How spreadsheets give you leverage when negotiating tech deals
Your skill set as an accountant gives you great leverage, says IT negotiation specialist Phil Downe
TORONTO – As an accountant, one of your best weapons when negotiating technology deals is something you use every day — your spreadsheet. Your skill set as an accountant can give you great leverage when dealing with savvy technology vendors who know every trick in the book.
One of the most important keys to negotiating complex, multi-year deals is to always know where you are with the total cost of ownership (TCO) in your deal. By building flexible, responsive spreadsheets that can be changed on the fly, you can track inputs over time and any material changes. You can also see your cost fluctuations over the entire term and, looking back to previous versions, track the impact of changes to the deal.
When building your spreadsheets, separate the one-time charges from the recurring charges over an extended period. And, if applicable, add in the costs of the organic growth for additional users and increased transaction volumes.
Go far beyond the end of the multi-year deal. There is no easier way to open the door to future price-protection discussions than by appearing to penalize the vendor’s offer. Be reasonable to optimistic with your growth projections but forecast a huge spike in the first renewal term costs, with worst-case-scenario pricing.
If the vendor won’t cap the future price increases, then insist on using their full list price plus annual CPI increases of, say, three per cent per year. Set it up so you can change a single price point (e.g., subscription cost, hourly rate) right there at the table and see the long-term cost implications and your net-present-value results. A simple line chart will drive home your point and help catch any incorrect inputs or formula fumbles.
The vendor will protest that they would never (never!) subject their clients to severe price hikes. Or that they will gladly re-negotiate in good faith in the future with similar discounts. They may also warn you against locking in a price when the costs may go down. Or there will be newer and better technology to exploit by that time.
That’s just rhetoric. Once this deal is over, there will be a new face sitting across from you and they’ll want a big payday, and the fewer the options you have, the bigger their payday is going to be.
Try this negotiation strategy
Let’s take a simple scenario of a 36-month software subscription deal. First, exploit all the advantages of the volume and advanced-payment discounts that I discussed in my article, “How to save money when negotiating software subscriptions,” on Canadian Accountant. Second, work in one or two 12-month extensions.
Don’t worry if you lose the battle for price decreases for renewal terms — that’s a tough concession to get. Just try and limit future price increases to CPI or core CPI. Something around three per cent and don’t let them compound the annual increases.
Then, third, giving yourself lots of time before the renewal date, start the renewal talks.
What if you renewed for 24 months or another 36 rather than just 12 months with a paltry three per cent increase? Do you think the vendor might be willing to give you another 10 per cent discount if you offer to increase their quarterly revenue recognition by over 160 per cent for a three-year deal? If you’ve been following this blog you recognize that as leverage by creating more benefit for everyone.
If you timed the original deal for a quarter-end, then you also have recurring financial quarter leverage, as I discussed in my last article, “3 savvy leverage tactics to use when negotiating technology deals.” These negotiation tactics of creating mutually beneficial concessions fall into the “low-hanging-fruit” category.
Send me your questions, comments
I hope you’re enjoying this series on negotiating technology deals with software vendors. Send me your questions and comments on the series by email and I will try and incorporate them into future articles.
Also keep in mind, you can always reference Excel tips from Alan Salmon on Canadian Accountant. You can take a class in Intelligent Performance Modeling using Excel by David Elsner through CPA Ontario and, if you have a major technology negotiation coming up, you can hire an independent IT negotiations specialist such as myself, to assist with your negotiations.
In the meantime, however, it’s such a fascinating field that I look forward to sharing my tips, secrets and tales from the trenches with you through Canadian Accountant.
Phil Downe is an independent IT negotiations specialist and principle with Relations Management Group Inc. based in Toronto. He can be reached at 416-804-7445 or by email at Phil.Downe@ITnegotiations.com.