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How to Negotiate the Best Deal on New Software?

The Signorelli Company does real estate development in the Greater Houston Area – homebuilding, land development and commercial - primarily retail. We are contemplating a software upgrade. We looked at a number of accounting platforms (including JD Edwards) and found New Star Constellation to be the best choice for our business - it's tailored to real estate development and homebuilding in particular. Now that we’re down to price, I don’t have good comparisons from which to negotiate price. JD Edwards was more expensive and too complicated and the other runner-ups were cheaper but not adequate for our needs. I would like to negotiate New Star’s “off the shelf price” but I’m not sure what angle to take – I don’t have a reasonable alternative at a lower price. Any suggestions? Thanks, Steve

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Why not ask them who their competition is and where there value proposition lies vis a vis the competition.

Now you have a) more potential systems to look at and b) a price comparison.

If they say they have no competition, then that tells you alot either about the salesperson and/or the company and could be a 'tell' of issues down the road.

Steven Prevost
Title: CFO
Company: The Signorelli Company
LinkedIn Profile
(CFO, The Signorelli Company) |

Thanks Wayne - that's good advice.

Patrick Byrne
Title: Vice President - Consulting Services
Company: The MDM Team, Inc.
(Vice President - Consulting Services, The MDM Team, Inc.) |

The purchase price is not as important to the software company as the annual maintenance fee. If you are going to pay a 20% annual maintenance fee for upgrades, you will have paid for the software twice in 5 years. Offer the company 40% of the list price as a starting point.

Justin Velthoen, SaaS Produc..
Title: QStock Inventory Product Manager
Company: MSA Systems
(QStock Inventory Product Manager, MSA Systems) |

Working at a SaaS company, you might also see where their marketing is going. If you are in our target market, it isn't uncommon to offer deals in exchange for a video testimonial. Or if you are very visible to an industry or partner that would yield a benefit, that might be a good ROI on a discount.

Timing is another important factor. End of month, somewhat, but end of quarter/end of fiscal year are times when we are more likely to discount to get numbers in.

Ern Miller
Title: Co-CEO
Company: Miller Small Business Solutions
(Co-CEO, Miller Small Business Solutions) |

As Patrick said, one of the two largest costs for software is the annual maintenance cost. The other is the software installation. Most larger software packages are not designed to work EXACTLY the way you do business; so they build flexibility through customization into their packages.

When installing the software, you need someone who understands your business and at the same time knows the software. You need to be as thorough as possible in revealing everything your company does to the software installer/developer. If you have trade secrets, the most secure way to prevent that information becoming public knowledge is to have different developers design those secretive items and have them interface with the main design. (This is done by figuring out what data input and output from and to the main design goes into and out of the secret area and then have the second designer make that module, making sure the input and output is as expected.)

Do not be penny-wise/pound-foolish when getting (an) installer(s). A high-quality software engineer is going to be high cost. What you get for that extra money is a high quality job, limiting mistakes, and it will get done faster since you are dealing with someone who is familiar with your desired results, as opposed to someone re-inventing the wheel.

By limiting the mistakes, you will save money in that the installer won't need to come back out to make more changes, possibly breaking code further.

Something I experienced while working as a contractor to federal agencies is, there are contractors who drag their feet and purposefully make mistakes that they can blame on the client (the usual blame is, "You never told us about X, and that changes the way things function." It usually is true, but a higher quality professional with integrity will anticipate those issues and prepare for them and investigate them before starting.). One project, where I was database administrator...someone who made sure the database kept up and running...I worked there from 2008 to 2010, during which time a software design company was writing the next version of the database. By the time they got the first version done,18 months, the build would not work with the computer server...it needed a new OS, which after installed, was found to not work on the underpowered server...and so forth.

I went on to a new project after refusing to work with these guys because it felt like the whole project was make work, and when they ran out of fingers to point, I did not want to be the next target of blame. It is 2015, and they still haven't installed the new version, and I was told their intrusions into the old package has made it unstable. I refused to come back, no matter how much they paid because I am not in the business of being a scapegoat.

Steven Prevost
Title: CFO
Company: The Signorelli Company
LinkedIn Profile
(CFO, The Signorelli Company) |

Thank you gentlemen. All comments were helpful. I had a productive conversation with the software vendor yesterday. He provided comparable pricing (names redacted) and evidence that our pricing is reasonable. I also had conversations with other customers and was able to independently verify our pricing vis-à-vis theirs. Good outcome overall. Thanks again.

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