Rrrinnnng!
It’s the account manager from one of your strategic vendors, wanting to talk about renewing your software licenses. But the renewal date is in July – why are they wasting your time so early? There are reasons, and you can take advantage of them. Here’s why, and how.
First, why: account managers and sales staff have commission requirements and spiffs. You know this. Don’t forget it in the heat of a conversation.
This isn’t an indictment. Most account managers and sales staff I’ve met in this field over the years genuinely want successful and happy customers, and for entirely selfish reasons: An unhappy customer isn’t one that tells colleagues about why they might need this software as well. Whether the software in question is a simple point solution, or an all-encompassing enterprise system, the company’s goals are to make you a raving fan who wears their T-shirts.
So why bother you in January? It might be to remind you about a renewal that isn’t in July. These things aren’t always synchronized – one or more might be tied to the calendar year. It’s an opportunity to lock in prices for the future, or a new offering or service that may be a good fit for you.
With vendors you’re always negotiating. Having lived on both sides of the table. I can offer a few insights into what Account Managers want, and how you can use this knowledge to your advantage.
Easy points first:
The Account Manager wants User Count growth. Most software companies want to see usage go up. It is a sign of success and “stickiness.” It’s also easier revenue growth than selling a whole new package.
How you can take advantage: If you can predict how usage will grow, you can share your expectations with the Account Manager, and ask for a discount based on this growth, or at least, to lock in a lower price as you add the new users.
The Account Manager wants Duration. Longer term commitments are catnip to Account Managers. They reduce their workload, help them make their goals, and probably unlock incentives and spiffs.
How you can take advantage: If you commit to a longer term, you can unlock some form of “multiyear pricing.” That’s automatic. But beyond that you can ask the Account Manager to lower their own incentive percentage – a concession that will make sense to them if they’ll get a bigger lump sum commission.
The Account Manager wants a bigger commission. Speaking of bigger commissions, you can help the account manager get them based on prepayment for longer terms (kinda like tactic #2). Keep in mind their commissions are based on some formula of paid invoices. Recurring revenue is often more important than big-lump revenue.
What you can do: You want discounted prices whose discounts are lower than the cost of money, which, as of this writing, is 8.5% based on The Wall Street Journal’s Prime Rate.
From a purely economic perspective, parting with the cash can make a lot of sense for you, if you can get a better return by paying it early. WARNING! Clear this with your CFO first, before suggesting it to the account manager. Your CFO might have other ideas about where company cash is needed more. They also might calculate a different cost of money.
The Account Manager wants to close by the end of the Month/Quarter/Year. This is predictable, but true. Their incentives are calculated, based on some calendar date.
What you can do: Knowing the account manager’s key dates gives you leverage in all of the above-listed discussions. Surprisingly, not all CIOs make sure they know the calendar dates that are important to the account manager. Just ask.
Now a few trickier ones:
Pro Tip: Ask for Extended or “free” months. As an alternative to giving away “Free software” (which is unlikely), you can ask for “Free months”. Let’s say you have a 24 month contract. Ask for 30 months for the same cost as the 24 month quote. Many software companies will go along with this – they care about the total, not the rate, and the incremental costs to them are the same. It still isn’t free – to make this work, they’ll probably want a longer-term commitment.
Ask for Add-ons, extra modules or some other premium functionality. Call this the “Lagniappe option”. There might be an add-on your team really would like to have, but the business case isn’t strong enough. Ask your Account Manager to toss it into the renewal deal. Again, for them the incremental cost is pretty much zero. If their own management is in the right mood – a good one, or maybe they feel threatened – you might get lucky, and there’s no harm in asking.
Ask for extended or premium support at no additional cost. This is thorny. Not every software company offers tiered support. Also, Support is usually a different line of business that has its own financial targets.
So Account Managers can get in trouble here – they’re dealing with their company’s internal politics and favor-trading – but a good account manager can sometimes pull this off. One other factor: for some vendors, support contracts are important revenue. For others it’s a afterthought. If it’s an afterthought your chances are better.
You should at least ask—there is no harm in the request.
And finally, one ambitious point to ask for:
Ask for a yearly phone call with the CEO (or lunch if your relationship with the account manager is good enough). Most software company CEOs welcome this sort of meeting. The most successful ones I know like connecting with customers and users, and besides, building relationships is their stock in trade. On the other hand, many account managers are leery of this level of contact. They want to control the message and not let go of managing the relationship themselves.
That’s especially true if the past year has been bumpy for one reason or another.
Bumpy or not, if you can make this meeting happen you should first praise whatever is praiseworthy. But it is (obviously) an opportunity for you to air concerns as well.
So if you get this opportunity, use it wisely, first and foremost to build a relationship with the vendor’s CEO. You can use the improved relationship to ask for concessions – but make sure the concessions you ask for are CEO-level stuff, not nickel-and-dime discounts.
What else is in it for the CEO? They might be looking for a great case study or reference, and you may be representing exactly the story that he would like to tell the world. Talk about an alignment of interests!
Use your newfound negotiating superpowers wisely.
Greg’s Parking Lot
I mentioned podcasts last week, and I wanted to point to one Bob and I did several years ago as a way to get this started. I hope is still as fun to listen to as it was to make.