IT procurement leaders have always had a data issue. For years, the challenge was a lack of visibility into vendor pricing, licensing and use rights – and that’s still a major issue today. However, one could argue that leaders who are committed to strong enterprise IT procurement strategy are now drowning in data. There are analyst reports, supplier scorecards, product SKUs, bundling options, complex use rights, contractual T&Cs, vendor-generated dashboards, ESG ratings, financial risk assessments, infosec requirements, and that’s just the beginning of it.

This points to an overarching challenge: data vs. intelligence. IT procurement data, in terms of quantity, is abundant. Intelligence, however, is a different matter.

[IT PROCUREMENT STRATEGY MUST-READ: Go deeper into this topic with our bulletin on Four Types of IT Sourcing Intel to Strengthen the Outcome of Negotiation with Vendors]

When it comes to harnessing intelligence, IT procurement and the procuretech landscape are still fairly nascent. Yes, great strides are being made and the marketplace for procuretech is exploding. But it’s still difficult for many practitioners to understand what kind of information will move the needle on cost, risk and responsiveness during the IT buying process.

The requirements for what it takes to negotiate a world-class outcome with IT vendorsare changing. Relying on internal experience with each vendor isn’t enough. The rate of change happening both within a company’s IT environment and across the IT marketplace has uncovered the need for intelligence that demonstrably supports the IT purchasing and renewal process.

Below is an explanation of the four types of intel IT buyers need to secure a world-class negotiation outcome:

Historical Pricing and Consumption Intel

Internally sourced, this intel is a record of for the products and services you have purchased form a vendor over time, and a current-state analysis of whether those products/services are currently being used within the business. This information can help you leverage your aggregate footprint with a particular IT supplier. It’s also key in helping identify shelfware that needs to be eliminated or unused assets available for redeployment.

While this info steers purchasers away from overbuying (a cost benefit that shouldn’t be underestimated), it has little bearing on determining if vendor pricing is fair. In fact, as vendors become entrenched in an account, the price tends to go up over time because of lock-in.

Price disparity is rampant in enterprise IT procurement. What one company pays a vendor for comparable purchase can be anywhere from 20 to 50 percent more than the next company. IT price benchmarking is the only way to determine if you’re paying a fair price for an IT purchase or renewal.

It’s used to analyze whether vendor pricing is in line with fair market value in two ways. The first is by comparing the vendor’s price to the pricing offered by that vendor to other customers. The second is by comparing the vendor’s price to pricing offered by other vendors.

Unfortunately, a lot of companies only focus on competitive price benchmarking – typically during the RFX process. For the most part, competitor pricing information is readily available. But companies rarely have access to what their peers are paying for a similar purchase from the vendor of choice. This intel is not typically found within your organization’s internal sourcing and IT knowledge base. It’s usually acquired through third-party IT pricing experts.

Licensing and Subscription Intel

Paying too much for IT is an obvious path to overspending. Less obvious, but equally important, is buying more quantity than you need or buying overpowered SKUs. Vendor sales teams are skilled at maximizing your purchase. To counterbalance and avoid overspending and overbuying, IT procurement leaders must understand the licensing and subscription offerings that a vendor offers and the various permutations available to them, then select the best-fit basket of goods that optimizes cost, flexibility and risk..

The fourth type of IT buying intelligence is focused on how a vendor behaves during the negotiation process. Most IT procurement organizations don’t have visibility into vendor behavior beyond their own interactions. Considering you may only buy or renew with a vendor once every three years, those interactions can be pretty limited. To truly understand what drives vendor behavior – and how to leverage that intel – you need access to real-time insight gleaned from negotiation experience across hundreds of IT purchases.

These insights include things like: What’s motivating the salesperson at the negotiation table?

Where does this particular vendor exhibit flexibility with other customers? What is the best way to communicate with the vendor to achieve the best outcome?

Remember – IT procurement strategy is a chess game and anticipating how the vendor will play will materially improve the outcome!

NPI gives enterprise IT buyers the intel they need to optimize every purchase and renewal. Contact us to learn more.

Wireless carriers have always been a fan of add-on fees and charges – it’s a tried-and-true revenue stream outside of their normal customer rates. But over the past several months, we are seeing the list and scope of these fees growing for enterprise customers. One example is Verizon’s “Economic Adjustment Charge.”

Beginning in June 2022, Verizon began imposing a new “Economic Adjustment Charge” on enterprise customers. Without exemption, business customers’ mobile phone data plans effectively increased by $2.20 a month and basic service plans (tablets and non-smartphones)

increased by $0.98. To add insult to injury, Verizon further increased the $2.20 per month charge by another $0.78 for smartphones in January 2023.

What’s Behind Verizon’s Economic Adjustment Charge Increase?

