Vendor negotiations: Strengthen your bargaining position with SAM data

With software a key asset in business, negotiations with vendors and suppliers are critical in the efficient use of IT. In this blog post, when it comes to contract renewals, we look at how to strengthen your bargaining position with SAM data and how to negotiate with suppliers and vendors to deliver the best outcomes.

We’ll also break down the process, look at various strategies to consider in negotiations, and explain how IT cost optimization services can maximize your ROI and keep costs under control.

Optimizing vendor relationships through strategic SAM

As organizations navigate the increasingly complex landscape of software procurement, contract renewals present a crucial opportunity to renegotiate vendor terms that better align with evolving business needs. The proliferation of vendor options combined with the surge in demand for cloud solutions, have introduced new challenges such as varied pricing models and integration requirements.

The shift towards cloud-based solutions reflects a broader trend towards more scalable and flexible IT infrastructure. While this offers many benefits, it also introduces new considerations such as data security, vendor reliability, and regulatory compliance. These evolving factors make it essential to renegotiate contracts to address emerging risks and ensure that service agreements continue to provide value over time.

 

Contract renewals present a crucial opportunity to renegotiate vendor terms that better align with evolving business needs.

 

According to Gartner®, “The democratization of software (along with a new set of diverse and demanding stakeholders) has pushed the boundaries of traditional SAM processes and roles and set forth the SaaS revolution, resulting in a plethora of software entering the organization. These dynamics give rise to the need for better governance to enable this norm, at the same time ensuring risk is minimized and organizations have control over spend.”ⁱ

Supplier contract renegotiation is not merely a routine task but a strategic move. Companies must now balance the advantages of diverse vendor choices with the need for effective risk management and strategic alignment. A well-considered approach to renewing contracts can help organizations stay agile, ensuring that their procurement strategies are optimized for the long term. Underpinning the approach is insight and data into your software and cloud estate which is where software asset management can play a pivotal role in providing the visibility and control needed to make informed decisions and drive cost-efficiency.

Software asset management (SAM) ensures that your software and cloud portfolio is optimized for current and future demands, eliminating outdated, unused, or underused applications. Leveraging software usage data in vendor negotiations can secure the best value, and ensure you maximize the return on this substantial investment.

The phases of vendor contract negotiations

The first phase of any vendor negotiation is to define your business needs, review what software and cloud services you already have, and decide how well they are performing.

Across business, an estimated 30% of software is unused or underutilized. With an increasing number of cloud-based solutions, it can be difficult to keep an up-to-date and detailed view across multiple locations, departments, and teams. Individual teams often procure different software solutions to fulfil the same task, which can prove inefficient and costly. Good software asset management data can highlight what is being used, how and where, and what is not, and is vital in forecasting future requirements.

 

Across business, an estimated 30% of software is unused or underutilized.

 

Armed with detailed and up-to-date SAM data, you are more able to decide whether the current IT suite matches your business needs. Is it optimized to support strategic objectives in the short, medium, and long term? How is your business forecast to grow or change over the duration of the new contract? Is cybersecurity as tight as it needs to be? Are you compliant with licensing and data protection requirements? Are you AI-ready? 

Essential considerations 

Time: It is essential to allow enough time for information gathering, starting at least nine to 12 months from the date of contract renewal. SAM data will help decide what products and functions your business no longer uses or needs and identify gaps in the current and future IT suite. This exercise alone can save money, by enabling the business to scale back or eliminate products that not being used efficiently.

Future needs: Next, look ahead and be aware of the impact of wider factors. Changes to headcount, operations, location, and business activity should all be considered. Also take note of regulatory changes, including those on data protection, cloud security, and the use of personal data.

KPIs: Consider the budget, the procurement manager’s goals, and the KPIs to use to evaluate offers. Consider, too, the reputation, experience and expertise of different vendors.

Stakeholders: Identify stakeholders within the business. This is likely to include IT and SAM managers, Strategy, Procurement and Legal. Be aware that they may have competing interests.

C-level sponsorship: Involving the C-suite at the scoping stage is crucial to ensure that the contract aligns with the future strategic direction of the business – insight that may not yet be apparent to specific departments. While high-level input is essential, senior executives should not be involved in negotiations directly or indirectly. Key questions to ask include whether there are mergers or divestments on the horizon, new locations or geos to consider that could impact licensing or changes to in how marketing and sales departments will utilize data and analytics – factors that the new suite of products and services will need to support.

The small print: Terms and conditions can get overlooked if the focus is too much on price but ignore them at your peril. A thorough understanding of the terms and conditions attached to the current IT suite is vital for driving effective supplier negotiations on future contracts. Misinterpretation or neglect of these details can lead to unfavorable terms, driving up costs and reducing efficiency, whereas favorable terms can unlock significant savings.

