My 3 Guiding Principles for The Negotiator Guru
Imagine you are a C-Suite executive and your business is built on a franchise model.
Each franchise branch is owned and managed by a different person but they all use the same ERP and the big corporate umbrella entity that you own pays for all the services.
The individual owners dictate which software and services they use, how many licenses they need, etc.
Your annual bill for all the different contracts comes to $2.5 million.
How would you feel if I looked through your contracts and told you that, based on the prices your peers pay, you should actually be billed closer to $900,000 - a more than 60% savings - for the same host of services?
You’d probably want to flip the table we’re sitting at.
I started The Negotiator Guru because I believe in 3 things:
- Clients should all pay the same price for the same product*
- Clients have the right to know what rates they should be paying in comparison to their peers.
- Clients should know what to look for in software contracts to eliminate potential issues before they arise.
I want to go into each of these beliefs in more detail and give some case study examples to further demonstrate why I think these points are so important.
Clients should all pay the same price for the same product.
It’s common for people to believe the price they’re paying is equal to what their neighbor paid for the same product.
Due to both Master Service and Non-Disclosure Agreements between most software vendors and their customers, companies are not allowed to publicly share what rates they’re paying for their different products/services. Subsequently, software suppliers will almost never advertise a specific price point for enterprise customers but rather indicate “call for details” in the interest of driving the most revenue from the potential relationship.
In other words, in the art of enterprise SaaS sales, you won’t find any published rate information for you to benchmark your contract against. The only way for you to identify whether or not your rates are competitive is to engage a firm that holds that market intelligence as a result of analyzing contracts on a daily basis.
The fact of the matter is: Prices always vary.
No one pays retail as an enterprise customer but some companies achieve significant discounts compared to other similarly-sized operations.
In some cases, you’re getting ripped off if you’re not getting an 80-90% discount off published prices.
It wouldn’t be logical to expect a huge company like Coca-Cola and a small startup to be paying the same price purely based on volume alone. But brands of the same size with similarly-sized contracts (based on annual revenue & annual spend for their contract) should be paying the same price.
I have great respect for wonderful sales executives who sell value to customers, but my company believes the market should dictate a fair price for all IT goods & services (Services, Software, Hardware, etc).
The enterprise sales executive is arguably the greatest asset these IT companies have within their organizations. The good ones truly know how to sell “perceived” value.
Regardless of how personable a sales executive is, we believe the market should dictate what a fair price is - much like buying or selling a home. In order for this work, we believe that rate information should be readily available to customers. In order for this information to be shared legally, we need to enter into a commercial agreement with your company and charge for these advisory services.
Clients have the right to know what rates they should be paying in comparison to their peers.
On a daily basis we see similar-sized clients with similar-sized contracts have a 30 – 60% price variance.
Now, whether this is because some companies didn’t have strong negotiating skills or perhaps they just didn’t know how their contracts compared to the market doesn’t matter. What does matter is that clients know how their contract prices compare so they can make future decisions accordingly.
Ideally, through access to more information regarding IT contract pricing, you’ll be able to secure the best rates for your company. Leveraging this information can significantly impact a company’s bottom line.
But even if you aren’t able to achieve best-in-class pricing, we believe you should know what those rates are to empower decisions on how to work that supplier moving forward.
Often, relationships with IT suppliers run into the roots of your business and once you’re in that deep, it can be hard to break loose to find another vendor.
Even if you can’t get off of a big platform like Salesforce, Oracle or another ERP, you can make better-informed decisions about how you’re going to increase or decrease your use of that platform in the future.
There are a few market intelligence firms out there that supply basic and watered-down pricing information to clients but require a $30,000 per year subscription fee (per seat). This cost to have access to this benchmark data isn’t a feasible or justifiable expense for many companies.
We don’t feel that only Fortune 500 companies should have access to market intelligence firms and benchmark data.
The existing methods used to decide what the best price really is for any given enterprise could be improved. Most market intelligence firms take a general approach to setting correct pricing rather than looking at the specifics of each contract and the unique needs of each company.
For example, these firms will recommend that you should be getting a 60% discount if you’re spending $1 million with a particular IT company as a blanket rule.
Instead, we take into consideration the specific needs of our clients and use a Right Size, Right Price approach within every contract negotiation.
Clients should know what to look for in software contracts to eliminate potential issues before they arise.
Having a deep understanding of the terms of your most expensive contracts will help you save hundreds of thousands of dollars.
Here I want to briefly outline a few common contract issues that I see my clients face:
Price Protection (and not just by SKU)
Price protection generally comes up when you’re signing your first contract with a software provider. IT companies will compete for your business by offering you the lowest prices for their services with the expectation that they’ll be able to raise the rates once you’ve completely adopted the product.
Companies will always try to find ways to increase your annual expense. This is largely due to sales incentive plans in place with their sales development organization. Common tactics used by software companies include random internal audits to monitor usage (overage fees), product lift and shift changes (new SKUs), and service fees (for enhanced customer support).
