You can use a recent article on the top 10 margin-killing myths about B2B pricing in Supply & Demand Chain Executive to get a better deal from your vendor. Just like B2B companies must aggressively counter the closely held beliefs that are holding them back, B2B buyers must aggressively counter the closely held beliefs that are holding them back as well. Dispel the corresponding buyer myths implied in the article and you’ll be on your way to great deals.
- Myth: The Market Controls the Price
You Control the Price. The vendor sets the list price, and you decide whether or not you’re going to pay it. The market doesn’t set the price, the contract you sign does.
- Myth: You Have More Important Things to Worry About
Whether or not you buy a solution should ultimately boil down to expected annual ROI, which, simply, is your expected annual savings divided by the annualized software cost. If the price is too high, then the ROI will be too low, and you should not buy.
- Myth: Commodity Solutions Can Not be Price Differentiated
Since different solutions can be expected to return different ROIs depending on how well they integrate with your business and how effectively they tackle your biggest problems, you should expect to pay less for a solution that offers less value.
- Myth: Price Improvement Puts Savings at Risk
Remember, it’s not “savings” until you actually save the money. And if you spend more on software then you save from its application, there are no “savings” at all. While you shouldn’t quibble needlessly about a price that gives you an expected 20X ROI if it’s in market range, you should definitely negotiate hard on a price where you only expect a 2X ROI.
- Myth: Experienced Buyers Know How to Price
Not necessarily. They know how to negotiate. Not how to price software, and definitely not how to get the best deal from an unfamiliar vendor. That’s why you have Deal Architects.
- Myth: Compensating on Technology Savings Ensures Good Buying
It’s not about how much you can save on the IT budget, but about how much you can save using the IT you buy. Not buying an industry leading strategic sourcing decision optimization suite which can save you an average of 12% above and beyond the best reverse auction because it costs an extra 100K is just stupid if you spend over 100M annually. The software will pay for itself on your first big sourcing event!
- Myth: Pricing Has to Be Simple
No, it has to be such that value is delivered. And sometimes, per CPU hour is the best price you’re going to get if you don’t use the software extensively for long periods of time between major buys. And thanks to modern software, it’s simple to calculate.
- Myth: Strict Compliance to Buying Rules Ensures Good Pricing
And bad software. Comparing two software suites is often like comparing apples to oranges. It can be done, and you’ll find similarities, but there’s often a qualitative aspect to a preferred solution that can’t be quantitatively measured.
- Myth: New Solution Buys Require the Most Attention
Really? So you’re going to stand for 22% maintenance on your ERP shelfware?