Verizon’s public reasoning behind the new charge is not surprising. An inflationary economic climate has driven up operating expenses and the company is now passing those higher costs on to its customers. The new Economic Adjustment Charge is intended to defray the carrier’s “administrative and telco expenses and costs of complying with regulatory requirements.” especially in the broader IT landscape.

It’s worth noting that Verizon is not the only wireless carrier to do this. AT&T has also raised rates. While direct price increases primarily affect consumer and family plans, indirect increases – such as raising the cost of mobile devices (by as much as $25 in some cases)– will have a discernible impact on business customer spending.

The Impact of Verizon’s Economic Adjustment Charge on Customer Costs

The cost implications of this change on enterprise customer spend is material. All Verizon Business customers are impacted. NPI’s initial analysis indicates the charge will raise customer costs by at least 5% (if not more). And as Verizon has demonstrated, the increases may continue as the company wrestles with inflation.

NPI advises Verizon Business customers take the following steps to mitigate the effects of these new charges on annual spend:

• Start by optimizing and renegotiating your Verizon contract for corresponding savings. The optimization of pricing/rates, discounts, credits, and business terms is an exercise that should be performed every 18 months. However, most customers are well overdue – which makes Verizon’s Economic Adjustment Charge just one more reason to get moving. Contract optimization and renegotiation typically reveals savings of 15 to 30%. That means this exercise will not only neutralize the impact of Verizon’s newest surcharges, but it will also likely offset the impact of any more coming down the line soon.
• Load-balance business volume between multiple carriers. This established best practice finds new relevance in the current economic climate. Verizon’s surcharge is aggressive, particularly for business customers. Balancing volume between competitive carriers will apply competitive pressure to drive down costs.

Remember – now is the time to inspect your wireless carrier agreements and spend strategy for savings!

If you haven’t optimized your telecom carrier agreements in the last 18 months, NPI can help. Contact us to learn more.

A change to Java licensing rules could have major cost implications for Oracle customers of all sizes. Oracle recently announced a new pricing model for Java SE subscriptions. The Employee for Java SE Universal Subscription replaces the Named User Plus Licensing and Processor licenses (user and server licensing, respectively) and is based on the customer’s number of employees. Named User Plus and Processor licensing options will no longer be offered.

After analyzing Oracle’s pricing tiers, this change could equate to a 2x to 10x (or more) increase in Java related expenditures for some users. For example, in a company with 10,000+ employees, only 5% of those employees (~500) may need to utilize Java in their day-to-day operations. Under the new pricing model, however, the customer would need to pay for the other 95% (9,500!) regardless of whether they ever use Java.

Although Oracle claims these changes will only affect new Java customers, NPI is already seeing the vendor try to push existing clients to this new model – even those with tens of thousands of employees. Another layer of cost impact is the fact that these rules can encompass contractors and other adjacent partners.

The cost implications of Oracle’s employee-based Java pricing model cannot be understated and should not be underestimated. NPI strongly recommends enterprises take immediate steps to mitigate risk, which include the following action items.

Review How Oracle Java License Changes Could Impact Current Commitments

Priority number one is calculating the impact of potential changes should Oracle enforce licensing on an employee basis instead of named user or processor. NPI recommends evaluating the cost impact from a “worst case” scenario right away. Keep in mind a 10x expansion in costs may be a conservative estimate in some cases.

Most importantly, it would be useful to remind all employees that simply downloading Java could cause a major compliance issue with significant cost implications. Restricting access to Oracle’s corporate websites may sound like overkill, but it could minimize Java cost and compliance risk exposure.

Look to Extend Current Java Agreements Where Appropriate

Any enterprises with major Java agreements based on named user and/or processor metrics should consider whether it is prudent to ask their Oracle account team for a renewal of existing agreements before policy shifts further. This may be the last opportunity to keep legacy contract terms.

Oracle may enforce this change much more aggressively than it is alluding to in formal announcements. Engaging in renewal conversations now may be early enough to catch a break.

Perform a Formal Internal Java License Review and Position Assessment

NPI suggests enterprises perform a formal review of their Java licensing environment to get a clear picture of their Java license deployment – particularly in advance of any renewal of Java agreements. A haphazard approach to the next renewal could end up costing a fortune in Java fees. The open nature of Oracle’s announcement ascribes a fairly “carte blanche” approach to how Oracle can choose to enforce these rules on new AND existing Java subscription customers.

As part of this license position assessment, NPI recommends determining the cost to migrate away from Java entirely, as that may be a necessary exercise if Oracle decides to go all-in on enforcing this massive licensing change. From there, customers can evaluate if they should agree to this new license metric, minimize Java usage, or move away from Oracle Java altogether.

Are you a Java user? NPI’s Oracle licensing and compliance experts can help you analyze the cost impact of new Oracle Java license changes and determine the best course of action. Contact us to learn more.

