In this webinar, IT contract specialist Phil Downe of Relations Management Group explains how to do cloud-based software negotiations with confidence.
The webinar answers the following questions:
How can you avoid vendor captivity and software traps?
How can you prepare for a negotiation, including leveraging and timing the deal?
How can you draft a contract and prevent contract ambiguity?
3. Opaque / Bundled Pricing
Over-buying Shelfware
Eroding Discounts Over Time
Agreement Traps and Pitfalls
Growth, True-ups & Renewals
Unfamiliar Territory Disadvantage
Where are the Risks?
4. No Transparent, Set Pricing
Vendors Take What They Can
Unlocking Value Requires Preparation
Vendors Do This Every Day!
Recognize the Potential Negotiating Disadvantage
Software Costs are Enormous!
5. All Vendors Have a Formal Sales Strategy
They Have Deep and Consistent Expertise
The “Level-Playing-Field” is Rare
They Have a Step-by-Step Sales Process
Opaque Metrics & Complex Terms
Products & Rules Change Constantly
Insist on Pricing Transparency & Clarity
Strategic Planning and Preparation:
7. Pricing
Future Price Protection
Systems Implementation Charges
Term of the Agreement
Ancillary Charges (Storage & Transactions)
The Legal Terms (SLAs & SOWs)
Price-Points & Issues to be Negotiated:
8. Cloud is Dominating Traditional SW Sales
A Subscription (Sub) = 1 User/1 Sub /Month
Higher Discounts for 36 to 60-month Commitments
Vendors Recognize the Total Sale:
End of Q1 & Q2 – Buyer has Good Leverage
End of Q3 – Buyer has Very Good Leverage
Q4 (Year-End) – Buyer Has Excellent Leverage
Vendor Year-Ends are Buying Opportunities
Leverage & Revenue Recognition:
9. Vendors “Bundle” to Hide Price-Points
No Price-Points = No Benchmarks
Price-Protection Needs a Starting Benchmark
No Price-Protection, then…
Full List-Price Add-Ons
Full List-Price Renewal
Clear Price-Points for Every Subscription Type
(Full-Use, Restricted, Read-Only, etc.)
Pricing:
10. Pricing
Subscription A Pricing:
Volume Clip Levels: (Adjust as needed) List Price ($) Discount (%) Net Price ($)
50 to 100 $250.00 50% $125.00
101 to 200 $250.00 60% $100.00
201 to 300 $250.00 75% $62.50
etc. (add lines as needed)
Subscription B Pricing:
Volume Clip Levels: (Adjust as needed) List Price ($) Discount (%) Net Price ($)
500 to 1000 $100.00 50% $50.00
1001 to 2000 $100.00 60% $40.00
2001 to 3000 $100.00 75% $25.00
etc. (add lines as needed)
11. Clear Initial Price-Points Facilitate:
Add-on Sub Pricing During the Term
Growth Leads to Additional Subs
Renewal Price-Protection
No Protection? Assume Full List-Price
Vendors Shun Price Transparency
Vendors Discount Only When Necessary
Establish Objective Criteria for Future Negotiations
Potential Price-Traps:
12. Get Clear Sub List Prices
Most Subs are Priced for a 12-Month Term
Paid in Advance
Negotiate Increasing Discounts for:
Multiple Types of Subs
Longer 36 or 60-Month Commitments
Insist on at Least two 12-month Extensions
At the same Sub price
Avoid Automatic CPI or Fixed-Rate Increases
Then Negotiate Bigger Discounts for Longer Terms
Future Pricing Tactics:
13. Migrating On-Premise Software to Cloud Subs
Get a Credit for Past License Purchases
Reduce Annual Support Charges
For Existing Cloud Deals:
Have Excellent Price-Protection, or
Re-Negotiate Early
Don’t Buy into Vendor Excuses for Short Notices
Other Pricing Opportunities:
14. Salesforce YE - January 31
Oracle YE – May 31
Microsoft YE – June 30
Adobe YE – December 1
SAP YE – December 31
Vendors Cannot “See” Beyond the End of the Quarter
Leverage Vendor Deadlines:
15. Data is the New “Oil”
AI & IoT Produces Data – Lot’s of It!
Stored Data Will Double Every two Years
Re-Selling AWS Storage is a “Cash-Cow”
AWS charges US $0.023/GB/Month
For up to 50 TB
Vendors Charging $1.00/GB/Month is 43X Higher!
Do Your Own Storage Deal
Always Keep 100% Control of Your Data
Storage in the Cloud:
16. Vendors Over-Sell Subs:
Vendors Promote – Buy for Growth
Vendors Promote – Elite Subs Over “Good-Enough” Subs
Good Price-Protection Avoids This Trap
Buy Only What’s Needed – Price-Protect all Future Subs
Price-Protect Ancillary Module Extensions
If it’s a Potential Add-on Buy – Price-Protect it!
Add Swap-Language
Trade Sub Over-Buys for Useful Subs
Shelfware:
17. The Vendor Wants Immediate Payment to Book Revenue
Sub Pricing Always Starts on the Signature Date
Vendor’s Can’t Book Revenue Until “the Subs are Delivered”
The Buyer Doesn’t Need 100 Subs on Day 1
Negotiate Further Discounts for the Shelfware
Alternative:
Add 3-Months Subs Free – Keep the Vendor Financial Quarters in
Play!
Ramp-Ups:
18. There Must be Compelling Evidence of an Agreement
The Pricing Must be Predictable
Collectability Must be Reasonably Assured
Software Delivery Has Occurred
Threaten the Vendor’s Rev/Rec & You Have a Problem!
Vendor Revenue Recognition Rules:
19. Time & Materials (T&M) or Fixed-Price?
Complete Requirement Definitions are Critical
An Early Requirement Costs $0.5X
After-Signature Requirements Cost $2X
After-Go-Live Requirements Cost $3X
Get a Detailed Implementation Plan
Know Who is Doing What/When to Control Costs
Consider $200/Hour is $400K a Year
The A-Team Always Sells – F-Troop Usually Delivers
Consider Milestone-Payments
Professional Services (PS):
20. MSA – Master Subscription Agreement
Addendums, Schedules & Exhibits
SLA – Service Level Agreement
Credits for Failure to Meet the SLA
SOW – Statement of Work
On-Line Terms, Terms of Service, (TOS), Privacy Policy, etc.
Product Order Forms
Often with New Binding Terms
The Legal Agreement:
21. Previous Terms: New Terms:
Enrolled Affiliate must submit an annual
true-up order that accounts for changes
since the initial order or last true-up order,
including:
(i) any increase in licenses, including any
increase in Qualified Devices or Qualified
Users and Reserved Licenses; (ii)
Transitions (if permitted); or
(iii) Subscription License quantity
reductions (if permitted).
Enrolled Affiliate must submit an annual
true-up order that accounts for any
changes since the initial order or last order,
including:
- Enterprise Products…
- Additional Products…
- Online Services…
- Transitions…
- Subscription License quantity
reductions…
Risks in Terms
22. Anticipate Software Audits
They will occur
Restrict Auditors Motivated by Perverse Incentives
Add Conflict-of-Interest Language
Add an Auditor NDA Requirement
Insist on a Definitive Timeline
Audit Language:
23. Start Earlier Than You Think
Competition & Alternatives Drive Savings
Time the Deal for Maximum Leverage
Identify Your Interests:
Set Priorities
Set Targets
Always Negotiate Your Renewal Options
Wrap Up:
24. Presented by: Phil Downe
www.ITnegotiations.com
phil.downe@itnegotiations.com
(416) 804-7445