Many businesses need effective negotiation skills in day-to-day activities, whether for internal changes, client discussions, or for contract negotiation. A software contract is one part of business negotiation that might be unanticipated, but it is often an important part of business operations. Your software must meet the requirements and needs of your company without paying excessive amounts or falling victim to predatory terms and conditions. Negotiating a software contract requires a strong team, prepared research, and a negotiation strategy.
Strategies to Improve Contract Negotiations
Effective negotiation requires immense preparation for weeks to months. You have entire control over the research and preparation stage, so don’t waste that time. Determining potential outcomes and amendments in a software contract before you even meet the sales team is necessary for a positive outcome.
In any contract negotiation, you begin a discussion determining where the other party stands and what they want to gain at the end of negotiations. In this case, the sales team wants to sell you their software. Asking questions during any contract negotiation lets you understand how the other party feels about the current contract and where your wishes align.
Practicing mindful listening ensures you get the necessary information from these questions. Listening carefully also allows you to learn details you couldn’t gain through research and correct any wrong assumptions about the needs of the other party. A necessary part of any contract negotiation is making sure both parties are communicating clearly and discussing any places of confusion.
Software Contract Negotiations
While it’s important to understand the fundamentals of negotiation, there are several negotiation skills specific to software contracts that are necessary for success.
- Set up a Strong Team
Setting up a software contract will impact the whole of your business, so this is not a negotiation to undertake alone. The sales team for the software will be prepared with a team, and you should also have a diverse team from inside your company. Pulling together an internal team with various areas of expertise can help strengthen your negotiation skills.
Even before you talk with the sales team, your negotiation team can use their knowledge to determine what features your software needs, what budget you’ll be operating under, and other elements. Here are some useful areas to consider when building your team:
- Supply management to determine a negotiation strategy and proposal for a contract
- Business units that understand the software, know the business requirements, and can review the proposal
- A budgeting unit to determine acquisition costs and the financial and accounting impact of a potential contract
- An IT unit to manage and monitor the project while customizing the requirements for software and ensuring cyber security
- A legal and contracting unit that will develop contracts, look over terms and conditions, and provide a final review
Determine what additional aspects your company needs to have covered and select a team that can appropriately handle these responsibilities.
- Research Preparation
Any contract negotiation or plain negotiation requires research and preparation. It’s particularly important to software contract negotiation because it lets you learn as much as you can about the software and its sales team. A software system is a serious purchase for a business, and you must set aside the necessary time for research to iron out a list of potential software vendors based on your needs for products and pricing.
This research will help determine what a fair market price is and analyze other marketing insights. All of this is useful in negotiations. When you’ve narrowed down potential vendors, look closer into customer experiences and the strengths and weaknesses of each software.
- Understand Your Objectives
Part of the team’s job is to ensure everyone understands the requirements of a potential software contract and what will make or break a deal. This also includes the development of a request for proposal (RFP), which determines the requirements of your business and your team. By determining your priorities, you can better identify which software meets your needs. Determine what your best options are for a software contract and compare options for software and how they function with your company.
A complete understanding of these requirements will determine if a software vendor is the right match for your business. Some software contract negotiations are less important because they don’t meet as many of your requirements. The team should know how important each contract negotiation is and how possible it is to walk away from a certain software contract. Some points to consider include the following:
- Pricing limits, including licensing, installation, customization, training, and maintenance
- Required functions and features
- Preferred function and features
- Availability of support and maintenance
- Business operating requirements, such as compatibility with current systems and applications to your industry
- Mobility needs for your business
- Ease of integration
- Red flags or risks in the terms and conditions
- Coverage for gaps in function
Your team should be on the same page for negotiations to be successful, and a well-developed RFP procedure can streamline your team’s ability to rank and select an effective software provider.
- Determine Vendor Motivations
Just as your team will be completing research, the software company’s sales team will research your business, too. They’ll determine your budget limits and how the final decision for your software will be made. If they have better information than you do, they have better leverage in contract negotiations.
