How I Negotiated a 75% Discount with Resellers

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A few years ago I was hired by a large financial institution to renegotiate several of their IT contracts that were coming up for renewal. They had offices across the globe but still did a decent job of centralizing their Procurement function out of their Toronto head office. 

However, managing over 500 technology vendors with over 1200 Master Agreements, Product Schedules and SOW’s through emails and spreadsheets, was proving to be quite difficult.

Part of the challenge was keeping ahead of the wave of new renewals that would crash on Procurement’s doors almost every month.

The other factor was the sheer number of hardware and software resellers they were doing business with.

Software resellers can be an effective means of purchasing software without getting into protracted negotiations with every publisher whose product you use, and consolidating software resellers is one way an organization can quickly recognize cost savings.

But resellers can also open up opportunities for organizations to leverage greater volume discounts, get better reporting on spend and mitigate contractual risks in smaller software click-wrap agreements.

Interestingly, most software resellers refer to themselves as VARs – Value Added Resellers – but only a handful can actually tell what added value they bring.

The reality is that most resellers are just resellers, and their only added value is that they’ll negotiate discounts based on volume.

However, some resellers will actually bring more to the table than just taking requests and turning around quotes.

My client was using 10 different software resellers to purchase everything from Microsoft Office licenses to Symantec Anti-Virus and Red Hat support subscriptions.

In some cases, multiple resellers had sold the same product for a different price at different times.

In others, my client didn’t have a written agreement with the reseller, or they had only ever bought one product from them and were just paying annual support fees.

Once we had mapped out exactly what was bought and being paid for, we first eliminated the one-off resellers by bringing annual maintenance renewals in-house.

Most of the time, one-off resellers are just taking a maintenance invoice from the software publisher, adding their administrative fee and passing it on to the client. A quick call to the software publisher requesting direct billing will often remove this unnecessary middleman and immediately reduce costs.

The next step was to issue a Request for Quote (“RFQ”) to the top 3 current resellers as well as 2 large VARs that the client was not currently doing business with.

When the incumbent suppliers found out that we were going to a competitive bid and would select one primary software reseller for 80% of the business, we saw discount levels go from 15%-20% all the way up to 65%-75%.

Additionally, we were able to negotiate terms with the resellers under which they would take on some liability for smaller software publishers that didn’t want to negotiate their click-wrap agreements.

And a few of the resellers got really creative with some value added services that were provided at no cost.

Resellers serve an important function in the supply chain and, if managed properly, they can bring a tremendous amount of value and cost savings to a client.

Does your organization deal with multiple resellers? What additional value do they bring to the table?

Are there cost savings hiding in your Procurement Process?

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