The pressure for SAP customers to convert from ECC, its legacy ERP platform, to S/4HANA looms large in 2023. Despite the fact that mainstream support for ECC ends in 2027, most customers are struggling to make the switch. Recent data indicates 69% of ECC clients have not yet licensed S/4HANA. That’s a concerning number as the window to begin making changes grows surprisingly short.

The timeline to make the changeover from ECC to S/4HANA is estimated to be 18 months to 36 months (or longer), with more complex enterprise-scale deployments leaning toward the longer end of the scale. That leaves less than 12 months for these customers to realistically plan an approach. NPI expects a flurry of activity starting in 2023/2024 as this creeping reality dawns on current ECC users.

We recently published guidance onhow to unlock savings on the S/4HANA conversion journey – which is a must-read resource for anyone staring down a migration. Here is some additional advice on how users can prepare.

Don’t Expect SAP to Delay Support Hikes

SAP already delayed this planned ECC support hike once and it’s unlikely they’ll do it again. There may be considerations for select clients who have already made commitments to start the S/4HANA migration process, but exceptions outside of that aren’t expected.

Due to continued inflationary pressures, SAP could even increase their stated 2% continuous hikes on extended ECC support, or enact higher hikes for customers who haven’t yet committed to an upgrade to S/4HANA. These stated hikes are coming, and they’re a major reason why NPI recommends prioritizing a check on upgrade plans before the window to do so closes.

Review Different Approaches to Implementation

Along with the upgrade itself comes the possibility of running dual instances (or more), on-premise only, or a full move to cloud-based S/4HANA. This includes the important consideration of whether to stay on-premise or move S/4HANA to a major cloud platform, much like how Vodafone did once the ECC upgrade was finished with GCP.Using a mix of Google Cloud M1 and M2 infrastructure, the relatively short journey Vodafone took can be a useful blueprint of what’s possible.

The point? Reviewing the costs and flexibility of different vendor components is a key area that can generate long-term savings and IT agility.

Position TCO Concerns at the Forefront

NPI recommends ensuring that the core license and expansive Professional Service costs involved with S/4HANA migrations are within Fair Market Value (FMV), as both areas can almost be of equal cost on the upfront portion of these deals. We suggest modeling the different license costs and hourly rates in these agreements, as well as positioning at least one other major solution (as difficult as this may be to do) with hopes of creating real competition around any incumbent SAP ECC deployments. In most cases, SAP will be looking to charge a premium when they know no alternatives are likely to be considered in any major upgrade efforts.

Engineer Your S/4HANA Conversion for Savings

A few final words of advice – how you operationalize your conversion roadmap has tremendous bearing on cost and timelines. Be sure to establish an accurate and comprehensive baseline for which licenses/products need to be converted as well as any need to purchase additional licenses. From there, choose best-fit licensing options that meet your unique usage requirements. How you sequence migration is also important, whether it’s a forklift migration or on a product-by-product basis.

Finally, don’t forget the basics. Perform IT price benchmark analysis to ensure pricing and discounts are at or better than fair market. There is a lot of volatility in the enterprise tech vendor landscape right now and that will likely precipitate pricing variability in 2023.

Are you planning an SAP S/4HANA migration? NPI can help you unlock savings and mitigate overspending risk. Contact us today.

The Microsoft reseller ecosystem is large and complex – but, for many enterprise customers, resellers are an integral part of the Microsoft relationship. To better understand how the vendor does business with its largest accounts, it’s important to understand the differences between Direct and Indirect Microsoft Resellers.

Microsoft offers several volume licensing agreements for large corporate customers. They fall into two categories – Direct and Indirect. Enterprise Agreements, Enterprise Subscription Agreements, and Server and Cloud Enrollments are all Direct licensing agreements. Direct licensing agreements are direct contractual relationships between Microsoft and the customer where Microsoft sets the pricing. All invoices come from Microsoft and the customer pays Microsoft directly.

With Direct licensing agreements, a reseller is often an integral part of the equation. They include Large Account Resellers (LAR), License Service Providers (LSP), and Enterprise Software Advisors (ESA). The responsibilities of these resellers include preparation of the contracts for customer acceptance, submitting contractually required true-up orders to Microsoft on the customer’s behalf, reconciliation of any online subscription reservations, management of the contract, and overall servicing of the customer’s account.

Direct resellers are paid an ESA fee by Microsoft to manage the Direct licensing agreements on behalf of Microsoft, and perform the duties listed above. In years past, some customers would negotiate with the reseller to get back a portion of those fees. However, since Satya Nadella took over as CEO of Microsoft from Steve Ballmer in 2014, the ESA fees paid to resellers have steadily declined. Resellers now only get paid on the first year’s order, true-ups and net-new license purchases.

Nowadays, resellers and services partners are heavily incented to sell Microsoft professional services to help the customer deploy the Microsoft solutions they are licensed for. If professional services are required, Microsoft will sometimes offer incentive funds to help mitigate the cost of deployment. There are some resellers who now charge customers to manage their Enterprise Agreements, although these are usually Level D Enterprise Agreements (15,000+ users).

