The Art of Negotiating with Your IT Service Providers – Part 1

Great disparity exists in an imperfect technology marketplace. No two companies pay the same for technology, pricing fluctuates widely, sellers have a distinct advantage over buyers and they rarely have “real-time” access to market pricing. Most purchasers ignore the potential impact of future business model changes in their negotiations.

In this multi-part series, we will review best practices to improve negotiating skills and positions when acquiring technology outlining procurement, maintenance, professional services, legal, and some miscellaneous opportunities. Technology negotiation is not about a “WIN-WIN” but more about being “TOUGH BUT FAIR” in order to provide you reasonable pricing and establish/maintain an ongoing valued-added mutually respectful vendor/customer relationship.

Software & Hardware, Pricing

The elusive search of the right price versus retail. It takes time to find the “basement”. Utilize the outlets that are available to you: research analysts, peer networking, price negotiating companies, competing offers, etc. Of course, the end of fiscal period deal can result in additional savings, however, the general rule of thumb is: the deal available today will be available tomorrow (regardless of the sales pitch).

Pricing is not just about the selling price. Try to lock in future pricing or discounts. Exceptions include, price erosion prone markets (like storage) which can always be negotiated at a later point in time. Base your payments on your acceptance and full production use, not on delivery or invoicing. Depending on the product and implementation timeline this could defer some expenses for many months. The downstream maintenance costs are also positively impacted.

Software & Hardware, Warranty and Licensing

Most vendors differentiate between warranty and maintenance periods. Extend the warranty as long as possible and ensure that maintenance runs serially to the warranty (atypical in the industry) and all the maintenance value added services are provided as a component of the warranty.

It is very easy to buy low cost servers with 3-year next business day repair/replace warranty for no additional charge. Round the clock coverage with four-hour response is an upcharge that needs to be evaluated against a low cost spare pool and reduced MTTR (mean time to repair) service levels.

There are more licensing models today than ever before. Perpetual, Subscription (XaaS), Hybrid, etc. and various license compliance metrics multi-core processor counts, user count, company revenue, etc. Staying on top of the right choices is purely a business decision surrounding your company’s business model, culture, and cash flow.

Beware of the “appliance” pricing trap. Your vendor will love to charge you for the software every 3 or so years when the appliance hardware platform is no longer supported. Ensure you protect your software investment (by far the majority of the cost) when refreshing appliance hardware platforms.

Regardless of the licensing model, address future pricing up front. Stay away from increases based on your company growth. Your company’s success should not necessarily translate to an increased income stream for your vendor. Most vendors are more than willing to allow for “organic” growth if you protect them from lost revenue due to an acquisition. Also, let accumulated subscription fees act as prepaid perpetual license fees (just in case your business model changes).

In our next part of the series, we will cover maintenance and professional service components.