Negotiating Software Agreements: Best Practices for CFOs

By Stephanie Roberts

Utilizing software for overall efficiency and growth company-wide is critical to company-wide success. While software is essential for business growth, so is the ability to negotiate and maintain the costs of these services.

Over the last few years, I’ve been challenged by high software expenses and a lack of flexibility to lower them. I am the CFO of a private consumer company that previously signed a long list of contracts with various software firms, with limited flexibility to reduce modules, services, user counts, or payment terms.

My goal: reduce software costs and streamline services without interrupting company efficiency.

Necessary CFO Negotiation Tactics

Before I get into the specific actions and strategies we took to reduce software costs, I want to share my approach with each vendor:

1. Provide honest context to the situation; Be authentic.
2. Be clear on what you need and what is most important to you.
3. Build a strong relationship with the vendor.
4. Know that your “front line” service advisor most likely doesn’t have the authority to negotiate.
5. Don’t call their bluff.  Know your walk-away move.

I don’t remember the exact number of software contracts we had in play, but it was over 50. I would broadly say they were not negotiated to our benefit or with the flexibility I would have preferred. Most companies aspire to grow significantly, but if the growth doesn’t materialize, you will be stuck paying for services and users you do not need.

I chose to be personally involved in 90% of the software negotiations. As we began this process,  I became frustrated with 70% of the calls where the vendor would not budge. My initial thought was that I had no leverage in these situations. It was becoming frustrating.

Over three months, I began to see a pattern forming: There were companies that would not work with us and those that would. The biggest difference was short vs. long-term thinking. The companies that viewed our relationship beyond the contract term were willing to amend the contract now and keep us for a much longer time. The inflexible group (70% of the contracts) thought only in the short term.

We Modified My Approach to Include: 

6. If you aren’t willing to work with us, we will leave.  At the end of the contract, we will not renew and, in fact, will begin an RFP process now to replace you.

7. If you work with us now (win-win), we will continue to be an advocate and referral partner for you. 

This new approach worked. We did not renew our contract at the end of the term for vendors that didn’t work with us.

Google vs Microsoft

Our company is primarily a Google house, but we also utilize Microsoft products. As I dug deep within the organization, I had a simple question: Can we pick one, Google or Microsft?

Here is where we landed:

      Google

• We are a Google house and will continue to utilize Google in our core business of Calendar, Email, and Document sharing.
• We did not leverage Google Chat and instead paid for another messaging software.  This made no sense to me.  (more on this below).
• Google was fantastic to partner with and helped transition our organization to fully utilizing Google Chat.

  
  Microsoft

•  We need Microsoft. I was wrong to think it was Google or Microsoft.
• They provide significant security features that are NOT duplicative with Google.
• The one area of debate was Google’s equivalent of Excel, Word, and PowerPoint.
• Ultimately, we significantly lowered our Microsoft Users but kept a small group of employees on Microsoft’s Software suite.
• We maintained Microsoft’s Security Software.
• We lowered our overall user count in areas we didn’t need. Employees get used to certain software, and switching can be very emotional. Change is hard, but we had financial objectives to meet and held the line. Employees are now getting used to Google Chat, and everything is running smoothly.

Software Negotiation Lessons Learned and Recommendations

After negotiating those 50 software contracts, here are my key takeaways:

1. Avoid signing multi-year agreements. High growth mode can be bumpy, and it’s best to maintain flexibility.
2. Always pay quarterly, never upfront.
3. You can always add users. Be prudent with your initial number.
4. Monitor your user scope creep. The innocent addition of user aliases can drive up your user counts. Be mindful of the no. of emails you create.
5. Start smaller with the services/modules. Add over time when you know you will use what you have.
6. Avoid duplicative software solutions like file storage, project management, HR systems, and video meeting solutions (Google, Zoom, Teams).

Be diligent in reviewing your existing software solutions. Confirm usage, avoid duplicity, and monitor spending. Keep tight controls on utilization so you continue to strike a balance between company growth, efficiency, and costs.