When it comes to selecting a LAR/LSP/ESA, the most important factor is the quality of the dedicated account representative and their team who will support you and manage the agreement. While it may sound mundane, important activities for a reseller include running reports on license purchases, detailed invoice reports, and activation of Software Assurance benefits.

Knowing the reseller is being paid by Microsoft to manage the contract, you should negotiate a level of service commensurate with your needs. Here are some things to consider:

• Will they provide a dedicated account representative?
• Is there an inside team to support you?
• Can the reseller run reports detailing the purchases you have made across multiple agreements?
• Does the reseller provide support in all of the geographies in which you do business?

So now let’s turn to Indirect licensing agreements. Currently, the only choice of an Indirect licensing agreement is the Microsoft Products and Services Agreement (aka MPSA). In the past, customers could purchase through another Indirect licensing agreement – the Select Plus agreement – but those customers are now being transitioned to the MPSA. There are still some legacy Select Plus customers, but no new Select Plus Agreements are being created.

It’s the reseller that sets the pricing. Microsoft supplies the reseller with List price and Cost price and the reseller will price it somewhere in the middle. The reseller will invoice the customer directly, not Microsoft. For customers who procure their Microsoft licensing via an Indirect licensing agreement, it is advised to negotiate a ‘cost plus’ pricing term for the life of the agreement.

What Happens If You’re Not Happy with Your Microsoft Reseller?

While a LAR/LSP/ESA is a required part of Direct licensing agreements, if a reseller’s performance in managing the agreement is substandard, you can change resellers mid-stream. The process is called a “Change of Channel Partner” and there are 2 options.

Option 1 – the customer and the new reseller can both sign a Change of Channel Partner form, which will go into effect 90 days after the customer’s signature dat. For this option, it is advised to take note of the date the change will take effect and how close it is to the anniversary of the agreement because of the contractually required activities (true-ups, reconciliation of online reservations, etc.).

Option 2 – To switch resellers without waiting for the 90-day holding period, there is an amendment which Microsoft can supply. This amendment requires signatures from the customer, the new reseller and the old reseller, and the customer can specify what date the change will occur. The old reseller will have very little motivation to sign this form, especially if the only business they do with the customer is managing the Direct licensing agreement.

Getting the Most Out of Your Microsoft Reseller Relationship

There are few software estates as critical to most large enterprises as Microsoft, which underscores the importance of having a strong, collaborative relationship with your Microsoft reseller. Most Microsoft resellers take great strides to create lasting relationships with their enterprise customers, and provide excellent service and support. But there is a bit of a conflict of interest when it comes to license and cost optimization, so that is an area where there is typically opportunity for improvement. Microsoft license and cost optimization often reveals 7- and 8-figure savings for enterprise-scale footprints. It also provides an opportunity for resellers to realign their partnership based on the customer’s current and future-state requirements.

If you are looking for ways to optimize your agreement with your Microsoft reseller, NPI can help. Contact us to learn more.

It’s been an interesting year for Salesforce. For the second time in under three years, co-CEO Marc Benioff will part ways with his co-CEO. There appears to be internal strife around the company’s acquisition of Slack, the most expensive subscription software acquisition of all time. And perhaps most telling is the vendor’s revenue growth rate. According to the vendor’s recent quarterly earnings, revenue grew 14% – the slowest since Salesforce went public in 1994.

CFO Amy Weaver shed some light on the factors behind Salesforce’s revenue slowdown during the company’s Q3 earnings call a few weeks ago. Longer sales cycles, more layers in the purchase approval process, and macroeconomic conditions were to blame. According to Weaver, this drove “intense customer scrutiny on every investment dollar to ensure the highest return possible.”

NPI anticipates this trend of heightened scrutiny by customers to continue in 2023 for three reasons:

1. The global economy is at a crossroads and, depending on who you ask, we’ll either narrowly avoid a recession or officially enter a mild one in the coming months. Regardless, this volatility is driving more fiscally conservative behavior across IT and IT procurement – it’s unlikely to translate into shrinking IT budgets, but it will translate into more careful spend oversight so that budgets deliver maximum value.
2. For some large enterprise customers, the Salesforce estate has become quite bloated. Typical enterprise deployments contain thousands of licenses across numerous departments and business units, which creates two issues: (a) it’s difficult to manage licenses and (b) it virtually guarantees overspending on unused or underutilized licenses. Large-scale software deployments like Salesforce (as well as others like Microsoft 365, Adobe, Workday, etc.) will be targets for SaaS license and cost optimization.
3. Salesforce will do whatever it can to improve its growth trajectory. That includes pulling out all the stops to maximize annual revenue per customer, particularly among its largest customers.

