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Here’s Why You Should Conduct Price Benchmark Analysis for Every IT Purchase or Renewal

This sponsored Viewpoint article has been provided by NPI
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If you remember nothing else about this blog post, remember this statistic: 5%. Those are the odds that enterprises are paying a fair price for any given IT purchase or renewal if they are not performing IT price benchmark analysis.

In the first half of 2018, only 5% of the IT purchase quotes reviewed by NPI were priced at fair market value based on market benchmark comparisons. That number is dangerously lower than what it was just a few years ago when “fairly priced” IT purchases and renewals hovered around the 30% mark.

The culprits are many. As anyone who’s responsible for buying IT knows, licensing/subscription and pricing complexity are off the charts. Some vendors like SAP and Oracle have acknowledged the pain of this complexity, but few (if any) have taken meaningful measures to improve the situation and the negative impact it’s having on IT buyers. The acceleration in IT buying is also playing a role. More spend, more deals, less time, and fewer resources to vet pricing and terms – this is a challenge virtually every IT sourcing professional is facing, and one that continues to benefit vendors. Toss in digital transformation and the pace only gets faster.

So, how can companies combat IT overspending given the current state of vendor pricing? How can sourcing professionals rise above this challenge? The measures IT sourcing teams have traditionally taken to avoid overspending are no longer enough.

Upcoming webinar: IT Sourcing Best Practices — How to Leverage Price Benchmarking, License Optimization and More!

The current state of IT vendor pricing requires new best practices and approaches. One example is transaction-level price benchmark analysis of each purchase before you sign on the dotted line. External expertise helps IT buyers answer four key questions:

  • Is deal pricing in line with market for deals of similar size/scope?
  • If not, what are specific pricing targets for this purchase to bring it into alignment?
  • Does the vendor offer other pricing/licensing/subscription options that would meet my organization’s business and technical requirements for a lower cost?
  • What other cost-related business terms are important to optimize for a purchase of this type?

Unless sourcing teams take steps to validate they’re paying fair market value for every purchase and renewal, they must also acknowledge there’s a 95% chance they’re overspending. It’s time to change the odds!

Kim Addington is COO at NPI.

NPI is an IT sourcing consulting company that delivers transaction-level price benchmark analysis, license and service optimization advice, and vendor-specific negotiation intel that enables IT buying teams to drive measurable savings. For more information, visit www.npifinancial.com.

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First Voice

  1. Serge Milman:

    Any effort to obtain “fair” pricing for each individual purchase is likely to result in lots of frustration and little value creation. This is due, in part, to the fact that any one transaction is meaningless to the vendor and lacks the justification for the vendor to extend best-in-class pricing. However, firms can generate 20%+ cost savings on IT Spend by negotiating pricing for spend across categories (software, hardware, services, etc.) and on a multi-year basis. This type of consolidation provides spend visibility for the vendors, while consolidating dozens if not hundreds of minor vendors for the buying organization. The result is not only dramatic reduction of vendor risk management, but also substantial multi-year cost reductions.

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