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As the COVID-19 crisis continues to wreak havoc on the global economy, subscription, support, and maintenance contracts are still coming due. TSIA is hearing from its member companies that the procurement agents responsible for negotiating these renewals are asking for all sorts of concessions. 

In some cases, they are asking for extensions, claiming that all purchases are on hold as they wait for the crisis to lighten up and their own revenue to start to trend upward. In other cases, customers may be asking for major concessions and discounts, as they know that vendors may also be under pressure and open to cutting prices to keep them on their platforms. 

Read on for a few helpful hints on how to hold the line against extensions and discounts in your renewal negotiations, and for an opportunity to participate in TSIA’s “Temperature Check” quick poll on renewals impact.

Now is the Time to Move Your Customers to Subscription Offerings 

Before you consider renewing your customers on your current offerings, consider making a big move. If your company offers both traditional transactional/perpetual license offerings AND subscription-based XaaS offerings, an under-duress renewal is perhaps the best time to drive the customer onto the new platform. Not only does it benefit your company as XaaS is clearly the industry-wide engine for growth, but it allows the customer to stay on the platform by receiving more value with less upfront cost. They will only be paying a portion of the contract upfront, and will likely pay for only the capacity they need. Over time, your company will reap the benefits of your migration to subscription models. 

For a better understanding of why XaaS is the fuel for growth, especially in a down market, listen to this presentation from TSIA’s TSW Live! virtual conference.

Tactics for Holding the Line in Negotiations

Remember that procurement agents are highly-trained negotiators, specializing in getting their vendors to lower their prices. They understand how to utilize every lever they might possess, and the COVID-19 crisis provides plenty of leverage. Remember, though...it’s not personal. They are just doing their jobs, and you’d want your own procurement agents to do the same thing. 

Here are a few ideas on how to get your renewals done on time and without extensive discounting:

  1. Understand the contract and the terms. If your customer is in a multi-year agreement with you, then the penalty clauses for leaving your platform may be considerably higher than the discount they are asking for. Even if the penalty is less, the delta between the penalty and the cost of your solution is likely not worth the trouble. Vendors may be in a better position than they give themselves credit for.
  2. Switching costs are higher than you think. Along those lines, remember that procurement agents are really good at dropping names of your competitors. But, switching away from your platform is probably going to cost them a lot of money. If you have a hardware-based offering, then they won’t be in any position to make new capital expenditures. If you are selling on a subscription model, then the costs of migration to a new platform, subsequent training, and loss in productivity will more than offset whatever discount they might wrestle from you.
  3. Data is your friend. At the very least, you should be able to clearly document the extent to which your customer has consumed your technology offering. If you can show that the customer is using your offering for the purpose and outcome it was intended, then you’ve got a strong negotiating position. Even better, if you can quantify the value you’ve generated for the customer, either through money saved or revenue generated, the better off you are. If you can’t do this right now, then we encourage you to invest whatever you can afford to increase your capabilities in this area, because you will need this data soon, and often.
  4. Your 1st contact / call should be to your business owner and advocate, NOT the procurement office. Remember, you have a relationship with the business as you provide valued services and products. They know the value of your relationship, the procurement officer does not. Build advocacy to your cause and balance the scale of cost conversations with value received, AND with an understanding of value lost if they cancel. Prepare yourself with testimonials describing how your products and services drive upside, and “war” stories for companies that made short term decisions that cost them so much more in the end.

Have questions? Contact TSIA for help.

Our customers buy our products and services to achieve a vision for the future. That vision does not go away just because the economy tightens. Now more than ever, the role of CSMs, Sales executives, and Renewal Specialists is to promote the value proposition and focus on a win / win scenario.

It’s totally acceptable to give a favorable term in exchange for a commitment for the future, such as:

  • A discount given for longer term commitments.
  • A longer payment term in exchange for more product purchased.
  • “Free” training given when the renewal is closed.

You are helping them to remain a great customer while they are helping you be a strong supplier. This relationship cannot be a winner / loser scenario if we are to sustain the relationship over a long lifecycle.

Participate in Our “Temperature Check” Renewals Impact Quick Poll

TSIA has the ability to quickly and accurately survey the technology industry on relevant topics. Take this quick poll on renewals impact to get real-time feedback on how the industry is trending, how their renewal rates are holding up, and what (if any) concessions they are making to secure their renewals. It should only take about three minutes to complete. As with most TSIA research, you’ll get a lot of useful insight for a very minimal commitment of time and effort.

TSIA is Here for You

We understand that our member companies, the technology industry, and the world at large have been impacted by COVID-19. Whether you are prepared for Revving or Retooling, now, more than ever, we need to work together to get through these challenging times. TSIA is committed to providing visibility as quickly as possible into the changing industry trends and practices that come as a result of COVID-19. Visit our Rapid Research Response Initiative resource page for more information.

If you have any questions related to how COVID-19 is impacting your organization, we’re here to help.

 
 
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Jack Johnson

About Author Jack Johnson

Jack Johnson is the vice president of service revenue generation research for TSIA. In this role, he works closely with member companies to deliver research and advisory programs focused on helping them optimize their renewal organizations and effectively deliver revenue outcomes. Throughout his career, he has held Renewals, Customer Success, and Operations leadership positions at technology companies providing enterprise software or hardware, or in business services companies helping technology companies growing recurring revenue.