Tips for Improving Salesforce Contract Negotiation Outcomes

Over the last year, NPI has published several resources to help customers improve the outcome of Salesforce contract negotiations. These are a must-read if you have a Salesforce renewal or purchase planned in the coming year:

• Why Does the Salesforce Renewal Negotiation Have to Be So Hard? – Salesforce negotiations are tough – excruciating even. The first step in streamlining the Salesforce purchase or renewal is understanding the Salesforce psyche. What makes it so difficult? Why do customers overspend and where? NPI explores 4 key challenges (and how can you solve them).
• Salesforce Vendor Management: When to Start Working on Your Salesforce Renewal – Waiting to strategize your Salesforce renewal until the last few months prior to contract expiration is a grave mistake. In this article, we discuss when is the best time to start working on your renewal and how the right amount of runway translates into leverage.
• How to Cut Costs on Your Salesforce Renewal – Customers must go into their next Salesforce renewal more prepared than ever and with full visibility into the blind spots that lead to overspending. In this post, we share two areas that every customer should focus on to weed out overspending.

The First Step in Reducing Salesforce Costs and Sprawl

NPI’s SaaS license optimization assessment is the first step in breaking the cycle of overspending and overbuying. It thoroughly analyzes usage to identify licenses that can be terminated or harvested for redeployment (thus avoiding/minimizing the need to purchase new licenses). It also establishes a fact-based renewal baseline, so you can ensure you’re paying for what you need and at an optimal cost.

If you have a renewal planned in the coming year, NPI can help. Our team of IT procurement advisors and Salesforce licensing experts can help you make the most of preparing for your next Salesforce renewal. Contact NPI today to learn more.

When large companies ask us where they can make a meaningful impact on reducing IT spend, one area we advise them to focus on is their largest SaaS software deployments. They almost always reveal significant cost-saving opportunities. One great example is Microsoft 365.

Companies are spending more on M365 than ever before for several reasons. The first is transformation acceleration. One study found that 93% of respondents said the pandemic pushed Microsoft-related modernization plans ahead of schedule. Another reason is once companies make the move to M365 little attention is given to how to optimize their M365 assets throughout the term of the agreement (which is typically three years or more). Customers tend to take an autopilot approach to M365 renewals, which makes it virtually impossible to reduce M365 costs. They renew what they’re already paying for and add new licenses to cover growth. At that point, there is only one direction for spend to go: upwards. Then there’s the issue of rising costs. Microsoft 365 customers are paying more following the vendor’s latest price increase.

So, what steps do customers need to take to get rid of cost waste across their M365 estates? What areas should they focus on? Given the vastness of most enterprise-grade deployments, it’s important to have a strategy and tactical game plan in place.

Reducing M365 costs start with asking the right questions. We recently shared 9 Questions to Ask to Right-size Your Microsoft 365 Spend. Here are several to consider:

• Have you performed price benchmark analysis to ensure you’re paying a best-in-class price? M365 pricing may seem straightforward and transparent, but it’s possible to negotiate better pricing and discounts if you’re armed with the right pricing intel to validate your negotiation position.
• Are you using everything you’re paying for? This is a big one – license bloat happens across most M365 deployments, which leaves customers paying for more licenses than they actually use. Conduct a formal assessment of usage across your M365 estate for opportunities to reclaim, reduce and realign licensing counts. Reclaiming inactive licenses can often cover growth requirements and mitigate the need for net-new purchases.
• Have you created detailed user profiles? Challenge the assumption that every user across your organization needs the same license type. Too many customers lock themselves into a single license type that provides more functionality than is required and at a higher cost than necessary. A more thorough analysis of M365 usage may reveal several different usage profiles, some of which may require less-costly M365 SKUs.
• What is your deployment velocity of new M365 licenses? It’s important to develop a roll-out scenario for deployment of new M365 licenses over the term of your agreement (also known as deployment velocity). While Microsoft will want you to pay 100% for all users on Day 1 of your agreement, this approach may not make sense for some rollout scenarios.

Check out our full checklist here.

When is the Best Time to Optimize M365 Costs?

Software license and cost optimization can happen at any time, but certain points in time yield higher savings. Initial purchase agreements set the tone (and baseline) for future price negotiations and concessions, so IT procurement practitioners should plan these purchases well in advance and employ all strategic purchase optimization tactics. This includes IT price benchmark analysis (e.g. are you paying a best-in-class price compared to similarly-scoped peer purchases?) and enterprise agreement optimization(e.g. are you choosing the right license types and does your EA include optimized terms and conditions that meet your unique requirements?).

Because of the complexity of Microsoft EAs (and other volume purchasing vehicles), renewals should be treated with a similar level of rigor and diligence. Remember – Microsoft starts thinking about your renewal before the ink is dry on your prior agreement. For most enterprise customers, that means your Microsoft account team is spending the next 36 months strategizing and locking you into a deal that meets their revenue and strategic business goals. When a customer approaches their renewal with any level of autopilot, it pretty much guarantees the customer will be paying more than they should and re-establishing an unhealthy baseline for license counts and pricing.