More often than not our clients are very astute individuals that use their best efforts to price protect their organization’s contract for future years. That being said, it’s unrealistic to think anyone knows how to mitigate all the potential risks unless you do this everyday.
For example, to mitigate against the software companies from simply changing product names (SKUs) to bypass any preexisting price protection you may have on a specific product, we suggest you introduce contract language that protects your company using your total spend (vs a product-specific SKU) as the common denominator.
M&A Language
Make sure you have specific language in your contract about what happens in the case of a merger or acquisition.
Be sure to include language about a Termination for Convenience. This is a provision allowing you to get out of the contract if you acquire, or are acquired by, another company within a certain time frame - usually 90 days to 6 months.
Termination for Convenience eliminates the risk of having duplicate service providers for the same service after the transaction is closed. Without this stipulation, companies can find themselves with millions of dollars in expenses that are avoidable.
Note: In the interest of this article’s brevity we aren’t going to stipulate all the protections you need in an M&A transaction as this will be further explored in a future article. While the guiding principles of what to include within your contracts will remain consistent, client-specific protections will always require advisory services.
Termination for Breach
Termination for Breach language is important information to include in your contracts. In these cases, attorneys have to be involved and mal intent has to be proven by the accusing party.
This rarely ever happens and having the language laid out in the contract incentivizes IT companies to behave their best throughout the contract term.
License Limitations
It’s common to have language surrounding license limitations in your contracts. This basically says that you can use a specific license at a specific site for a specific reason.
These stipulations probably make sense on the surface and won’t alarm the person reading the contract but in most companies, with thousands of employees, not everyone is reading the contract. This could lead employees to inadvertently infringe on how the license may be used.
The best way for most companies to avoid this is to have seat-based pricing attached to specific personas (usage rights) rather than volume-based pricing.
Audit Rights
We’ll go into this further in a future article but I want to point it out here that you should be in control of the audit capabilities - don’t leave that in the hands of the supplier.
When IT companies retain audit rights, they have a Trojan Horse to get inside your company and find more ways to increase your pricing. They already know more about your company than you do - don’t give them the reigns to take over completely.
Roles & Responsibilities (when working with multiple parties)
Establishing clear lines of accountability is incredibly important when you’re working with multiple third parties.
As the owner of Company ABC, you’ve got Supplier X and Supplier Y. In each contract where there are dependencies for another supplier to take action, you will want to include a Roles & Responsibilities Matrix so that all parties are contractually agreeing to the same responsibilities/accountabilities. Conducting this exercise is not only a good way to align parties prior to the start of any project but also contractually protects you from any finger pointing across these same parties which will ultimately cost you time and money.
This Roles and Responsibilities matrix is oftentimes called a “RACI” Matrix - Responsible, Accountable, Consulting, Inform. The example below shows how it is used to clearly define roles and responsibilities across and within parties.
You can clearly see the task at hand, who is responsible for it, who is accountable for it, who needs to be consulted for it, and who is informed by it. Where appropriate we suggest including your internal resources as well as more often than not your suppliers will require your team to take action as well. Our clients use the RACI matrix process within their internal organizations as well to drive alignment and avoid potential issues before they arise.
From a tactical perspective, it’s important that the same RACI matrix is included within each supplier’s contract so that everyone is operating from the same table, terms, and conditions. This often takes some negotiation but with the proper foundation and alignment, you shouldn’t have any pushback from your suppliers. In fact, if you do have a supplier that is heavily pushing back against this exercise we recommend our clients view this as a potential leading indicator for what’s to come with that particular relationship.
With these 3 guiding principles, we ensure our clients are negotiating the best contracts for their needs.
Whether you’re in the process of negotiating your first IT contract or are looking to save big on your next renewal process, we’re here to share our experience and expertise with you.
We want to ensure that you’re paying the right price for the right products.
We want to make sure you have benchmark data to help you make decisions about the future of those contracts.
We want you to avoid contractual pitfalls by including key language around important, often overlooked points.
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From Fortune 500 giants to fast-growing innovators, TNG has helped clients save 20% – 40%+ on enterprise software contracts — even when they thought it was impossible
3 Strategies to Elevate Your Software Supplier Relationship
Over the years, our TNG client family has requested more and more guidance related to managing and elevating their commercial supplier relationships. Within this article, you’ll find our top 3 proven strategies to transform IT supplier relationships from tactical to strategic.
Strategy #1 – Control the Flow
When we say “control the flow”, we’re referring to conversation, meeting, and engagement flow.
When prospective clients reach out to TNG, they almost always have the complaint that the supplier knows more about the “needs” of their organization than they do. This most typically is due to the internal lack of time and/or resources to focus on a specific supplier or digital capability. On the other hand, the supplier’s sales team is laser focused on opportunities to grow their business inside of your organization. Immediately, this creates an unfair environment for all parties involved.
