Procurement

  • 4 min read

How To Do A Successful Procurement Negotiation

Rohit Rao

16th January, 2024

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Most of us connect "negotiating" with “saving money.” Negotiating is a way to save money and avail of value-added benefits. 

To make the procurement negotiation successful, analyze the negotiation process and consider points like cost, delivery timing, SLA, etc.

Procurement negotiation is one of the proficient strategies for making a cost-effective deal. But the main challenge is how to make it successful. Understanding your business needs and your vendor’s business model will help you ensure the alignment between the two. There is a possibility that the vendor’s business model may not be compatible with your company. 

Both parties- the vendor and the organization- can negotiate and complete a cost plan that will mutually benefit them. This will enhance their business relationship.

There are two methods of successful negotiation, ZOPA(Zones of Possible Agreements) and BATNA (Best Alternative To a Negotiated Agreement).

ZOPA includes that zone of pricing section when your budget overlaps the vendor’s pricing range. It is necessary to locate the bargaining zone. So, that the negotiator is capable of calculating the cost of loss and determining the price that would be preferable to pay rather than losing the proposal.

For instance, you are procuring Slack. The offered price for the features you require is $15/user/month for 200 users, which equals $3000/month. The lowest price offered by the vendor is $10/user/month. Whereas the budget allocated for procuring the tool ranges between $2000-$2200/month. 

So considering the above example, the zone of possible agreement is $2000-$22000/month for 200 users. It is the range where vendors’ and organizations' ranges overlap. 

Therefore, a negotiator should know their bargaining zone and understand the pricing range where both parties can be in a win-win situation. 

Along with ZOPA, BATNA is another important strategy for negotiation. This is crucial even before you start preparing for the deal. Moreover, it helps you to get prepare for an unsuccessful deal. 

No matter what you're negotiating for, it's best to get quotes from different suppliers before negotiating with any of them. You can do this by sending a request for proposal (RFP) to multiple suppliers. This makes your business more competitive and helps you get the best possible deal.

The following are some of the benefits that come with being aware of your best option before entering into a negotiated agreement:

• It offers a fallback plan if the discussions are unsuccessful.

• It gives the ability to negotiate.

• It establishes your worst-case price, i.e., the worst price you are willing to accept.

Negotiating with vendors is a key skill for many procurement roles. Whether you work on direct or indirect procurement, being able to negotiate is a huge part of being successful.

Key points to consider during negotiations

During the negotiation process, it is helpful to have an objective that is crystal clear. Therefore, before starting with the discussions, you should ensure that you have a clear head on your requirements.

Now, let us discuss the key points to consider during negotiation:

1. Be aware of the actual software cost

It is beneficial to be aware of the actual cost of the software. With this knowledge, you can determine how much space there is for actual price negotiation. It helps you gain the vendor's trust and keeps you in a strong position to negotiate.

Additionally, the levels of IT contract negotiation vary with the size of the organization. For example, SaaS providers offer fixed-tier plans for small businesses with simple needs (one flat price). As the size of the company grows, so do the requirements. Hence, for enterprise-level customers, there is a need for detailed SaaS contracts. These contracts are long-term agreements that last for a longer time.

Also, it shows your interest in the vendor’s business which helps to build trust and strengthen the vendor relationship. Coupled with this, it would be better if you research the flexibility of upgrading or downgrading the license tiers. This will ensure that your SaaS IT contract lets you increase the number of users with minimal upfront costs. 

Depending on your requirements, you can request your vendor to change your plan at any time. For example, you can choose a higher plan that gives you more licenses, storage space, data export options, etc.

2. Be clear with the time required for software delivery

You can ensure your requirements are fulfilled by making a master contract or a service level agreement (SLA). This is an arrangement in which the terms and conditions are mutually agreed upon. SLA includes customer support, the time of delivery and implementation, who will be responsible for implementing the tool, the bandwidth of the service, software changes, etc. Sometimes it even includes the anticipated response time of a query. 

If the service provider fails to meet their commitments, you can either raise the issue or terminate the contract. When you agree on the terms, make sure to specify the timing for delivery and implementation. This will further help you to prevent any delay in regular operations in your organization.

3. Collect feedback about your vendor’s performance

Before beginning the process of negotiation, you can ask the supplier for feedback from their existing or former clients. Moreover, you can make contact with their clients and know the experiences they've had. 

If the client is satisfied with the supplier, you will get a better idea to improve your offer. On the contrary, if the client is not pleased but is determined to move ahead with the supplier, you can have an added advantage on the negotiation table.

How can Zluri help you in procurement negotiations?

Zluri offers SaaS buying services and works as a part of your procurement team during negotiations. We help you with the purchase and renewal of your SaaS apps.

Our SaaS procurement services save you time and money. We handle the negotiations on your behalf, saving you the time that your team would have spent negotiating. We get you the SaaS app you require at discount prices and help you in getting a better deal.

We have 1 billion SaaS transaction data and know the average price customers pay for a given size of SaaS app. Moreover, we know the appropriate price for procuring SaaS apps for different types of licenses across the world.

We will not only provide you with better costs, but we will also negotiate a SaaS arrangement on your behalf that is more favorable for you. We will choose appropriate vendors for the software once we have a better understanding of the requirements. 

Negotiable prices are determined by a variety of factors related to the departments' and companies' needs, such as which licensing tier is necessary, how many employees want SaaS apps, and so on.

We have benchmark data on SaaS prices and bring data-backed insights with an in-depth knowledge of fair pricing. This will provide you with the software at the best price and keeps your business moving. 

Additionally, Zluri knows the SaaS marketplace and can help you get the proper SaaS stack for your business within your budget. We help you in planning your SaaS buying and save you on subscriptions with guaranteed savings.

About the author

Rohit Rao

Rohit works in the Community and Marketing Team of Zluri and is a strong advocate of community led growth.