NPI’s guidance is to perform a SaaS license optimization assessment on your M365 estate at the midpoint of your agreement, and then again 9 to 12 months before your renewal date. This will give you the runway to assess usage, explore license optimization opportunities, and reclaim and redeploy licenses to cover growth requirements. From there, customers can establish a current and accurate license count baseline and turn their focus to cost and contract optimization.

If you have a Microsoft 365 renewal on the horizon, NPI’s SaaS License Optimization Assessment and Microsoft Enterprise Agreement Optimization services can help.  Contact us today.

One of the pitfalls of SaaS purchasing is that enterprise customers don’t always invest the time and effort they should into preparation and strategy for negotiating SaaS contracts. That’s not a dig at IT procurement. It’s an acknowledgement of how unwieldy SaaS management has become amid a growing list of priorities and responsibilities handled by the IT sourcing function.

Making the job infinitely more difficult is shadow IT spend. You can’t improve SaaS contract negotiation outcomes if you don’t know when and where all spend is happening across the organization. Gartner estimates shadow IT spending accounts for 30 to 40% of total IT spend in large enterprises. At the departmental level, unsanctioned SaaS spend is rampant, which it makes it tough (if not impossible) to manage licenses and spend. The responsibility is often distributed across multiple departments/business units and admins, and license management standards and best practices are not always applied consistently. There is also a common assumption that SaaS contracts aren’t all that negotiable to begin with – an assumption which couldn’t be further from the truth.

Why You Shouldn’t Avoid SaaS Contract Negotiations

Given how overwhelmed most enterprise IT procurement teams are, autopilot SaaS renewals happen all the time. Skipping SaaS contract negotiations may seem like a time-saver, but it often leads to missed opportunities for cost savings and better terms. Many companies assume SaaS contracts are set in stone, but vendors are often willing to negotiate on critical aspects like pricing, service level agreements (SLAs), and renewal terms. By engaging in thoughtful contract negotiations, you can avoid unnecessary fees, secure favorable terms, and ensure the contract aligns with your long-term business goals. Taking the time to negotiate not only gives you control over pricing but also helps you manage risks, ensuring that your investment in SaaS solutions delivers maximum value.

To keep SaaS spend in check, enterprises must first have processes and protocols in place that ensure SaaS purchases and renewals go through IT procurement. This centralization will likely reveal low-hanging fruit for savings (e.g. consolidating multiple agreements with the same vendor, etc.). But what steps can companies take during the actual SaaS contract negotiation process to improve negotiation outcomes? Here are some suggestions:

Negotiating SaaS Contracts: Know Your Leverage

There are several levers enterprises can use to improve the outcome of SaaS contract negotiations. The trick is understanding which ones will deliver the biggest impact to spend. Here are three to consider:

Pricing – Am I Paying a Fair Price?

While vendors have attempted to harden pricing as their SaaS offerings have evolved, the reality is most pricing is negotiable. The key is market data and being able to validate if the vendor is charging pricing that’s within fair market value range. At NPI, we review thousands of SaaS purchases and renewals annually. Through IT price benchmark analysis, our clients can determine if they’re paying a best-in-class price for their purchase compared to peer purchases. If they’re not, we arm them with pricing targets and negotiation guidance. Note: Across $17 billion in spend analyzed last year by NPI for our clients, over 85% of vendor quotes were above fair market value!

Another SaaS spend management offender is autopilot renewals. “Set it and forget it” bypasses any real SaaS contract negotiations. It’s a straight path to paying more than you should for a number of reasons (e.g. unjustified annual cost increases, changes to online product terms or usage rights that have serious cost implications, paying for unused/underused licenses, etc.). SaaS vendors will push hard for automatic renewals but consider pushing back. Approaching each renewal with a fresh eye will likely reveal material savings and license optimization opportunities.

Support & SLAs – Is Your Vendor Meeting Your Requirements?

Depending on the vendor, your service level and support agreement may require additional negotiation. This includes negotiated commitments for service availability, system response times and helpdesk response times. Service credits – as well as the option to terminate/pursue recourse for serious service failures – should also be negotiated in SaaS contracts. Customers should also right-size support options based on their unique requirements. In some cases, a customer may need dedicated support staff. On the flipside, not every SaaS application requires a top-tier level of support. Removing the risk of over-buying or under-buying support translates into long-term SaaS contract savings.

Common Challenges Faced When Negotiating SaaS Contracts

Negotiating SaaS contracts can be complex, and many businesses face several common challenges. One of the biggest hurdles is understanding the often opaque pricing models vendors use. SaaS pricing can vary greatly depending on usage, user count, and subscription tiers, making it difficult to compare apples to apples. Another challenge is negotiating data ownership and access—without clear terms, you may have limited control over your data or face high fees for exporting it if you switch providers.