You may be thinking that this only creates an unfair advantage for you, the customer. Well, in most situations that’s true. However, it should also be noted that in some circumstances, the supplier’s sales team may be operating with good intentions and simply answering your internal stakeholder’s demand for attention. In short, when one side knows more than the other, it creates an uncomfortable situation for at least one party.
As our team brings 100+ years of collective experience, we have seen just about everything. Most of TNG’s clients are very well-established companies that have $5 billion+ in annual revenue. These companies typically have a “center of excellence (COE)” and/or a “software asset management (SAM)” team. While the overall intent is good, we typically see only about 10% of our clients leveraging these teams of resources correctly.
What happens to the other 90%? Well, one of the most classic inside sales techniques is for a supplier’s sales team member to establish, chair, and/or participate in a COE with a specific focus on their software and its many digital capabilities. This type of group typically meets either monthly or quarterly and is sold as a way in which the sales team member can “inform” the COE/SAM team members of the “demand” coming from inside of the organization. The reality is that the “demand” is often created by the sales team member who has been pushing a land-and-expand strategy inside of the organization.
The easiest way to not only level the playing field with your software suppliers, but also elevate the relationship from tactical to strategic, is to set up strict governance around the overall engagement. Every supplier engagement is slightly unique, but we recommend focusing on the following core tenants:
- Focus your efforts on your Top 10 software suppliers.
- Develop a steering team of executive IT leaders that are in control of the Digital Capability strategy for your company.
- Develop an internal COE for each of your Top 10 suppliers. The size and scope of them should proportionally match the importance of the supplier’s impact on your business.
- Identify and assign clear roles & responsibilities for each employee team member that is part of their performance objectives.
- Do not allow supplier sales team members to be a member of the core team but rather serve as an invited guest on a routine cadence.
This is about the time where traditional sales team members will indicate that this approach will slow down process, innovation, growth, etc. The reality is quite the opposite when properly set up and managed. The primary outcomes you want to achieve are the following:
- Shift the communication paradigm from outside-in to inside-out. This allows the company to ideate, contemplate, and organically socialize a software roadmap (vs. constantly asking the supplier for a list of their asset inventory).
- Share information with suppliers only when it has been fully vetted and approved as a sanctioned project or approved proof of concept. If done properly, this drastically decreases the chance of duplicate purchasing, split requirements, and/or random unwarranted proof of concepts (that usually turn into shelfware) around the enterprise.
- Allow everyone to be more efficient and structured with their time by eliminating the need for follow-up meetings, etc. In other words, engaging suppliers only after decisions have been made internally by the COE will enable the COE to be treated as a true authoritative entity vs a “check the box” exercise.
- Provide opportunities for suppliers to suggest innovative solutions in a fully committed environment.
We find that our TNG clients save an average of 26% annually by deploying this strategy alone (with our help, of course).
Strategy #2 – Manage Upwards
Anyone who knows the basics of selling understands that the easiest way to make a sale is to identify and influence the decision-maker directly. For large enterprise sales teams who are managing multi-million-dollar contracts, that decision-maker is very often an executive leader within the company. Far too often, we find that organizations provide unfettered access to executives without reason. This, in short, usually enables a very unhealthy and complacent comfort for the supplier sales team that (if not properly managed) rarely produces intrinsic value for the company.
By far one of the most effective ways to elevate your supplier relationship is to set up strategic business discussions between company and supplier executives. The key here is to establish equal representation on both sides and ensure there is proper attention and respect established between both companies. Access to your company’s executives should largely be restricted to these meetings which, where possible, should be set up by the COE/SAM teams mentioned in Strategy #1.
Subsequently, it’s important to know that you can leverage access to your executives to exemplify to a new supplier that any new proof of concept, tool, etc. will be given the highest level of attention and visibility. This means a lot for any supplier (new or existing) as it ensures the right eyes are engaged.
Strategy #3 – Set Realistic Milestones that are Mutually Achievable
Just as employees like to understand their performance objectives for each year, it has been proven by TNG that suppliers who understand what “great looks like” outperform those that are not given clear business objectives. Nearly everyone in the business world understands the concept of milestones; however, the implementation of the methodology is highly inconsistent.
One of the many mistakes companies make when establishing a milestone-based contract is they make the actual milestones either ambiguous or unrealistic. Both are equally as dangerous. Ambiguity allows everyone to be right and wrong at the same time. Unrealistic milestones, if accepted by the supplier, often induce unhealthy behaviors by those chartered with meeting or exceeding the same. It doesn’t take much to set a once “strategic” relationship on a path to implosion with either of these scenarios.
Establishing realistic milestones is important for your suppliers. Everyone, at every age, enjoys accomplishing a goal. It’s important to recognize this fact since at the end of the day, as this is a human reaction, and well, we’re all human.
To learn how to properly set up a milestone plan and/or implement any other strategies mentioned above that drive performance for both the company and the supplier, here’s a hint: It’s not just the supplier that has performance milestones!
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