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5 min to readAsset ManagementBenchmarking and NegotiationSoftware Sourcing Services

The challenges around negotiating and renewing software contracts

SoftwareOne blog editorial team
Blog Editorial Team
Asset Management

Customers face several challenges when negotiating directly with large software publishers. The hype around cloud is that it makes it possible to shift workloads easily and quickly between providers. That might be true for a simple backup or storage system, but for large, complex and well-integrated enterprise systems, the reality is that moving providers can be a big and distracting task. In most cases, it is better, and easier, to get the best deal you can from your current provider – assuming, of course, that your provider continues to deliver all the strategic benefits that made you choose that company in the first place.

Never wait until the last minute to start your negotiations. Do not wait until you receive the vendor’s quote – that means they’ve already done their preparation work, and you haven’t started yours yet. For major contracts, we advise that you start 6–12 months before negotiations will begin. This might seem like a long time, but it reflects the amount of work needed. You need data and you need to talk to people across your organization about what the future looks like and how these plans will impact on software use.

Infrastructure complexity multiplied by contract complexity

In today’s world of easy access to cloud services, shadow IT, fast-evolving business needs and increasing digitization have all added to the challenges of software negotiation. This has led to an explosion in the number of software providers that a typical company has to deal with – so the issue is far more complex than it was even a few years ago.

The complexity of contracts makes it hard for customers to see exactly what they are getting. They don’t know if they’re getting a standard contract or one that is less advantageous. Complexity means that terms and conditions are often overlooked during negotiations. But there is often more room to maneuver with terms and conditions – and customers can tip the balance of a contract in their favor.

To negotiate successfully around terms and conditions, you must know two things. First, the range of the acceptable alternatives: Just how different are different customers’ contracts? And second, what is the publisher you are negotiating with likely to accept right now?

But knowing either of these things is difficult. As a customer, you only get to see one contract every few years. You might have a good and open relationship with a peer company, which might even be prepared to discuss broad pricing. But it is probably not so close that the company would share another actual contract with you. And the devil is in the detail. Fully understanding the terms and conditions is not possible unless you know what other types of contracts are out there.

Equally, determining what the main drivers for a software publisher’s sales team are on any given day is very hard. Volume discounts, honeymoon deals, regional or industry targets, commission rates for sales staff and accounting periods all have an impact.

We have more access to this data because this is what we do. We know about the different types of contracts, and we’ve seen what motivates sales teams to get deals signed.

Key considerations to getting the best result

Right-sizing without over-provisioning

Customers lack data on their own use or the ability to determine future use. With contracts lasting three years, this is a non-trivial task. Right-sizing means both avoiding over-provisioning and minimizing the chance of audit or compliance problems. The temptation is for companies to “play it safe” and choose a slightly more expensive option in the hope that this will protect them from audits and allow for unexpected growth in usage or headcount.

Benchmarks – those missing measurements matter

Customers lack benchmarking information. You don’t know if you have a good or a bad contract. A 30% discount might be great – or other customers might routinely get much larger discounts. You probably don’t know in perfect detail exactly what your current contract provides or whether you are making full use of all aspects of it.

Knowing the other side or understanding the vendor’s drivers and motivations

Customers need to understand what motivates the publisher and sales staff and how this will impact their strategy during contract or renewal negotiations.

Is the vendor under pressure to move more customers to the cloud? Would a cloud agreement – even a small one or one that goes unused – unlock discounts for the rest of the contract? Are sales teams under pressure to move customers to new platforms like SAP RISE? Are sales teams reaching the end of a sales period or a fiscal quarter and looking for numbers to hit targets and bonuses?

How to untie the knot or gain the advantage in negotiations

At SoftwareOne, we have many thousands of customers, so we have the key data and intelligence on contract terms, pricing and available discounts. We know how much your competitors and peers are paying, and what you should be aiming for.

We know how to gather the data you need on current use and how to map that onto existing contracts. We can help you determine future demand to define an optimal bill of materials. And we can help you build flexibility into contracts, to account for business transformation projects or strategic change such as mergers or acquisitions.

But we understand more than just you and your business. We know where the major software publishers are heading and how their staff are rewarded too.

We can give you insights into the dark art of terms and conditions and we can help you spot any non-standard or commercially unfavorable sections. We can propose alternatives that are likely to provide you with the most value and benefit while also being most likely to be accepted by the vendor.

Most important, we have the experience. This is our job. We do these negotiations week in and week out – not once every three years. For all but the smallest software contracts, we strongly recommend that you seek independent help. Get in touch and find out how we have helped companies like yours to get the best deal possible from software negotiations.

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Overcome negotiation challenges

Identify the challenges ahead of your next software contract negotiation and learn how to prepare for them with our blog series:

Overcome negotiation challenges

Identify the challenges ahead of your next software contract negotiation and learn how to prepare for them with our blog series:


SoftwareOne blog editorial team

Blog Editorial Team

We analyse the latest IT trends and industry-relevant innovations to keep you up-to-date with the latest technology.