The Importance of IT Price Benchmark Analysis for IT Purchases

By Kim Addington


October 26, 2017

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This post was updated on May 3, 2021.

Sixteen percent. Those are the odds that enterprises are paying a fair price for any given IT purchase or renewal if they aren’t performing IT price benchmark analysis. Or, put another way, the chances you’re overpaying during an IT buying event are 84 percent.

How Much IT Spend is Excessive?

Here’s some context: Of all of the IT purchase and renewal transactions NPI reviewed in 2020, only 16 percent were priced at fair market value as compared to peer purchases in the market. It’s a sobering statistic for anyone responsible for sourcing IT products and services.

What’s changed? First and foremost, licensing and pricing complexity are off the charts. No real surprise here as this challenge has been plaguing IT sourcing for years, but the impact it’s having on IT purchase outcomes is painfully clear (84 percent!).

While some IT vendors (SAP, Oracle) have publicly acknowledged this is a problem for their customers, they’ve yet to take meaningful measures to improve the situation. Among our clients, we’re also seeing an acceleration in IT buying – in terms of both volume and pace. Digital and industry transformations are driving more IT buys, more often and more quickly. That’s putting pressure on IT sourcing teams, many of which are already resource constrained.

IT Price Benchmark Analysis: Safeguarding Fiduciary Responsibility

One conversation I find myself having often with IT and sourcing executives is on the issue of fiduciary responsibility. No one wants to overpay for IT and most sourcing teams take measures to avoid it. They employ negotiation best practices, consult analyst research to validate vendor health and selection, and implement procurement tools and solutions to track spending KPIs.

But these measures are not enough given the current state of IT vendor pricing. Transaction-level IT price benchmark analysis should be hardwired into every company’s IT buying process.

Answering 4 Key Questions with a Benchmark Analysis

This requires access to external expertise that helps IT buyers answer four key questions:

  • Is deal pricing in line with what my peers are paying or for deals of similar size/scope?
  • If not, what are specific pricing targets for this purchase to bring it into alignment?
  • Does the vendor offer other pricing/licensing/subscription options that would meet my organization’s business and technical requirements for a lower cost?
  • What other cost-related business terms are important to optimize for a purchase of this type?

Unless sourcing teams take steps to validate that they’re paying fair market value for every purchase and renewal, they must also acknowledge there’s a 84 percent chance they’re overspending. Changing those odds should be a high priority!

If you’d like to learn more about the importance of IT price benchmark analysis – or submit an IT purchase or renewal for review – NPI can help. Our price benchmark analysis, license optimization, and software license audit services frequently deliver six- and seven-figure savings for enterprise clients. We can help you eliminate toxic spend, optimize IT purchase and renewal agreements, and negotiate an optimal outcome.