CRM Software Negotiation - Whitepaper (2 of 5)
CRM Software Negotiation Survival Guide
This second version advisory was written by CRM analyst Rob Kane based upon his twenty two years experience
in negotiating CRM software license agreements. The crux of the paper's approach and recommendations
focuses on achieving a fair price and advancing the vendor's cooperation, participation and vested interest.
With over 12,000 downloads, the original document has been widely cited in several industry publications and
community web sites as well as commented on by countless readers. This updated version has been enhanced to
include new cloud and SaaS delivery models and the particular experiences learned thus far
from the more popular
cloud CRM vendors. This paper provides no legal advice or representation.
- Preperation and Prerequisites
- Validate CRM Decision Making Criteria
- Become a Preferred Customer
- Achieve a Fair CRM Software Price
- Lower Risk and Cost with Seasoned Consultants
- Caution with CRM Software Customization
- Improve Customer Support
- CRM Service Level Agreements
- Avoid Unexpected Changes
- Value Added Contingencies
4. ACHIEVE A FAIR CRM PRICE
Although asked a number of different ways, the number one question I receive based on my price negotiation experience is 'what's the fair price?', 'what's the real price?' or 'what's the best CRM price?' However, before we can answer the price question, we really must define price - in terms of Total Cost of Ownership (TCO) - and that definition varies dramatically based on whether the Customer Relationship Management software is a traditional licensed solution or a Software-as-a-Service (SAAS) solution.
With traditional CRM software licensing, you are acquiring a perpetual license and right to use the software. It's no secret however that the cost of the software will normally pale in comparison to the cost to implement the software. Implementation costs will include professional services, hardware, platform software (i.e. relational databases, operating systems and administrative utilities) and internal support resources (i.e. IT resources, system administrators and database administrators (DBAs). The software-to-total cost ratio used for years and which continues to be a solid benchmark is 1 to 3. That is, for every dollar you spend on software, anticipate spending three additional dollars in related costs.
CRM software discounting continues to be a closing tool for the majority of licensed software vendors. Major vendors such as SAP, Oracle and Salesforce.com are routinely known to get exceptionally aggressive with price discounting at quarter-ends and the fiscal year-end. In addition to timing, software discounts will be influenced by the size of deal and the level of competition. Also, the newest factor showing to have a major impact on licensed software pricing is SAAS. The new SAAS CRM solutions sometimes offer comparable CRM solutions to the more mature licensed software products, however, are delivered at an exceptionally lower price. In my experiences over many years, I have achieved licensed software discounts at around 20 percent at the low-end and 50 percent at the high-end.
Beyond the license cost itself is the recurring cost of annual software maintenance. This cost typically runs 18 percent to 20 percent among the more popular software vendors. Savvy buyers are generally more successful in getting the first or second year of maintenance at no charge than attempting to reduce the cost of the maintenance on a perpetual basis.
SAAS CRM software vendors vary greatly in both their pricing and discounting. Our experiences among the four most common SAAS CRM vendors of Salesforce.com, Oracle on Demand, NetSuite and Aplicor can be divided into two groups. Salesforce.com and NetSuite both generally price at higher dollar amounts and also provide greater discounts. Oracle and Aplicor are somewhat more moderately priced and provide much lower discounts.
Once software prices and discounts are known, the final step is to make sure pricing doesn't escalate beyond an agreed upon index. Linking software and maintenance price increases to the consumer price index (CPI) is by far the most commonly used standard.
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5. LOWER RISK AND COSTS WITH SEASONED PROFESSIONALS
Using the right professional services staff can provide an extraordinary impact in lowering project risk, reducing implementation cycle time, decreasing cost and increasing implementation success. When selecting consultants for your implementation, first acquire resumes and then seriously evaluate the following factors.
- Consultants' product experience and software expertise. For example, have the proposed consultants worked with this particular software version and release? Do not assume that a functional consultant is well versed in all aspects of a module. A consultant with a sales force automation (SFA) background may not be able to configure marketing or customer service modules effectively.
- Consultants' industry experience. Compare your project to the prior projects worked on by the proposed consultants. Specifically look for project size, complexity, time frame for project completion and technical tasks performed (e.g. data conversions, system integration, software customization).
Other factors which if incorporated into your software agreement will significantly lower risk and increase the likelihood of project success include the following:
Onsite consulting a must - One particular SAAS CRM company often attempts to propose video courseware and virtual consulting and training. For anything other than the smallest and simplest organizations, this is a recipe for training, user adoption challenges and CRM failure.
Minimum consulting experience - Ensure that any consultant supplied by the vendor or business partner has a minimum number of years of on-the-job and full time professional consulting experience. We personally recommend a minimum of five years of full-time and dedicated consulting experience for straight forward CRM implementations and ten years for more sophisticated implementations which may include a larger scope, system integration, software customization or business process improvement. Vendors must also supply consultants that are experienced with the topic to be covered during the consulting time. It is always a positive sign when consultants possess professional certifications where the consulting topic or content provides for such certifications or certifications are available. Lastly, the vendor should not charge the customer for any time incurred where the consultant learns a new consulting topic or product while at the client.
Continuity of consultants - While some employee turnover is inevitable, the vendor must make its best effort to maintain continuity of consultants during the life of the project. Further, the vendor should not charge the customer for 're-learning' time because the vendor had to replace an original consultant, with another consultant, and the client has already incurred charges for the same learning time.
Sub-contractors - The customer should be notified in advance if the vendor intends to utilize any sub-contractors or other third parties for any professional services delivery.
Maintaining vendor accountability - It is extremely advisable to include verbiage indicating the software vendor is the accountable source for implementation success even when sub-contractors or business partners are used for professional services delivery. Failing to name the ultimate accountable source when dealing with multiple organizations means that there is no accountable source. Countless customers have suffered what many regard as the inevitable vendor finger pointing.
Troubleshooting time - The customer should not be billed for product defect (i.e. software bug) troubleshooting time or time purely spent on software specific irregularities.
Rates - The license agreement should stipulate the rates payable for training or consulting services and place appropriate limits on price increases. The client should also be given reasonable advance notice of any price increases (i.e. 90 days), and said increases should be capped not to exceed a recognized and agreed upon index. Travel, living and training material costs should be specified in advance.
Out of pocket expenses - Out of pocket expenses generally include travel (airfare), rental car or taxi, lodging (hotel or apartment) and daily per diems (at IRS allowance rates). Any other out of pocket expenses, directly attributable to the project, should be identified up front and approved in writing in advance. All out of pocket expenses should be billed at 'actual costs' and in no event should any out of pocket expense be marked up. For longer term projects, the vendor should utilize negotiated long-term or volume purchase discounts for out of pocket expenses such as rental car and lodging.
Overhead allocations - No overhead allocations, 'stacked' rates or burdened allocations should be added to an invoice, the hourly rates of consultants or to the project in any manner without advance customer agreement.
Standardization of desktop applications - In order to promote fast and simple exchange of electronic documents and other project information, request the vendor to utilize widely available desktop applications (word processors, spreadsheets, project management tools and e-mail). While this might seem unnecessary, we recently worked with a very popular and very anti-Microsoft SAAS CRM vendor who's team chose not to use Microsoft Office tools and subsequently made sharing and transferring documents an unnecessarily difficult process.
Hiring of personnel - The vendor and client should agree not to recruit or hire each others' personnel during the project and for a stated period following the close of the project. Vendor poaching of internal staff to the ranks of the consulting community has been a long-time frustrating problem.
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