10 Ways to Beat SAP at the Bargaining Table
It's crunch time for SAP customers and salespeople around the world, as many new software deals and contract renewals get hammered out in the fourth quarter in time to be booked before the end of the company's fiscal year.
But this is far from a season of confrontation, according to SAP.
"We work with our customers so that they fully understand the unique value and innovation of SAP software as well as the return on investment it brings," spokesman Andy Kendzie said in a statement. "Our goal is to build long and meaningful partnerships with long-term value for customers. We believe they understand this when they look at contract renewals."
Customers may have little luck getting SAP to budge on some things, particularly those lucrative annual maintenance fees. Still, here's a look at some steps they can take to ensure they get the best possible deal, both now and in the long term.
1. Look to gain value from your existing investment in SAP
"If you're in the middle of [negotiations], the best things you can do to arm yourself is actually figure out what your usage is," said Constellation Research CEO Ray Wang, a veteran SAP contract negotiator for clients. "Basically, try to figure out are we using [licenses] to the fullest or do we need more?"
It might be possible to drop some licenses, although it's undoubtedly more advantageous to build that option into the original contract. A second alternative would be to move unused licenses to some other application that might actually provide value for your business, Wang said.
2. Make those salespeople work for their money
An old cliche in enterprise software sales is a salesperson who dazzles a customer in order to make the big sale, but then becomes exceedingly scarce, at least until next year when they try to sell you something else.
This isn't acceptable, according to Forrester Research analyst Duncan Jones.
"You want an account manager focused on ensuring your success and solving problems, not searching for new revenue opportunities," Jones wrote in a new report on SAP contract tips. "So make it part of the deal that SAP reflects aspects such as product adoption in the account team's compensation."
3. Bulk purchases make for the best discounts
CAD software maker and SAP user Bentley Systems is not currently negotiating with the vendor, "but in the past we would find that we always got the best deals by accumulating multiple product purchases and negotiating hard, down to the last minute," said Tim Birnley, director of enterprise applications.
"When SAP changed their [compensation] plans for the sales guys, this impacted the timing of deals, significantly," he added. "You will now likely get a better deal in November, than December, so that SAP can be sure to recognize the deal this year."
4. Don't expect the world if you're buying a la carte
"Sales and marketing is SAP's biggest cost," Jones wrote in his report. "If your enterprise wants to evaluate SAP product by product and site by site, then SAP will rightly price accordingly, basing its discount on each deal's size rather than your aggregate spend volume. You may end up paying double the price for the software compared with an enterprise deal, but that could be a price worth paying for the greater choice and flexibility."
5. Maintain degrees of separation
One of the tougher tasks facing IT shops and procurement specialists is keeping track of ever-growing piles of software agreements, and vendors will often suggest what seems like a painless way to simplify things.
Run away from temptation, according to Wang. "Whatever you do, don't bundle your contracts," he said. "It may sound easy, but it reduces your flexibility. Oh, yeah, you get one bill. But you're locked in."
6. Remember the big picture
Successful negotiation with SAP isn't all about beating the best possible discount out of a salesperson. On new deals, customers should secure contract terms that speak to the application's full lifecycle, from purchase to implementation to its eventual replacement, Wang said. They should also contemplate what-if scenarios. "What happens if I have a merger? What can I change?" he said. "This is stuff you want to have on day one."
Future-proof your purchases as well, Jones warned. Sometimes, software vendors phase out products and customers have to pay additional money for the successor, Jones wrote. But some SAP buyers have finagled contract terms "that allowed them to swap products in their bundle for any new products with equivalent functionality, thereby mitigating the obsolescence risk."
7. Only use the 'L' word if you're really serious
Salespeople at SAP are used to customers threatening to leave their company for another vendor, but such tactics only work if they're not an actual bluff. "I don't mean to be Dr. Phil here, but to get out of a contract you need to be ready to leave," Wang said.
Also, if a customer's relationship with SAP has gotten bad enough that a breakup is possible, it's not likely to be truly repairable, he added.
"At the end of the day, you still pay them. You're in control. You're never truly captive. It is your own destiny," Wang said. "But the first rule is don't get into a relationship with a vendor unless you believe they're going to deliver on their promises."
8. It can pay to be an early adopter
SAP has been rolling out a slew of new products over the past year in areas such as mobility and its HANA in-memory computing engine, and sales representatives are no doubt pushing all of them hard, hoping to get customers with stable core ERP (enterprise resource planning) systems to open their wallets as well as show market observers that SAP's strategy is clicking.
Customers should gird themselves against such pressures, since even heavy discounts offered by an eager salesman on a new product won't make up for those hefty annual maintenance payments over time.
Still, "if you have money to buy new software it makes sense to jump in on the beta because you can shape the product, despite the headaches," Wang said.
In addition, SAP wants to showcase successful early customers of its new products and accordingly, it helps them out with services. Beta users can also gain favorable pricing terms, Wang said.
9. Have heart-to-heart talks with SAP
A strong relationship with SAP has to go beyond yearly contract talks. Customers would be wise to line up "strategic alignment" meetings between their own executives and their peers at SAP, Jones wrote. "Not only will this help clarify stakeholders' opinion of SAP, it will also enhance SAP's opinion of you as a potential enabler rather than merely a negotiation adversary."
10. Get ready for next year
It's important for customers to get a real handle on how important SAP is to the business overall, according to Jones. He cited the example of a consumer goods company that used SAP as its main set of back-office applications but hardly had any SAP running at all in remote offices. "Getting clear consensus on SAP's role enabled the commercial team to define appropriate negotiation strategies for the future," he said.
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com