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In negotiating with software vendors, CIOs should zero in on maintenance revenues as a major lever in getting price cuts, says R "Ray" Wang, principal analyst at Forrester Research in his blog. Wang recommends these simple steps to reduce maintenance overhead.
Assemble all the relevant contract information. Aggregate all your contract information and vendor interaction history so that its centrally accessible. Determine the value of your maintenance agreement. Examine how often you call for support, apply patches, conduct upgrades, and require technical assistance. Then calculate the total support and maintenance spend. Most customers will find that for $1M a year, 5 support calls can be pretty pricey at $200k a pop, especially when upgrades aren't in the picture for the next 24 months. The vendor better show up the next day with white gloves and be there in person.
Breakdown the total cost of shelfware. Simply put, shelfware is the software licenses purchased, not deployed that is incurring support and maintenance fees. That great deal 3 years ago you got on 1000 user licenses, when you only ended up using 800, now comes to bite you in the butt. Calculate the maintenance fee you have for 200 user licenses at $1000/user which is $200,000 X 20% annual support and maintenance X 3 years. At $120,000, you had better make up the "big" discount you got for buying 1000 user licenses by at least 12% this year and 15% the next year.
Craft your overall software adoption strategy. Consider the business drivers that impact software adoption. Assemble the domain experts, vendor management and sourcing professionals, legal experts, business owners, and IT team. Apply a long term apps/ recession proof apps strategy and determine when and how licenses will be used in the software ownership lifecycle. What processes will be supported? What roles will use the software? When will you upgrade? Can you consider an alternative?
Determine all the alternatives. Depending on your adoption strategy, multiple paths exist. If there are no intentions to upgrade or enhance the software, self support and third party maintenance (3PM) options from vendors such as Rimini Street and Spinnaker should be considered. In some cases, an upgrade should be completed before switching over to 3PM or self support. If the system can be replaced, begin vendor selection efforts so that you will have leverage during the negotiation. If the system cannot be replaced, consider swapping out unused licenses for credit towards newer or more desirable modules. Reduce your CPI for new maintenance. Focus on reducing new license costs.
Follow-up with your account representative at least one quarter before the contract expires. Put preparation on your side and begin to let your sales rep know 3 to 6 months in advance that you are unhappy with the current agreement. Based on steps 1 to 4, you now have the ammunition you need to negotiate from a position of strength.
The bottom line—align your contract negotiations strategy with your product adoption strategy.
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