STRATEGY

Time to Renegotiate Vendor Contracts?

With the economy in major slowdown mode, now may be a good time to try renegotiating some of those one-sided vendor contracts you entered into in better times. Everything really is negotiable -- even a contract you’ve already signed.
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In tough economic times, with credit sources drying up, many companies are having trouble meeting their obligations. When it comes to technology expenses, you may find yourself wishing you could reduce prices or otherwise change the terms of a current contract. But once you’ve signed on the dotted line, is there any way to make changes?

Yes, if you approach it right, according to Michael Uretz, executive director of The EHR Group, an IT consultancy that helps customers purchase technology. “If you don’t have any legal standing, don’t threaten, always ask,” he says. “You may be able to renegotiate the contract if you can make it a win for both yourself and the vendor.”

Negotiate with the right person

It’s important, he stresses, to ask the right person. If your contract is with a large organization, you may need to work your way through many management layers before you get to someone who can help you. “A salesperson may be looking for a quick turnaround, and might not want to help you,” he says. “Someone higher up in the organization might care about every customer.”

Once you do find the right person, how do you make a convincing case for a better price or other consideration? “Try to analyze the vendor, and figure out how your company fits in with its goals,” Uretz advises. In other words, look for a good reason -- from the vendor’s point of view -- to give you a better deal. Here are some reasons many vendors would find especially compelling:

  • Because you’ll help out with a reference. “Many technology vendors will offer discounts for customers who are good references,” notes Daniel Druker, senior vice president of marketing at Intacct, which provides on-demand accounting and financial software. “If someone is happy with the product and will agree to be a case study, talk to other prospective customers, or to the press, all those will help you earn special consideration,” he says. “Customers may not know they can trade these assets for reduced pricing.”
  • Because something didn’t go right. “Sometimes the software doesn’t work correctly, or the project isn’t going right,” Uretz says. “I’ve been in lots of situations where the vendor hasn’t come through with everything perfectly.” This is a good opportunity for renegotiating your agreement, he says. That’s particularly true if the vendor’s missteps violate the terms of the contract.
  • Because the vendor’s prices have gone down since the contract was signed. “Let’s say you signed the contract in different economic times,” Uretz says. “I would do research and try to find out if the vendor is now selling the same product or service for less. If you find out, for example, that the vendor’s price has dropped 20 percent since you did your deal, you could say, ‘I would appreciate it if you would give me the same price as your newer customers.” The key, he stresses, is to know the facts before making the request. “It wouldn’t work as well to say, ‘Times are hard, so you’re probably selling your product for less.’”
  • Because a competitor is offering a better deal. “If we thought a customer was serious and had really done an evaluation and had found a credible alternative, we would probably offer a discount in that situation,” Druker says. “But you have to be willing to make the shift to be credible to the vendor.” Of course, you may not be able to switch until the current contract is up, but the vendor might decide it’s worthwhile to try to prevent that from happening. “From a vendor’s point of view, the cost of new customer acquisition is pretty high,” Druker notes.
  • Because you need a break. In these economic times, many companies need to be able to reduce their costs in order to stay solvent. If this is your situation, “I would be honest about it,” Uretz says. “The flip side is that you don’t want your competitors seeing your situation. So you may want to have the vendor sign a non-disclosure agreement.” Once the NDA is signed, he says, “I’d be very open, because you’re appealing to someone, asking them to understand how they can help you.” 

And, he says, most vendors should be willing to make concessions, if it will help you stay in business. “As an ex-vendor myself, I know you’re always looking for the long-term relationship,” he says. “It’s all about helping the relationship, so that everyone can succeed.”

Last updated: Apr 1, 2009

MINDA ZETLIN | Columnist | Co-author, The Geek Gap

Minda Zetlin is a business technology writer and speaker, co-author of The Geek Gap, and president of the American Society of Journalists and Authors.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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