How Buyers and Salespeople Can Work Together in Negotiations
For both parties negotiating a contract to purchase or renew a subscription service software is a daunting task that ultimately rests on both sides finding ways to help each other. Empathy is a key point in the discovery period of a negotiation. Below are some points to understand what salespeople need from each contract negotiation to help set yourself up for a win-win outcome.
To begin to understand the other side of the table, you need to understand how their company functions and what their priorities are. These larger priorities trickle down to how your counter-party is compensated and what accountability he or she has for the company.
What Startups Want
For early stage startup software companies, business needs to grow revenue at a furious pace, and certainly no worse than 20% in their first year. To keep pace, focus is placed not only on closing as many deals as possible, but also on upfront payments and long term contracts. For most startups, “accelerators” exist that deliver higher commission or bonuses based on over-delivery of quota, addition of incremental products, squeezing deals in at the end of the quarter, and signing longer-term commitments
Startups are also heavily involved in the ongoing process of building brand capital. Depending on who you are, your logo could be more valuable than the money you’re paying because of the future business it will enable..
What this Means to the Buyer
Thoroughly understanding the business model and current market position of the company you are negotiating with will inform you of what you can offer to move your negotiation to a win-win. Do your homework ahead of time (or have Tropic do it for you), and consider the following perspectives:
- When did the vendor raise money last? If it’s been a while, runway may be a key consideration for this vendor. Consider offering to pay upfront. At many companies, your sales rep will get to recognize all the revenue at once and receive a nice payday.
- If you’re renewing with a vendor who has lost some key accounts, consider committing to a longer-term agreement with a lower rate and price protection. Generally speaking your sales rep would be happy to sign a longer contract because it would enable him or her to collect commission from the account for longer.
- If the vendor recently raised money, they likely won’t mind looser payment terms and should be more willing to reduce an annual contract into quarterly or monthly increments. This isn’t a monetary sacrifice for the sales rep, so it’s likely an easy lever to pull
- Finally, there are often cases where the only way you buy software is if the vendor will lower the price. Consider the future value of your relationship with the sales rep. It is probably pretty easy for you to pick up the phone and make a recommendation to a colleague for this vendor. Vow to stay in touch with the sales rep and offer him or her the opportunity for future business through your network in exchange for a discount. This is almost certainly more valuable than the cost single deal. Make sure to follow through, and you’ll have a valuable win-win relationship.
What About Larger Companies?
The business model and market position of a larger company differs from that of a startup, and require different approaches to a negotiation. Here are some tips to negotiating with a larger company:
- Larger companies that are in the growing stage have already garnered a client list and know which products sell the most and what keeps a client happy. A salesperson encourages the purchase of a specific product or recommends you to upgrade a features package because they know these products are more likely to keep you as a client long term. Choosing a larger purchasing plan for a discount will help both you and the salesperson achieve your business goals.
- Like with any product, salespeople are encouraged to hit a sales quota before the end of the quarter. Making sure your contract negotiation falls towards the end of the quarter when salespeople are more likely to prioritize finalizing a sale is another way to ensure a good negotiation.
- Another function of some software companies are clawback periods, which occur when a salesperson has commission payments rescinded if a customer does not follow through with payment. This often motivates sales people to focus their energy on acquiring serious customers and signing as many long term contracts as possible. Ensuring that you are serious about the product and following through on the negotiation will help build trust and reliability between yourself and anyone you are negotiating with.
- Salespeople will be incentivized to sell new products that will allow the company to expand into a new market. Working with a salesperson to identify which products will benefit you using the information the salesperson has regarding products that client typically continue using will move your negotiation to a win-win.
Empathy is the Key to a Good Negotiation
For a business negotiating with a software company, understanding how the sales compensation model tends to work is important to identify tactics for negotiations and what levers to pull to move a negotiation to a win-win.
Ultimately, a good negotiation is one that has a vested interest in both sides of the negotiation getting what they want. Once you know what a salesperson you are negotiating with wants, it will be considerably easier to enter a negotiation and make a win-lose negotiation win-win.
Want to learn more about entering a negotiation? Talk to the Tropic team.
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