How to Turn a Software Maintenance Renewal into a Negotiation Opportunity

Everyone knows what to do when a software maintenance renewal invoice comes across your desk.

  1. Check if you're still using the software
  2. Check if the invoice references a purchase order
  3. Check if there's a cap on annual increases in the contract

If everything looks to be in order, you can go ahead and process the invoice, right?

Wrong.

Maintenance renewals are the perfect time to look for contract negotiation opportunities. But you have to know what you're looking for. 

In this week's video, we'll talk about how you can discover opportunities for renegotiation while processing a routine maintenance renewal invoice. 

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Video Transcript

Welcome back to the five essential rules of software negotiations. Today, we're going to chat about maintenance renewals. We all know the three steps to take when we get an invoice for a maintenance renewal.

  1. Check to see if we're still using the software. Do the quantities on the invoice match what's actually deployed in the environment?
  2. Check to see if the invoice references a PO. Did those amounts match? 
  3. Check the contract to see if there's a cap on annual increases. Was there an increase from last year? If so, does it fall within the cap negotiated in the agreement?

What often gets missed is that every renewal is an opportunity for negotiations. Let's take a look at those three steps again.

Do the quantities on the renewal align with the deployments? Obviously, if you've deployed more than what you've paid for, then you have a compliance issue and that needs to be fixed before you pay the invoice. 

What if you're under-deployed? I've seen just as many instances where customers are paying for far more than what they're actually using. This is an opportunity for negotiation where you, as a customer, have significant leverage. 

A lot of people look at this as a simple accounting error. Someone on the supplier side made a mistake, put in the wrong number. "Oops, sorry Mr. Customer, we'll fix that right up for you."

Really? A simple oversight? As my friends in New York often tell me, if you believe that, I've got a bridge in Brooklyn to sell you. 

The reality is, many of these errors are by design.

I once found an accounting error on a software renewal that wasn't an error at all. I noticed that the invoice was off by 4.3%, which is a really weird amount, so I looked at the previous year's invoice, which matched the PO.

Then the year before that, it was off by 6.7%. So I sat down and went through every PO, invoice and email correspondence for this piece of software going back seven years.

What I found was an insanely dubious and successful attempt to scrape a little bit more revenue off the client every year. Every year, the supplier would send an invoice with a mistake on it. Sometimes, the client would just pay the invoice. Other times, they would question it and then the invoice would be corrected. 

The third point: Is there an annual increase and is it within the cap? I've mentioned this many times before. If you're negotiating a cap on annual increases in your contract, don't.

I have it on very good authority that annual increases are nothing more than a cash grab for software suppliers. It has no impact on improving product quality or addressing inflation. 

Even an increase that's in accordance with the terms of your agreement is still an opportunity for negotiations. If your supplier has been increasing your cost 2% to 3% every year, bring them in and ask them to demonstrate to you what benefit you've received from all of the extra money you've paid over the years.

It's your money, so you have the right to ask, but for software companies, this is a genuinely uncomfortable conversation to have, because they know there's no real good answer to that question. 

When you have them on the ropes, start negotiating. Better pricing, better payment terms, whatever you can think of, ask for it. You may not get everything, but you'd be surprised with what you do get.

That's it for this video. Next time, we're going to talk about acceptance criteria. Again, if you'd like to talk about any of these points in detail, please feel free to reach out to us. We'd love to get on a call and chat. 

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