Buying Software? Here's How to Negotiate

You’ve probably heard the old saying, “Don’t put all your eggs in one basket.” The core concept of this phrase is about diversifying your options. This helps to lower risk – and adds a safeguard against failure (so you don’t end up with egg on your face).

This same principle applies to software selection. Find out how Info-Tech's Selection Framework can empower you to evaluate multiple solutions and avoid bias (whether that bias is yours or another stakeholder’s). This will, in turn, allow you to make more confident software decisions and avoid regret.

Bringing two vendors to the negotiating table is more valuable than you might think. After collecting over 16,000 reviews, our data shows that organizations that incorporate a formalized approach to a vendor (which includes two vendors in the final phase of evaluation) are 10% more likely to receive a discount than those who used an informal process. There are both implicit and explicit factors behind these savings.

Explicit Factors: Play Vendors Off Each Other

The explicit factors for bringing a second viable option into the final stages of the formal evaluation framework are anchored to negotiation leverage. By having a realistic “Plan B,” you can apply leverage to the incumbent or primary vendor of choice.

Moreover, vendors are more likely to give concessions on their base price once they become aware that a direct competitor has entered the evaluation.

Playing vendors off of each other is critical. If the top contender is aware that they do not have competition, they will be less inclined to make concessions.

Source: SoftwareReviews, 2020

Implicit Factors: Maintain Momentum during Negotiation

These implicit factors are all about saving costs by avoiding project rework. If primary and secondary choices are incorporated into the negotiation process, an organization can quickly pivot its focus if one vendor drops out.

Indeed, a common occurrence during the evaluation of vendor licensing agreements is that if a line item conflicts with a must-have requirement or a regulatory constraint, the vendor is then eliminated from the competition. If you had tried to expedite the software selection process by bringing only one vendor to the negotiating table and then have this happen, you would now have to spend extra time backtracking and trying to reengage vendors that had previously been eliminated from the formal evaluation process.

It is critical to have two viable options throughout the formal evaluation process in order to maintain momentum during negotiation and be able to quickly pivot without slowing down your selection process.

Closing Insights

Overall, a formal approach to vendor selection that brings two viable vendors into the final stages of evaluation has explicit benefits when it comes to negotiation and implicit benefits when it comes to maintaining negotiation momentum. Taking the time to establish a formalized procurement, evaluation, negotiation, and selection process will not only ensure the selected software meets your requirements, but you’ll also be more likely to save money.

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