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I am looking for some feedback regarding this situation.

We provide software in the form of SaaS.

Now, we have been working with this 1 company for over 3 years. They have 1200 employees, of which all could be using our software but for the past 3 years they have only been using 50 licenses/users.

I recently talked to our contact, a mid-level IT guy and discussed the potential of having our software implemented across all 1,200 users. He mentioned that in order for that to be possible we would also need to offer some sort of professional service dude to the fact that they do not have the bandwidth to analyze the data that would come out of ever user.

I provided him with a proposal with an attractive discount due to the fact that we have been working 3 years and that we will be providing 1,200 licenses and professional services. He reviewed the proposal and his response was not only asking us for a further reduction in the licence cost but that the professional service element be completely free. He then finishes the email by saying, let's make this a win win situation (I felt sick)

Now emotions aside, I understand that is definitely a Super win-lose situation for us.

I believe I am going to take the route of explaining to him that I doubt he sees the value in our system and offer to provide him with a thorough presentation as to how he will get his ROI. If he still doesn't budge then I reckon I'd have to walk away because it just seems like he is asking for way too much.

What do you guys think? Let me know if you need any additional details.

Cheers,

-D

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Thanks to all of you for taking the time to answer my question! – Danny Aug 28 '10 at 17:35

5 Answers

up vote 2 down vote accepted

If it's a low-ball counter offer just politely say "sorry those are our best prices" and walk away. Any other response undermines your current pricing.

If they need it, they will come back with a better offer.

If you don't think you can walk away, cut something (professional services, number of licenses) to meet the proposed price.

"We can't do 2000 licenses for that price, but we could perhaps do 500 licenses with up to 50 hours of professional services during the first four weeks after your purchase. Additional professional services could be purchased at our standard commercial rates after that if they are required."

The guy may just not have enough budget for what you proposed.

The golden rule in negotiation is to never reduce your price without also reducing what is being offered.

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up vote 1 down vote

I don't know your negotiation history with them and what their attitude has been over your fees for the past 3 years. Usually it is better to make a high proposal (not too high) and allow them to counter-offer around price and services. The mistake the IT guy made, was going too low on the counter-offer and he's put you off. Sounds like the professional services are very important to him (Maybe he is running on a low staff.) and then price (Low IT budget).

Since you asked him to jump from 50 to 1500 licenses, he really has no need for it but will go along if the price is right. I would reduce your quote slightly, and let him know that you understand if he doesn't have the money in his budget and that there are no hard feelings. Or offer the services for a short period of time to let them get things tested out and settled.

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up vote 1 down vote

I'd figure out a way to allow for INCREASING the cost based on the professional services requirements. They can bear all the costs directly. That is a risk - unless you are already supporting on the order of 1000 users this is a big jump for you and lots of risk for labor costs.

You need to budget for providing the services you have to provide.

Hold your ground, and just explain that you can't offer a better deal.

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up vote 0 down vote

OK a few questions and then some thoughts.

First two have to do with understanding the demand for your product. Who initiated the discussion for the jump of use from 50 to 1500?

  • Implications are if he did then they have a need or are already out of compliance.

    The current 50 lics are only really being used by 50 people or is there reason to believe that the 50 could be used by more their people?

  • If you have data that can help you like changes in IP during the day for different users you maybe able to identify if they are already sharing the ids.

    The next two have to do is there future sales implications with other firms.

    Does the change of capacity that they are asking for increase fixed costs and reduce variable or they both go up for you?

    Is there another sale of this magnitude in the wings if you could be priced like they are asking where a change of capacity on your end?

  • If your variable cost goes down because of the increase in capacity while the fixed costs go up with new servers you could then offer this competitive pricing to other firms but only if there is an indication that you could get those larger accounts. This is probably not significant in your situation but looking at cost strucutre rather then just pure return is signficicant where there are high fixed costs involved. And so this is more a reminder to review the cost structure.

    The firm you are dealing with probably understands the value of the software already (they have used 50 for 3 years) and they would only be interested in increasing the lics because of that. It sounds as if he is fishing in the negotiation and misinterpreted your initial large discount as a signal that your company has a fairly low cost structure and so he could take advanage of it and that perhaps your in a week cash flow position. My gut feel is to analyze the usage logs of the firm to get a feel if its using more users then they have lics for. If they are over the limits then I think you have more options for approach then just communicating the value of the software.

    If they are in full compliance then I would just draft an email saying that their counter offer is not possible for your firm and list out some of the bennefits of it and any ROI it helps with their company and leave it at that. I wouldn't further reduce the price unless they have another offer that comes in line to your costs and even then try to keep it close to your original offer. You don't want to encourage deep fishing of your cost structure. There is a haravard business cases written on the parts firms for I think it was ford that shows the folly of that.

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    up vote 0 down vote

    Lots of great advice, and I especially agree with John's questions.

    From you description, I would offer these three comments:

    1. You are negotiating with the wrong person. Scout out the top IT guy, or higher, and work from there.
    2. Do not tell him he does not see the value. He may, he may not, but telling him will never change that. Sell him. It sounds like you do not see the value of your system to him (from his point-of-view). Find out his pain, and his gain, and sell to that.
    3. The description you provided sounds like an unworkable deal given the pricing, the current demand (low), the level of decision maker, and the lack of compelling value consensus. I would consider a slower approach to growth within the organization, akin to what others have suggested. I might raise the rate of licenses, lower the number of users, and give a free professional services guy with the idea that they will be able to upsell and cross-sell once placed in the firm.
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    Thanks for the comment Andrew. One question: I completely believe I am negotiating with the wrong person(He is a mid level IT manager), and the fact is that I do already have the contact information of the CIO, and have met the CEO a little while back, but if I go over his head, that usually results in a negative outcome. Perhaps you have an suggestion as to how I can go over his head without pissing him off and obviously getting the cycle moving with either the CEO or CIO? Thanks! – Danny Sep 10 '10 at 19:11

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