Additionally, navigating the auto-renewal clauses and early termination penalties in SaaS contracts can catch businesses off guard, locking them into unfavorable terms. Finally, keeping track of security and compliance obligations in the contract is crucial, especially for industries that require strict adherence to regulations. Addressing these challenges head-on through strategic negotiations is essential for long-term success.

SaaS Contract Negotiation Strategies

We’ve written at length about how to save on SaaS and get more out of SaaS spend on this blog. Here are three proven tactics that will almost always lead to more favorable SaaS contract negotiation outcomes (read: savings!).

Start the Contract Conversation Early

Large SaaS purchases and renewals require a lengthy runway – at least 6 months in advance for some vendors, and 9+ months for others (Microsoft). Many factors should be analyzed as part of the pre-negotiation process. These include:

• Size and scope of purchase
• Your IT roadmap and short-term and long-term usage requirements
• Current spend with vendor
• Vendor’s footprint within your organization
• Current vendor sales focus – which SKUs are they highly motivated to sell? How does this align with your IT roadmap?
• Competitive landscape
• Purchase timing and commitment duration

Before renewal negotiations, perform a license optimization assessment on large SaaS estates.

For many companies, the norm is to renew what they’ve already bought without validating if/how licenses are being used. This is a costly misstep. Establishing a fact-based demand baseline is a best practice that measurably cuts SaaS renewal costs. A license optimization assessment helps you uncover opportunities to reclaim, reduce and realign licenses. Assessments typically reveal savings opportunities of 10 to 30%. Common savings scenarios include:

• Customers discover they’re purchasing overpowered licenses for too many users when only a subset of users need the most robust license option
• The customer is licensing inactive users – ex-employees, contractors, users who do not use the application
• No-pulse users (e.g. printers, conference rooms, etc.) are consuming licenses that could otherwise be reallocated

NPI recommends that SaaS license optimization assessments be performed six months prior to the renewal date to give you plenty of runway to remediate toxic spend and define the cost-optimized licensing strategy for the renewal.

Know What Your Peers are Paying for Similarly Scoped Purchases and Renewals

Fact: Companies overpay for more than 85% of their IT purchases, including SaaS. Why? SaaS pricing isn’t as transparent as some vendors would have us believe. Companies need to perform IT price benchmark analysis to ensure they are receiving best-in-class pricing, discounts and business terms. NPI’s IT price benchmark analysis service analyzes vendor pricing in the context of a company’s specific purchase requirements and compares it to that of similarly scoped purchases that have received best-in-class pricing and discounts. From there, we define a recommended pricing target that companies can align the buying team and establish a negotiation strategy around.

To maintain control over your SaaS contracts throughout their lifecycle, follow these best practices:

• Monitor Usage: Conduct regular audits to ensure you’re using licenses efficiently and not overpaying for underutilized ones.
• Align Contracts with Business Goals: Review contracts periodically to ensure they align with your IT roadmap and evolving business needs.
• Manage Auto-Renewals: Set reminders to reassess contracts before they auto-renew, allowing for renegotiation or adjustments.
• Customize SLAs: Tailor SLAs to meet your operational requirements, ensuring they reflect your specific business needs.
• Ensure Flexibility: Build in contract flexibility to scale services up or down without incurring penalties.
• Clarify Data Ownership: Ensure data ownership and portability are clearly defined to avoid issues during termination or migration.

By adopting these practices, you’ll avoid common pitfalls and maximize the value of your SaaS contracts.

Questions During a SaaS Contract Negotiation

When negotiating SaaS contracts, IT buyers should consider asking the following questions to ensure they get the best deal and avoid common pitfalls:

• What is the total spend on SaaS across the organization? 
• Understanding the overall expenditure helps in identifying areas for cost savings and better negotiation leverage.
• Are there any existing shadow IT expenditures? 
• Identifying unsanctioned SaaS spending can help centralize procurement and avoid redundant costs.
• What is our current usage and license optimization status? 
• Conducting a license optimization assessment can reveal unused or underused licenses and potential savings.

• Am I paying a fair price? 
• Use market data to compare the vendor’s pricing with fair market value and ensure you’re getting the best rate.
• What pricing benchmarks exist for similar purchases? 
• Knowing what your peers are paying for similar services can give you a target for negotiations.
• Are there any volume discounts or long-term commitment discounts available? 
• Inquire about potential discounts for larger purchases or longer contract terms.

• What are the terms for renewal? 
• Avoid automatic renewals that bypass negotiation opportunities and lock in unjustified price increases.
• Can we negotiate service level agreements (SLAs)? 
• Ensure SLAs meet your requirements for service availability, response times, and support levels, and include penalties for non-compliance.
• What are the options for scaling up or down? 
• Ensure the contract allows for flexible scaling based on changing needs without significant penalties.