Broader considerations: When preparing for contract renewal or procurement negotiations, think beyond just cost. Consider the scope and scale of services, contract length, payment terms, the implementation plan and support, and the KPIs both parties will use to keep the contract on track.

A backup plan: There is one more thing to consider before negotiations start: Have a backup plan. While the goal is to reach a mutually beneficial agreement with the preferred supplier on time and within budget, sometimes things don’t go as planned. Having a well-thought-out Plan B ensures you're not left scrambling, minimizing potential disruption and cost should negotiations stall. You may never need to use it, but not having a fallback when needed is guaranteed to be disruptive and costly.

Contract renewal strategies 

Keep communication clear and consistent: Be specific where numbers are involved. Ambiguity can cause confusion, frustration, delay, and expense. Instead, center discussions on clear and objective criteria so that both sides feel respected and can work on an agreement that is fair and balanced.

Speak with one voice: There will be a team behind the negotiation but ensure that only one person is empowered to speak on behalf of the business when negotiating with suppliers and vendors. It streamlines discussions and avoids ‘back-channel agreements’ that may not align with the overall objectives and often end up being inefficient and costly.

Keep business requirements in mind: If Procurement leads the negotiation, there is a risk that the outcome is determined by price and not optimized for business needs. Draft a detailed proposal as a group, then ensure that one person leads the negotiations, feeding back to the rest of the group regularly and consulting where necessary.

Set goals and expectations: Be clear with suppliers about your priorities, goals, and expectations. If what they can offer does not align with these, then consider other options. Prioritize desired outcomes and keep the big picture in mind to ensure that disagreements on lower-priority products or functions do not derail the process.

Compare vendor offers: Look at a range of offers from other suppliers. Considering the merits and disadvantages of each, these insights can offer useful leverage in negotiations with a preferred supplier. Finding alternatives for a specific feature can be a great driver in negotiations with bigger vendors.

Know the importance of confidentiality: Keep contacts and discussions with this and any other vendor confidential. They likely know each other’s priorities and objectives better than the client does, and disclosing too much can unbalance the negotiations, meaning you might not get as much value from the contract as you could have.

Be patient: Taking time to understand vendors' and suppliers’ priorities as well as those of your own business offers the highest chance of success.

Be human: It is easy for negotiations to become overwhelmed by detail but remember that on each side there is a person and a team trying to get the best outcome for their business. Personal relationships make a positive difference in ensuring continued support for the duration of the contract.

As well as being important at renewal times, they are key in dealing with unforeseen events, for instance, divestments or mergers and acquisitions. Strong relationships endure beyond the lifespan of a contract, an advantage when the client or supplier moves roles or companies.

Negotiation strategies for different areas of IT software

In any vendor negotiation, it is vital to think beyond price. This is one reason to have IT and SAM managers involved in negotiations. Consider whether some features bundled in a suite of software can replace stand-alone tools currently in use. Look at the number of users on each platform, and where and how they use it. Many of these factors can be negotiated.

With cloud-based solutions, it is easier to share licenses across users, teams, and locations. For instance, a program can be used during working hours in Singapore and then returned to a virtual library to be checked out and used by a colleague in New York while Singapore is sleeping. Check that the duration of the contract meets business needs.

 

In any vendor negotiation, it is vital to think beyond price. Many factors can be negotiated.

 

Consider the vendor’s pricing structure and key priorities. Most offer tiered pricing, with discounts at scale, buying a larger set of licenses or products than headcount demands to benefit from these savings could reduce the overall spend.

If the vendor is pushing a particular product which you think your business does not need now but could need in the future, you may be able to negotiate deep discounts by adopting early and build in price protection for subsequent years.

AI and Machine Learning tools can increase the speed of data analysis and automation, speeding innovation. AI and ML tools may help future-proof your business, but it is important to consider whether and how they will be used to determine whether they will add value.

Attention to detail

Once an outline agreement has been reached, look again at the detail of the contract terms and conditions. If your business is going to be involved in mergers and acquisitions, details such as inserting a no-audit clause can save the disruption and expense of going through an audit at the same time. Similarly, if parts of the business are to be sold off, adding a divestiture clause would allow existing software licenses to be used during an agreed transition period even though they now belong to a different legal entity.

Contracts can only be scaled back at renewal. So, if there are plans to downsize, and reduce headcount by say 500, the business will still be paying for those 500 licenses until the end of the agreement.

In the case of perpetual licenses, contracts need to be clear about whether the client is legally entitled to sell off those licenses if it no longer requires them.