One way to counteract this is to ensure strong research preparation beforehand. However, not all information is readily available, so specific questions to uncover the sales team’s motivations can even out that leverage. Learn how the team gets paid, whether through salary, commission, or straight commission, and understand how each of these impacts their negotiation tactics and needs. It’s also helpful to learn if and when the team receives bonuses and what software products and services they see more compensation from. Determine what incentives are driving the vendors and use them to your advantage.
- Be Flexible, Not Oppositional
Remember that a good outcome to negotiations will end up with both your team and the vendor sales team satisfied. Being stubborn or inflexible can stall negotiations. While you don’t want to be pushed around, make sure you work with the sales team and don’t begin negotiations with hostility.
Stay open to other suggestions and potential benefits you may not have planned for. Be prepared for several eventualities in negotiations. The largest parts of software contract negotiation are support, pricing, and terms and conditions. A flexible negotiation strategy will be beneficial for your company.
For example, when negotiating software support services, aim for a low to no cost, but don’t get stuck on just the price. These services include maintenance, installation, data migration, improved products, troubleshooting, and other customer service options, so make sure you’re determining several things about the service. Work to outline parameters for response time, recovery time objectives, and uptime, among other options such as training.
- Check for Hidden Fees
For most businesses buying software, the price is a driving factor. There’s a high chance you’ll be paying more than the amount listed on the website for a particular software, and even a proposal may not show every hidden charge. Things like maintenance, installation, and service charges may all be hidden fees that aren’t listed up front. When negotiating, the sales team isn’t likely to show you detailed pricing unless you ask for it.
Ideally, your team won’t see full pricing in the middle of negotiations. It’s better to understand a detailed charge before, so ask specific questions regarding pricing. That way, you can decide if negotiations with this software vendor are worth your time.
Some things to watch for when determining the true cost of the software include the following:
- Payment through license or subscription models
- Warranties for maintenance and support services
- Services and training through remote, in-person, or online methods
- Whether subscriptions are charged per month or per user
- Fees for maintenance, training, or support
- Different options for product maintenance coverage
- Fees for product integration with other software systems
There are also several models that software vendors may use for charging. Pricing for your company could depend on the following:
- The size of your company, whether by revenue or the number of employees
- How often the software will be needed, or how many transactions will be made
- The amount of saved time or money for the company from the software
When you have a full understanding of pricing, you can avoid overpaying and decide if the software service is worth negotiating for.
- Review Terms and Conditions
Complex and overly technical language can make the terms and conditions (T&C) hard to understand. It’s important to read through and understand the T&C list and compare it to the requirements of your business. Software T&Cs are known for being especially complex, and vendors will often insist on their original terms. Going into negotiations with your own list will ensure you better understand what’s acceptable and unacceptable within the T&Cs, such as extra charges or data privacy requirements. Prepare for areas you’ll need to negotiate, such as:
- Renewal and end-of-year price protection. Ensure the service charge won’t increase by a large margin when you renew the service or near the end of your contract.
- Data privacy and security. Check that your software provider won’t be selling your information to third parties and that encryption and other security methods are used.
- Audit protection. Check for the right to perform audits and that audits done by the software vendor are transparent, limited, and accessible.
- Storage limits. Be sure you know the necessary storage for your industry or business and that the contract explicitly mentions your storage limitations. Negotiate for eventual increases in storage if needed.
- Be Able to Walk Away
If you put all your hopes into one software vendor, you may sign an unfavorable deal. Have other viable options when you walk into negotiations, so you know that you can afford to walk away. If negotiations don’t go favorably, take a step back and rework your expectations and negotiation strategy. Then, begin the process of negotiations with a new vendor.
Ensure Strong Negotiation
Effective negotiation creates successful ventures for several aspects of business, including working out a software contract. Negotiation practice is the best way to improve negotiation skills, and professional training will speed up this improvement. Shapiro Negotiations Institute provides this training for team members and business leaders. An effective negotiating team is an incredible asset. Contact Shapiro Negotiations Institute today. The more experience your team has with negotiations, the more prepared they will be to negotiate a favorable software contract.