5 steps to successfully source and negotiate for software systems in 2022

As 2022 begins and the focus shifts to the year ahead, your organization may be setting its sights on buying a new large-scale software system. Whether you are upgrading a legacy system or considering a new one altogether, this is an important decision with long-term strategic implications for your company. Having a bullet-proof sourcing strategy is imperative to ensure a successful negotiation, implementation and long-term adoption of an enterprise software system (ERP, CRM, HCM).

In this post, we will lay out our best practices for how to source and negotiate enterprise software agreements with confidence.

Best practice No. 1: Don’t go at it alone

A defining feature of enterprise software is that it will affect an entire organization or business unit. Make sure you assemble a team internally to provide different perspectives for input and to assist in your negotiation strategy.

Below is a reference table for perspectives and job functions that different levels of your company may provide:

Best practice  No. 2: Prepare a thorough RFP

When considering new software, developing a request for proposal (RFP) is always recommended, even if upgrading a legacy system. In this step, your team will identify your needs and requirements, which in turn will help you better understand your priorities in the purchase.

Take the time to survey your team, identify all of your requirements and ask vendors how they meet those requirements.

From there, your team will be well-equipped to analyze vendor responses and to compare concerns like these: functionality, implementation methodology/lead times, cost and the applicability of the software to your industry.

Upon reviewing qualified proposals, vendors will conduct software demonstrations to address issues or concerns you may have, functionality gaps and how the vendor will overcome those gaps.

A well-designed and organized RFP process will help you focus your software-vendor selection and ensure you move forward with the best solution for your company.

Best practice No. 3: Understand your fees and hidden costs

It’s highly likely that you will end up having to pay more than the price shown on a software company’s website, and even initial proposals may not list every fee that could be coming your way.

When negotiating with a software vendor, do the research to assess the total cost, considering several aspects:

Additionally, understand the different pricing metrics companies use to determine how much you will be charged for their solution. Typically, the solution will fall under one of these models:

• Size-based — How big your company is? (Example: Total revenue or total employee headcount)
• Transaction-based — How often is the solution expected to be used? (Example: The volume of order fulfillments or the number of pay periods)
• Outcome-based — How much is a solution likely to achieve for a company? (Example: Percent of cost savings or percent increase in qualified leads)

Best practice No. 4: Don’t be bullied with terms & conditions

Software companies are notorious for insisting on self-serving terms & conditions when negotiating with new customers. To ensure your needs are met, it is best to prepare key areas where you may need to negotiate.

Here are common points of contention with software companies to consider:

Best practices No. 5: Don’t box yourself in to one supplier

Through the RFP process, you will come to a point where you narrow down the potential vendors to two finalists. It may be to your benefit to negotiate with both vendors until you have reached a deal.

Different vendors will prioritize different negotiation points and be willing to concede on different items in a contract. By having options (and making both vendors aware of your options) you increase your leverage and ability to negotiate a favorable deal.

If your team determines that requirements just cannot be met within the negotiating process, do not be afraid to walk away. If you do walk away from negotiations, meet with your team to reframe expectations, strengthen negotiation tactics and determine whether the next-best software option is a realistic candidate.

Conclusion

Considering these five best practices and putting in the work ahead of time will allow you to confidently source and negotiate your next enterprise-level software deal like a pro and make you a hero for your business. With a competitive marketplace and new solutions emerging every year, be strategic in your negotiating process.

Leverage our IT sourcing experts for your next major software purchase. Connect today.

The author, Austin Dilling, is a ProcureAbility consultant. Austin has formed a career centered around a passion for delivering value and creating savings for clients through strategic sourcing, by applying his diverse areas of expertise, creativity and persistence to tactical and strategic objectives.

Austin joined ProcureAbility in 2020, where he has applied his toolbelt of skills toward achieving strategic goals and administering organizational maturity for his Fortune 500 clients’ procurement organizations. Before ProcureAbility, Austin worked in functional consulting for a popular cloud ERP system, NetSuite.

Austin has a bachelor’s degree in Supply Chain Management from the Mays Business School at Texas A&M University in College Station, Texas.