• What level of support is included? 
• Determine if the support level is appropriate for your needs and if there are options to adjust it.
• What are the exit terms and conditions? 
• Understand the terms for terminating the contract and any associated penalties.

• How can we optimize our license usage? 
• Regularly assess and adjust licenses to ensure they match actual usage and avoid overpaying.
• What is the process for reclaiming licenses from inactive users? 
• Establish procedures for reclaiming and reassigning licenses from employees who no longer use them.

Vendor-Specific Considerations

• What is the vendor’s current sales focus? 
• Align your negotiation strategy with the vendor’s priorities, such as promoting certain SKUs.
• How does the vendor’s product roadmap align with our IT strategy? 
• Ensure the vendor’s future developments support your long-term IT goals.

Timing and Competitive Landscape

• When should we start the negotiation process? 
• Begin negotiations well in advance (6-9 months) of the renewal date to allow sufficient time for thorough preparation.
• What are the competitive alternatives? 
• Evaluate other vendors and solutions to strengthen your bargaining position.

By asking these questions, IT buyers can better prepare for negotiations, avoid common pitfalls, and secure more favorable terms for their SaaS contracts.

How NPI Can Help You Navigate SaaS Contract Negotiations

Navigating the complexities of SaaS contract negotiations requires expert guidance to ensure you’re getting the best value for your business. At NPI, we specialize in helping organizations optimize their IT spend through comprehensive SaaS contract assessments, price benchmarking, and license optimization. Whether you’re preparing for a renewal, negotiating new terms, or looking to optimize your existing contracts, NPI’s team of experts can provide the insights and strategies needed to secure more favorable terms and save on costs. Contact us today.

Every sector of the tech industry has its dinosaurs. In computing, it’s the mainframe. In software, it’s the perpetual license. And in connectivity, it’s the copper-based T1 line. What do all these things have in common? They’re still widely used by millions of businesses across the globe. And in the case of customers using AT&T’s T1 lines, that’s a bit of a problem.

T1 access, also known as Digital Signal 1 (DS1), was first developed by AT&T Bell Laboratories in the early 1960s and has been a staple of voice and data networking ever since. While the actual payload (voice, data, number of channels) may vary, the underlying line speed is always 1.544 Mbps. Multiple T1s can be bonded together to create line speeds in multiples of 1.544 Mbps, such as 3.088 Mbps, 4.632 Mbps, 6.176 Mbps, etc. Like other legacy technologies, T1 access remains a viable option. It may be outdated compared to current network technologies, but it’s still a source of reliable, always-on, dedicated bandwidth.

In July 2019, the FCC issued a deregulation order that significantly impacts T1 access. As a result, many carriers are phasing out T1 lines in favor of more modern, next-generation transport technology services. It’s worth noting that the FCC’s decision does not mandate the retirement of T1 lines – but it does hasten the natural migration to next gen services that has been underway for some time. Carriers now have the leverage to charge customers more for T1 access and many are starting to feel the cost impact as their telecom contracts expire and renew.

That brings us back to AT&T. If your business uses AT&T for T1 access, you should prepare now for a serious spike in AT&T T1 pricing on your next contract renewal. It’s likely you’ll be paying as much as 3x more for this service over the term of your next agreement.

How Big Will the AT&T T1 Price Increase Be?

Enterprise customers that have T1 or NxT1 access lines in their network can expect to see increases of 150% to 300% or more at their next renewal. In other words, a DS1 that costs less than $200 today might cost $350 to $600 on your next renewal. In addition to the increase, customers can expect a very short grace period, if any, from AT&T. If AT&T extends the current contracted rate, it will only be for six months before the first increase. After that, expect to be burdened with the complete increase.

AT&T is showing very little willingness to make concessions, even for the largest customers. This may change as the market stabilizes, but for now, AT&T has valid concerns about the cost of out-of-region access lines.

Enterprise customers with significant T1 and NxT1 access lines need to immediately begin technology transformation projects. This includes migrating all T1 access to cable or fiber optic media, regardless of transport technology (MPLS, internet, broadband, etc.). If your current AT&T agreement doesn’t expire for a while, be sure to secure competitive T1 pricing from AT&T now so you are paying the best price possible while you strategize and execute a transition to other services.

Be aware that AT&T may not offer the most competitive pricing for non-T1 services. In some cases, AT&T’s next-gen services will be more expensive than what customers are paying for T1 access today (and only somewhat less costly than AT&T T1 pricing post-increase). This makes the case for introducing competitive providers to the mix. In any situation where competitive bidding takes place, be sure to perform IT price benchmark analysis and carrier contract optimization on all quotes to ensure two things:

1. You’re paying the lowest possible price for all services
2. Your carrier contract business terms are optimized, including credits, discounts, revenue commitments, etc.

If you’re a customer of AT&T’s T1 services, NPI can provide guidance and decision support as you explore your options, including cost analysis, IT price benchmarking and negotiation support. Contact us to learn more.