Annual software maintenance bills can make even the toughest IT leaders question their negotiating power. I can attest to this from personal experience.
Every year when the maintenance bills arrived, I’d have the negotiated 30 to 45 days to pay what seemed like an absurdly high amount for very little expected return. However, I did not, and you should not, accept this as inevitable. Follow these 5 steps to build leverage and ensure you gain the upper hand in maintenance fee negotiations. This is essential because software vendors like SAP and Oracle have a massive toolbox of strategies they use to protect their cash cow (their maintenance revenue stream).
1. Construct a schedule – Build a schedule of the project maintenance payments of your ERP software and all of the supporting infrastructure software. Include databases, add-ons and the operating system within this schedule. Also identify fundamental terms of the maintenance and the primary drivers of costs, i.e. server size, number of user licenses and transaction volumes. Building this schedule will help you establish the appropriate time frame for executing your plan and define the appropriate drivers for negotiating leverage.
2. Get a benchmark - Understanding where you stand in comparison to the market is a critical component to any negotiation. Work with an independent firm to establish a benchmark and determine how much opportunity there is for reduction. These findings will guide you in establishing how much effort you should put towards lowering costs. If you are already in the 1st quartile for maintenance productivity, then you may want to reconsider your objectives and focus on maximizing the value of the software you have in place.
3. Take out the trash – Take inventory of real usage of the software. A complete audit of your organization’s ERP software almost always finds that 10-15% of licenses are allocated to users who no longer require the application to perform their duties. While many companies use this technique to avoid buying new licenses, it can also be used as a negotiation tactic to lower maintenance fees. Another variation of this tactic is to make an investment in the licensing optimization packages that exist in the market.
4. Establish a product replacement strategy – Negotiating leverage on a product that you have no exit strategy for is more than just difficult, it is nearly impossible. For those maintenance contracts that chew up the largest portion of your budget, develop a detailed replacement strategy. Don’t cop out on this by simply building a list of alternative software providers. Build an honest to goodness plan that documents how you would go about replacing the incumbent provider with an alternate. You very likely will be able to get help from the incumbent’s primary competition in accomplishing this. The secret to making this tactic a success is making the honest effort.
5. Consider alternate suppliers of maintenance – Considering using 3rd party maintenance providers works particularly well near the end of the software lifecycle. Although the legal implications of Oracle’s ongoing court case with Rimini Street have the potential to reshape the wider maintenance provision industry dramatically, third party maintenance providers such as Rimini Street and Spinnaker Support are still solid alternatives for replacement.
Just telling your software provider that you are being charged too much is not going to get you anywhere. These vendors know the score and can typically wait you out through the payment terms. To build leverage you need to develop and execute a plan that will allow you to look your software salesperson in the eye and demonstrate your case.
Ultimately, in negotiations with your software provider, always remember two important truths:
1. You will always get your best deal when you are willing and able to walk away
2. Your software provider will find it easier to keep you happy than to find a new customer