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Selection guide

Negotiating Price

At this stage in the process, do not be blind-sided by «discounts». It might feel like you are getting better value if you purchase a $250,000 product for $125,000 rather than a $75,000 one for $50,000. However, keep in mind that you will be locked into a pricey solution and the vendor will have full leverage, likely charging you full price for implementation services, support, upgrades, and additional licenses. Surely, the vendor will have a strategy for recouping the $125,000 «discount» with interest.

However, you should not necessarily buy the least expensive product, but rather the product that will fully satisfy your requirements at a reasonable price. After all, software that does not satisfy your needs will be very expensive in the long term. Either it will fail to support your business or you will need to invest in custom software development and maintenance. Custom software can exceed the cost of the original software by an order of magnitude.

When negotiating pricing, avoid the following common traps.

  1. Nickel and Dime
    Some vendors sell a base package, then nickel and dime their customers for all the modules and extras required to make it usable. Software as a Service vendors may include so little disk space with their base offering that they know their customers will outgrow it within a few months and pay for additional space. You can avoid this trap by asking vendors to write down ALL "optional" extras and guarantee that they will not charge extra for anything that is not on this list.
  2. Bait and Switch
    Some vendors offer free or cheap entry-level packages that lack the functionality for successful long-term use. The goal is to get you trained and committed to their system before you discover the bad news and have to pay to upgrade. You can avoid this trap by working down from their most expensive offerings and asking yourself at which point you will have what you need. After all, it is much easier to ask, "May I need functionality X in the future?" than "Can I think of functionality I may need that is not covered by this low cost option?"
  3. Implementation Costs
    In a strategy that seems to have been learned from the construction industry, some vendors will lowball the estimate for implementation costs and then double or triple the cost during the course of the work. With each price-hike, they may say, "We are 80 or 90% of the way there, but there were 'unexpected' difficulties." You can avoid this trap by initially detailing your requirements, asking for fixed price quotes and making sure that the system is easy to configure by your own staff.
  4. Maintenance Costs
    Similar to the above, some Contract Management vendors will lowball the initial implementation, knowing that you will need to pay for changes later on. The standard metric in the software industry is that initial development accounts for around 20% of the cost, while bug fixing, support, and maintenance make up the remaining 80%. You can avoid this trap by ensuring that your team can customize the system themselves. If a vendor’s system is easy to configure, their consulting fees will probably be more reasonable; after all, they will realize that you are not at their mercy and could always do the work yourself.

Where possible, try to get a package or discount that will cover additional licenses and upgrades for at least the first year. Look at the list price and assume that once the discount period elapses, it will be close to what you will be paying. Next, finalize your detailed specification of the desired system and ask for a fixed price bid on the implementation itself. You may not get it. However, it can make for an illuminating conversation when the vendor who estimated a two-week completion in their RFP response will not commit to a two-month completion on a fixed price basis.

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