When negotiating IT deals, vendors typically lay out several objections to lowering costs. These objections will have you believe it’s impossible for the vendor to decrease pricing beyond any initial concessions. But is that really the case? How can enterprise IT buyers meet these objections head-on during vendor negotiations?
First let’s take a look at some of the language you may hear when negotiating with IT vendors:
Vendor Specific Objective Evidence (VSOE)
VSOE is basically an accounting practice for revenue recognition (typically for public companies) whereby 80 percent of the deals they do need to be priced within a 20 percent range. This is still a significantly large range and also means that 20 percent of the deals they do with other customers are outliers and are priced outside of that range – so go for being in the 20 percent! For enterprise customers, this constitutes an opportunity to pursue greater pricing flexibility and higher savings
General Services Administration (GSA)
Most of us are familiar with the GSA. It’s a U.S. government agency developed to assist other government agencies with procurement by pre-negotiating pricing with vendors. So, what does that have to do with enterprise IT buying and vendor negotiations? GSA pricing refers to a vendor’s agreement with the GSA to offer those goods and services at agreed-upon prices to any qualified government agency or department. Vendors will lean on this pricing and tell you that they cannot sell it to you for less than GSA. Don’t take their word for it. In many cases, IT vendors can and will offer pricing lower than what they may have offered to the GSA, but it requires a strong business case backed by data-driven pricing targets and creative negotiation (more on that in a second – keep reading!).
Group Purchasing Organizations (GPO)
Many companies sign up with GPOs to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members. Vendors will lean on this as the lowest they can go since this was already negotiated by the GPO – but, again, that’s not always the case.
Tips on How to Effectively Handle Objections During IT Vendor Negotiations
Getting the vendor to move off these objections can be difficult, but there are things you can do. In many cases, it’s about making IT vendors think more creatively about your deal and to make it more “custom” for your organization. Here are a few tips:
- Push for the creation of customized SKUs. By creating a SKU specifically for your organization’s solution, vendors can often bypass the rules implied in the aforementioned objections.
- Get creative with discounting. If you already have some of the vendor’s solutions in house, they can potentially get creative in discounting your existing footprint to help lower overall costs for an add-on purchase.
- Package the price differently. Many vendors can simply provide a one-time discount and give it an inventive name. That will make the deal appear different from others allowing them to bypass the pricing rules listed above.
NPI helps clients achieve many deals that are priced better than VSOE, GSA and GPO pricing. The key is to have enough leverage to make the vendor feel the deal will not get done if they cannot come up with a way to meet your pricing demands. Part of that leverage comes in the form of IT price benchmark analysis, which will help you determine best-in-class pricing targets based on what your peers are paying for similarly scoped purchases and renewals. If this is area you need assistance with, NPI can help.
- Blog: The Art and Science of IT Purchase Negotiations
- Blog: What Happens When Your Vendor Won’t Budge on Price During IT Price Negotiations?
- Blog: On-Premise vs. SaaS – Enterprise Software Pricing Considerations and Negotiation Insights
- Bulletin: 8 Ways IT Sourcing Can Enable Business Resiliency and Continuity in 2021
- NPI Service: IT Price Benchmark Analysis & Contract Negotiation Intel