How To Maximize IT Renewal Savings During Contract Negotiation

March 16, 2022

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There are almost always opportunities to save on an IT renewal, but it calls for a bit of forensic analysis to reveal your options. Preparation is key – and it needs to begin months before the expiration of your current term!

Questions to ask and data points to collect include:

  • Is the purchase “right-sized?” Has an internal audit against licenses/users/devices been performed to validate consumption?
  • Are the right types of licenses being purchased?
  • Is the functionality of this product similar to or does it overlap the features of another product that is being purchased? Is this purchase redundant in any form?
  • Are there any additional features or options key stakeholders would want/need?
  • What features or options are being paid for yet remain only partially used?
  • IF the company was forced to choose an alternative solution, what would that be and what would the estimated timeline from POC to implementation look like?
  • Is a multi-year renewal under consideration?
  • What is the estimated growth trajectory over the next 3 years?
  • What are the fiscal quarter and year-end dates for the vendor?

Consider Timing Carefully

The optimal time to begin your IT renewal journey depends on whether your initial deal was/is fairly priced. Sub-optimal pricing and/or oversubscribed scenarios should begin the renewal discussions far in advance versus 3-4 months prior to renewal.

How timing intersects with vendor motivations is also key. If the customer can control the renewal timing, they can sometimes find a discounting opportunity in an early renewal. This option is often tied to quarterly sales goals and financials of the company. If an early renewal can deliver better sales numbers for a company, they will often be much more amenable to price reductions.

Initiating the renewal conversation months ahead of the renewal is a tactic which can sometimes cause concern within the vendor organization.  Questions like “Why are they asking for the renewal so early?”  and “Is there something changing in the company that we aren’t aware of?” create productive tension.

The rationale for the early ask should always be tied around “more accurate budgeting and forecasting of spend.”  Discussions about budget and spend are indirect and subtle hints to vendors that spend is being analyzed. Again, the goal of the exercise is to leave small messages within your words and actions that enable the sales teams to build uncertainty into the renewal and pricing.

And if you want to use viable alternatives as stalking horses in the negotiation, then you need to build in viable timelines for that threat to be taken seriously.  For example, you need to be threatening CA/Broadcom with a BMC replacement at least 18 months prior to your expiration for Broadcom to take it seriously.

Demand Pricing and SKU Transparency

IT renewal pricing should be reviewed to ensure the proposal contains what NPI deems to be critical data points: SKU, Product Description, Quantity, Term, List Price, Price. Most vendors will omit one or more items to allow their teams multiple avenues to manipulate pricing in their favor.

If SKUs or products have changed from the initial purchase, the customer should ask for a data sheet which compares the features from each of the options. NPI finds that a SKU change with minor feature changes is often justification for slight price increases.  Document any SKU and pricing changes for the upcoming negotiation.

Refine Your IT Renewal Narrative

If you find yourself in the situation where the renewal is pretty straightforward, but you want to reduce the number of licenses, the typical vendor reaction is to raise the unit price to neutralize the loss.

Ask the vendor to share alternative possibilities that might exist to allow the pricing to remain flat. Often there are individual or team incentives that can be leveraged. The simple act of opening the door for that conversation can play into an IT negotiation fundamental – to create a win-win scenario.

NPI’s Fair Market Value Subscription service is the easiest way to make sure you’re paying the lowest possible price on your IT purchases and renewals. Contact us to learn more.