Be aware of detail. For example, if a customer is given 21 days to complete an audit, does this mean calendar days or working days? Does the clock start ticking the day an audit notification is sent or when it arrives?

Specific vendor negotiation tactics

There are other specific negotiating tactics to consider when negotiating with suppliers and vendors.

Consider a scalable contract: Volume discounts are common, but if your business is in a period of planned expansion think about a scalable contract where capacity and licensing increase in step with this growth.

Optimize costs with deferred usage: Some suppliers and vendors will agree contracts based on minimum guaranteed usage levels, which can be a clever way of managing or deferring costs.

Choose annual billing instead a monthly plan: If cash flow allows, annual pricing rather than monthly billing can be another way of negotiating a better price.

Ask for personalized payment terms: In negotiating contracts with vendors, other concessions on payment terms may be negotiated on a case-by-case basis. It may also be possible to negotiate with a reseller for longer payment terms where the vendor is not able or unwilling to do so.

Ask for a price-rise guarantee: Protection against subsequent price rises is another factor to consider in negotiations. A vendor might offer this in return for a minimum number of licenses bought, for instance.

Streamline the contract review process: Bundling your requirements into fewer contracts may work in your favor as vendors are more likely to offer discounts. This way, businesses can streamline the process of managing vendor relations and reduce spend on duplicate products from other suppliers.

However, vendors may give the impression of value by bundling together various products. This can make price comparisons difficult, and it can be expensive if some products are unused. Detailed SAM data can help cut through this.

SAM data is crucial

SAM data is also key to calculating the cost in time, effort, and resources if migrating a significant team or operation onto a new system or package of software. Bigger suppliers will often negotiate specialized support and assistance during this transition period, equivalent to a substantial saving on the costs of managing this rollout in-house, but third-party consultants may offer the same support at a lower cost. Successful migration is always accompanied by a change management program, and this should be factored into your costs as well.

Use timing to your advantage

When negotiating pricing with vendors, try to negotiate at the end of the month, end-of-quarter, or the vendor’s fiscal year-end. Vendors are always eager to increase revenue particularly towards their fiscal year-end. These can vary between businesses, so it is worth researching when this is (see table below for some of the larger vendors). At these times suppliers and vendors may be more willing to offer discounts and other benefits to secure sales and meet their own targets. Be prepared to move quickly to lock in those deals.

Company	Fiscal Year End
Microsoft	June 30
Oracle	May 31
SAP	December 31
Salesforce	January 31
Adobe	November 30
VMware	January 31
IBM	December 31
ServiceNow	December 31
Workday	January 31
Autodesk	January 31
Splunk	January 31
Atlassian	June 30

Understand the vendor’s strategy and targets

When engaging with suppliers, it's essential to stay attuned to their internal targets, which can shift over time and influence their negotiation approach. An often-underused tactic is the ability to stall the negotiation.  Once a proposal is issued, suppliers may have already factored the potential revenue into their projections, creating pressure to close the deal. This provides the buyer with an opportunity to leverage the situation to their advantage.

 

An often-underused tactic is the ability to stall the negotiation.

 

Suppliers may be incentivized to promote new products, moving customers away from services that are being phased out. If their focus is primarily on meeting revenue targets, they may not be able to move much or at all on price. However, they may be able to offer additional features, or services or value added options that enhance the overall deal for the buyer.

This understanding of the supplier's motivations allows the purchaser to negotiate from a position of strength. Where a red line has been reached on price, the buyer can still secure a more comprehensive package by negotiating for extra services or features, ensuring the best possible value beyond just the financial terms. Gartner says: “Through 2027, 25% of large organizations will negotiate alternative benefits from cloud providers, as discounts fail to increase proportionately with growing commitments.”ⁱⁱ

SoftwareOne can help

Software vendors have large departments working full-time on negotiations and contracts, and if this is something a business does only every two or three years, it is easy to feel overwhelmed. This is where a trusted partner such as SoftwareOne can help, with up-to-the-minute knowledge, many years’ experience, and industry-wide expertise.

The proliferation of products and providers continues to grow rapidly. SoftwareOne has an industry-wide view, informed by market intelligence and competitor insights, and a global team of experts on specific products.

Providers have a wide variety of pricing structures and specific objectives at play in renewal and procurement negotiations. SoftwareOne’s expertise can help demystify complex proposals allowing effective comparisons.

As per Gartner “Specialized SAM managed services providers may be required to augment or fill skills and knowledge gaps within the organization. Small-scale SAM teams and the stakeholder may not possess in-depth technical knowledge in gathering necessary data or licensing rules.”ⁱⁱⁱ