Vital Tips for Negotiating IT Payments

New software is important in every industry. Every year, businesses across the world are spending millions to upgrade their tools and improve their bottom line. But, the very notion of upgrading software has evolved in recent years.

Software as a service (SaaS) is fast becoming one of the most popular ways to achieve enterprise resources without having to make long-term investments that lose value over time. There’s likely more than one SaaS option for your business that holds massive promise. If you really want to investigate SaaS as a means to improving revenue streams, you’re going to have to tackle payment negotiations. This is your introductory guide.

The Standard Model

When a SaaS provider lays out a deployment schedule, they’re typically going to request payment for the entire service period up front. This is easily the standard model, and they have good reasons for taking this approach. Up-front payment mitigates risk for them, and it generates cash flow that they need to fund the deployment of software. It’s not a small undertaking, and up-front payments are important to their cash-flow model.

This model has a consequence, and it pushes all of the risk to you. Implementing new software takes months, and when you’re paying up front, it is completely impossible for you to see a return on investment until the software is fully live. Even then, it’s going to take plenty more months for that ROI to justify the cost of the SaaS. This standard model of payment is constraining on cash flow, and it makes business operations difficult to manage for a significant period of time.

There’s a light at the end of this tunnel. This payment model may be standard, but it isn’t locked in stone. Many SaaS providers are willing to negotiate payment terms, usually in the form of payment schedules, and those negotiations could be the key to securing a game-changing SaaS that would otherwise be out of your reach.

Goals

Effective negotiation is built on goals. Even better negotiation follows a goal hierarchy. When it comes to negotiating SaaS payment options, that hierarchy can be summarized by three acceptable outcomes. The best outcome is to secure a payment schedule that matches your expected cash flow. If you can map it around seasonal trends and other expectations in revenue, then you have an ideal payment plan that virtually eliminates cash strain from the implementation of your new software.

The second positive outcome would be a payment schedule that mirrors the implementation schedule. Essentially, you want to pay as little as possible to the vendor until the software is live. This helps match the investment to periods that hope to see an ROI. It mitigates some of the risk of acquiring the SaaS and gives you more time to budget for the transition.

The third, and often most attainable, goal is to extend the period of payment as long as possible. Splitting the entire contract price into monthly or quarterly payments represents a fairly mutual distribution of investment risk between you and the vendor. It also makes managing cash flow about as easy as possible.

These three goals are not mutually exclusive, but there’s an additional avenue of negotiation that should also be considered.

Payment Holidays

The concept of a payment holiday is simple enough. You’re negotiating for a period of time that won’t require you to give money to the vendor. In practice, there are many forms of payment holiday, and they can help you find a mutually beneficial payment arrangement with your SaaS provider.

The most obvious payment holiday to pursue is a deferment of payment until the software is fully live, but this isn’t always the best route. Some vendors would prefer instead to provide a discount to cover the downtime of deployment. They may add that time to the end of your initial contract for no extra charge. They can also prorate deployment time so that it is discounted from a contract renewal. Conversely, you can use the concept of a payment holiday to negotiate an outright discount for up-front payment. The point is to keep the concept in mind as an additional basket of ways to make your payment agreement more manageable.

Want help with IT negotiation, auditing and cost allocation?

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sales@valicomcorp.com

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About the Author: Jeff Poirior

Jeff brings 25 years of telecommunications and information technology management experience in voice and data networking, server support, and telephony and security; with a significant emphasis on customer service. Prior to joining Valicom, he was chief of the infrastructure support section for the Wisconsin Department of Transportation. Jeff was the vice president of operations for CC&N, overseeing telecommunications, help desk, data and desk side support services. Prior to that, he served as the associate director of technical resources for Covance, responsible for managing systems and network operations supporting 1700 users in Wisconsin and Virginia. He has also led data center operations at Magnetek Electric, supporting mainframe systems, client/server applications, telephony systems, and computer-aided design. Jeff holds a bachelor’s degree in business administration from Cardinal Stritch University and a master’s degree in business administration from University of Phoenix. In addition, Jeff is a past board member of the Wisconsin Telecommunication Association.