by John Edwards

7 secrets of successful vendor negotiation

Oct 20, 2021
BudgetingIT LeadershipVendor Management

Negotiation skills are fast becoming a CIO imperative. Hereu2019s how to turn a single, initial purchase into a mutually beneficial, long-term vendor partnership.

A man and woman sit on opposite sides of an office desk, in discussion.
Credit: Baranq / Shutterstock

Like it or not, vendor negotiation is a skill every CIO must perfect to become a successful business executive. Yet, for many IT leaders, reaching a deal that’s both favorable and mutually equitable can be a tall order.

Fortunately, expert negotiators have developed an array of tactics — many not widely familiar to CIOs — to seal deals on terms that meet both operational and financial goals. Here are seven of these powerful tips.

1. Highlight the long-term potential

When contacting a vendor for the first time, mention how you’re looking for a partner open to establishing a major, prosperous relationship in the years ahead.

“Salespeople’s mouths water at the perception of a huge opportunity that can pay growing commission checks for years,” says Howard Katzenberg, CEO of spend management service provider Glean. “Make it in their interest to provide discounts and other accommodations now to secure their potential upside in the future.”

Looking to the future also shows the vendor that your interests are aligned with theirs, and you are negotiating in good faith, Katzenberg explains. “When salespeople hear about account growth and multi-year commitments, they’re more willing to go to bat and seek preferred pricing for you,” he notes.

2. Beware appearing desperate

Always negotiate as if you have a choice of vendors to pick from — even if you have no other options because the vendor is the only business offering what your organization really needs. “The vendor doesn’t know that,” says Austin Dowse, CEO of Aimvein, an ecommerce shop for medical equipment and devices.

Dowse notes that a vendor’s greatest fear is losing sales. Leading a sales representative to believe that you have a choice of vendors plays into this fundamental fear. “You have power,” he states.

3. Be open and straightforward

Bargain hard, but fairly. “Antagonistic vendor relations never work and always burn bridges,” says Andrew Plato, CEO of IT security services provider Zenaciti.

While a little white lie or two isn’t necessarily harmful, bald-face lying is almost always destructive. Because of this, Plato recommends being open, transparent, and honest while negotiating a deal. “Nobody wants to help a leader who plays games,” he says. Pitting vendors against each other, playing tricks, lying, bluffing, threats, phony RFPs, and other underhanded ploys are more likely to backfire than succeed. “Nobody wants to work with a vendor who plays games, either,” Plato adds.

Intentionally withholding critical information is also a terrible tactic. “Vendors and prospects do this all the time, and it never works,” Plato notes. For example: not having the funds necessary to acquire and deploy a technology and expecting the vendor to somehow provide a solution. “It’s unfair to waste a salesperson’s time if you’re not ready to purchase,” Plato states. The reverse is also true for vendors, he notes. “Don’t tell a customer you can meet their expectations when you cannot,”

IT negotiations aren’t all that much different from any other type of business bargaining, observes Dmitry Bagrov, managing director of software development firm DataArt UK. “All negotiations rely on basic principles that are universal, and one of the most basic and most often forgotten is that the contract should be profitable for both sides.” Squeezing a vendor for an unprofitable rate or any other unrealistic consideration will only result in an unhappy partner that may then look to increase its margin by supplying inflated estimates, inferior resources, and other types of corner-cutting.

Bagrov cautions IT leaders not to fall for the old Hollywood bromide: “It’s not personal; it’s business.” Enterprises don’t negotiate with each other, people do, he says. “You don’t have to be a vendor’s best friend, but treating the people who sit across the table like human beings is always effective.” Negotiating with plain and simple language, rather than relying on confusing legal jargon, can also help a CIO meet his or her goals, he notes.

4. Pay attention to timing

Most IT professionals excel at digging into software usage and ensuring they’re not over-purchasing in any vendor agreement. “However, more often than not, we see IT kickoff renewal conversations within a contract’s 30-day window, making it challenging to maintain control and leverage in negotiation,” observes Jeff Swank, customer team vice president at Vendr, a SaaS procurement services provider.

Another big mistake is failing to fully understand the competitive landscape or leaving an inadequate amount of time to evaluate multiple options. “When you have options, you have leverage,” Swank notes.

Optionality creates uncertainty for the vendor, which will likely level the playing field in a negotiation, Swank says. Most SaaS categories, for example, are filled with up-and-comers and feature parity increases year over year. “If pricing changes for a renewal seem egregious, 90 days gives you enough time to make a switch,” he explains.

On the other hand, if a CIO is negotiating within a 30-day window, the odds of being able to switch solutions or go without a tool are close to zero. “Buyers have zero optionality at this point,” Swank cautions.

5. Research for traps

When connecting with a new vendor, particularly one without an extensive track record, it’s important to check key facts about the company before signing any type of agreement. The investigation should include “the financial condition of the company, insurance held, and knowledge of third-party providers used,” advises Reiko Feaver, a partner and IT contract specialist at law firm Culhane Meadows.

Feaver also suggests finding answers to three key questions: Is the firm a shell company of an offshore organization? Is the firm’s insurance held by a parent and not directly by the company (unless the insurance clearly covers the contracting party)? Does the company use actual employees, or does it rely on contractors, and, if so, where are those contractors based?

If the investigation raises any red flags, it’s a good idea to move on to another vendor.

6. Be upfront and flexible

Avoid appearing purely transactional, Katzenberg recommends. “Always insist that whatever you need is critical for the company.” This approach allows the CIO to rationalize the need to seek alternatives, since he or she has a duty to find the best solution at the most attractive price. “Most vendors claim to provide tremendous value, so here’s your chance to really insist that they put their best foot forward with offers,” he says.

7. Don’t jump the gun

Before approaching a vendor, a CIO needs to clarify the buying criteria, including price, availability, performance, compatibility, and support. “I’m amazed at how many leaders charge ahead into buying new technologies or services without first establishing criteria for the vendor and/or products,” Plato says.

It’s also essential to negotiate the final agreement price before starting an integrated trial, pilot, or proof-of-concept project. “It’s common for stakeholders to go deep on a pilot without negotiating price,” Swank says. By this time, the organization already has users utilizing the technology, with some becoming evangelists. “When you put the work in upfront … you lose a lot of leverage in the pricing discussion,” he notes.