Negotiating a service? The best deal doesn’t always mean lowest price.
One of the most frequent questions we get from our clients is “how do we get the best deal for [XYZ] service?” The conversation naturally moves to price given that it’s often the easiest way to measure the success of a deal: “we got the best price for our CRM software!” However, negotiating a service and selecting a provider often involve more complex decision-making criteria where the ‘you get what you pay for’ maxim often holds true. While it’s not as fun to say, “I selected the third-lowest priced ERP software on the market but got all the features we identified as critical to the organization,” running a strong negotiation process can ensure you get a great deal – however you define success.
There are different ways to drive a great negotiation but below are 3 tips to create leverage through a service negotiation. Like most negotiations, all three points focus on the preparation or, rather, the work that goes into a negotiation to maximize leverage at the time of deal making. These three elements are helpful in all negotiations and, particularly, service negotiations.
· Explicitly define the success criteria: Start by identifying everyone interacting with the solution in your organization and interview them to understand how they would view a successful vendor/partner. Armed with the feedback, aggregate and prioritize the list of criteria to identify providers who can meet the criteria. Having the criteria up front allows a negotiator to pick out vendors who are motivated, can deliver the service(s) needed by your organizations and ultimately, provide competitive offers because success has been clearly identified, limiting “client scope creep”.
· Set clear timelines: How far out is the implementation date? How big is the contract? What lead time does the vendor need? Building a clear and realistic timeline ensures that that you don’t run up against deadlines, impacting your credibility and leverage when negotiating the final deal. Additionally, having clear timelines and milestones signals to vendors that there is a clear process which will result in an orderly outcome for all parties.
· Interview potential providers: It is critical before sending out an RFP, or negotiating a deal, to understand the market landscape, especially when negotiating a service that you don’t know much about. Use your lack of knowledge as an asset by having vendors share cost drivers, other players in the space, key selection criteria, and how vendors are differentiated from one another. Vendors will always know more about the space than you (they live it daily) so use that to your advantage and dedicate plenty of time to learn about the market. Then, go back and adjust your criteria or budget, as needed, in response to the discoveries. Understanding the key points in a market before sending an RFP or negotiating a deal will help you better understand what the levers of value are throughout the negotiation.
Negotiating a service that impacts numerous parts of an organization comes down to running a great process and updating stakeholders along the way. This requires designating a strong leader/negotiator that is empowered to set aside an appropriate amount of time for preparation. With these elements in mind, organizations can achieve successful outcomes in their next service negotiation.
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