost of each proposal put forth by avendor. Today we discuss the process for formulating your objective and negotiations.

5. Define Your Objective

Your objective is defined as a price-performance goal based upon your identified needs, your cost models, your budget, and your ROI expectations. Your objective will be to obtain the solution required to meet all of your key functional requirements, along with as many of your nice-to-have but non-critical functional requirements as possible, at a specific price-point with as much support beyond a minimum level as you can negotiate.

You’ll go into each vendor negotiation with an identified solution blueprint, a support requirement, and a maximum price that you’re willing to pay and be prepared to walk away (and move on to the next solution) at any time if it looks like your minimum objective is not obtainable. This keeps you focussed on your goal and prevents you from getting lost on a vendor led joyride through the backwoods byways which ultimately lead to gator infested swamps.

6. Negotiate Professionally

Traditionally, enterprise software has a lot of margin and even more empty calories. This means that there is usually a significant opportunity to reduce the price through a serious negotiation.

If the purchase is over a million, it’s critical to have someone from procurement lead the negotiation, backed up by the cross-functional team, and if the purchase is over two million, you should strongly consider bringing in a professional deal architect or services safari guide. A skilled negotiator in the enterprise software market can undercut the range every time and save you as much as 40% off of “best-price” on multi-year deals that include significant maintenance and support requirements.

After all, professional enterprise software negotiators are used to the vendor tricks and rhetoric like we have never accepted that price point or legal clause that the vendor sales representatives are trained to deliver at the start of every negotiation. They know when thy vendor is using the “partner” ploy. They know when a vendor is trying to blind you to their failings by pointing out their competitor’s failings. They know that a market quadrant or wave ranking is pointless if the solution doesn’t do what you need it to do at the price point you need it at to get ROI. In fact, they know all the standard stupid salesperson tricks and how to combat them to get you the best deal.

And they’ll be watching out for the Big Lie, which happens when a vendor says “yes, we have that capability” even though they don’t, and don’t plan to, and then price the missing capability ridiculously high in hopes you’ll decide you don’t really need that capability and buy their product anyway.

Tomorrow, in our final post in this initial series on enterprise software buying, we will discuss the importance of carefully reviewing any contract put before you, some common “gotchas” that vendors will try to hide in the fine print, and the secret to long term solution success.