| Negotiating software contracts is a very important | | | | If you are buying software in a Software as a Service |
| part of your software selection project. The software | | | | or SaaS environment, then you will have a Service |
| vendor writes the contract to protect their interests in | | | | Level Agreement (SLA). This agreement includes the |
| the engagement. You need to negotiate the contract | | | | right to use the software as well as the hosting and |
| to protect your interests. | | | | data ownership clauses that will be necessary for the |
| Enterprise business software (ERP, HR, CRM, Financial | | | | engagement. |
| software, etc.) contracts are typically very negotiable | | | | A few key software contract negotiation tips to |
| because the software vendors are looking to lock up | | | | remember: |
| a long term customer. They know that if they can get | | | | 1. The software license is typically heavily discounted |
| a customer in the door even at a discounted rate, they | | | | up front. Make sure that you look at the whole cost of |
| will have a long term maintenance revenue stream | | | | the software over a 5 year period including |
| that should last at least 5-10 years. The reason for this | | | | maintenance, support, and implementation services. |
| is that after such a big investment, companies are | | | | 2. Make sure that you define the terms of the |
| reticent to change software solutions for many years. | | | | agreement. For example, some vendors will include full |
| Therefore, it is important to remember that the time | | | | payment upon software "installation." This means that |
| you have the strongest leverage with the vendor is | | | | they can charge you the full cost of the software |
| during the negotiation before signing the contract. Make | | | | license when they come into your offices and insert |
| sure you use that leverage to your advantage. | | | | the CD, even if there have been no modifications or |
| There are basically 3 contracts that you will sign for a | | | | implementation services. |
| standard on-premise implementation. | | | | 3. Negotiate the statement of work before you sign |
| 1. Software License - This contract outlines the terms | | | | the software license agreement. Make sure that you |
| of use of the software. The pricing for the software | | | | understand exactly what you are buying - including the |
| license is typically set by module on a user or | | | | implementation services plan. |
| concurrent user basis. The software license is usually | | | | 4. Negotiate near the end of the vendor's fiscal year |
| heavily discounted in the sales process so the | | | | or quarter end as large discounts can be negotiated |
| software vendor can acquire the new customer. | | | | so the software vendor can achieve sales goals. We |
| 2. Software Maintenance - This contract outlines the | | | | have seen clients sign contracts late at night on |
| terms for support, maintenance, updates and upgrades. | | | | December 31 and recently had a customer that was |
| The cost for this service is usually an annual fee of | | | | offered a 40% discount if they would sign by the end |
| 18-22% of the list price for the software license. | | | | of the quarter. |
| 3. Implementation Services - This contract outlines the | | | | Finally, understand that some clauses are negotiable in |
| statement of work, hourly rates, and plan for the | | | | a software contract and some clauses are not. We |
| implementation. The cost for implementation services is | | | | recommend that you get assistance with the contract |
| based on the hourly rates of the implementation | | | | negotiation from a consultant experienced in this area. |
| consultants and the estimate of hours to complete the | | | | Their understanding can save you thousands of dollars |
| project. A good rule of thumb for implementation cost | | | | and can help protect your interests in the contract. |
| in a mid-market environment is a 1:1 ratio with the | | | | The goal of software contract negotiation should be to |
| software license cost. In other words, for every dollar | | | | have a long-term partnership with the software |
| of software license cost you pay, you can expect to | | | | vendor. This means that the negotiation should not be |
| pay a dollar for implementation services. For larger | | | | adversarial. Instead, negotiate with the intent to reach |
| companies in more complex environments, this cost | | | | an agreement that is a win-win for both parties for a |
| can end up being much higher - 2:1 or even up to 10:1 | | | | successful relationship. |
| ratio. | | | | |