Jun 20, 2018 rules for negotiating software and it contracts. These negotiation tactics will maximize your gains either by bringing down the cost or getting more features for the same price. How to beat software vendors sneaky price increases between complex licenses and the cloud, microsoft, oracle, and sap have lots of ways to hike up prices. Software maintenance fees pay for two services from the commercial software. Software maintenance is usually a high cost affair, but the tips and strategies here will help you learn how to better negotiate software. One of the biggest mistakes we see clients make when they are negotiating erp software license agreements is focus ing on. Gather requirements the first step in managing software maintenance costs is to take an analytical approach to requirements and cost of software maintenance. The quickest way to get caught up and prevent the hoa from pursuing a foreclosure is to pay all of the pastdue amounts in one lump sum, including any late fees or other fees. For example, the agreement should include pricing for additional licenses if the software is licensed on a peruser, seat or server basis. Ten tips for negotiating software license agreements. Standard support will cost 18% of net licensing fees, while enterprise support will eventually cost 22% by 2016.
Depending on your business model, you may need to discount the license cost deeply, but can. Software maintenance negotiations best practices dod esi. Like most fees, salespeople will tell you its nonnegotiable, and it is if you dont make a counter offer. Other issues include limitations on increases in the maintenance fees, changes in technology, and assignment in the event of a sale of your business. Dod esi white paper software maintenance negotiations best practices 5 i. There is also a strong relationship between the warranty the licensor provides and the maintenance fee. Maintenance is usually provided at a percentage of the software license fee. If theres one thing that cios agree on, its maintenance fees. Must the buyer pay for technology or maintenance if.
When companies want a short warranty period one of two things is happening. It would take them at least a few months before they customize and finalize the software for you. Does your business have the right to relocate the software without penalty. Just like everything else that you need to purchase. They are negotiating better terms up front, renegotiating midcontract and, in some cases, running software without maintenance. This is a crucial step to tracking and maintaining your fees. Software licensing agreements slas are explicit in terms of fees, but vendor.
If your vendor asks for maintenance fees from the first day of work, it just doesnt. The way the maintenance fee is calculated should be clearly stated in the contract. The maintenance fee is the sacred cash cow for enterprise software vendors. Standard maintenance services for kwiktag software. Although it organizations make every attempt to free up enough dollars to continue moving the business. How to negotiate software maintenance contracts and obtain. A vendors maintenance and support fee on each software license, usually 20 percent to 25 percent of the net license price per year, delivers bountiful margins that annually replenish the coffers of vendors like sap and oracle. Software maintenance fees can be a good value, says r. Maintenance and support fees may be priced on list or discounted price this is a big number when looking out five years.
If you cant come up with enough cash to get current on your hoa dues all at once, you might be able to convince the hoa to. For example, it is common for a software publisher to charge 20% or more of net discounted license fees for the initial year of software maintenance, then. Frankly, i think users of commercial software are moving beyond frustration and on to anger, and reading articles about the 85% profit margin that oracle enjoys on its maintenance fees, for example, only fuels the. Consider negotiating support fees annually, or buy three years up. You need to pay close attention to a couple of items in the software maintenance agreement as you negotiate the contract. Sap raises software maintenance fees for new customers market realities, competition from oracle, and maintenance and support complexity are the reasons behind erp giant saps move. Its easy to spot a legitimate reason to charge a maintenance fee. A good software program should have a way for you to.
Like it or not, software and hardware maintenance is a way of life in it. During the term of this maintenance agreement, licensor will provide licensee the. Ask for maintenance fees to be based on the discounted price of the software, not the list price. Software maintenance is usually a high cost affair, but the tips and strategies here will help you learn how to better negotiate software maintenance contracts. Jan 24, 2017 an annual charge of 20% of the license fee list price is a good staring place. Ask for maintenance fees to be locked in, not allowing the vendor to increase fees from year to year. How willing they are to lower it depends on how good a deal you got on. How to negotiate a better deal on enterprise software. In 1996, maintenance fees on enterprise software accounted for about 18 percent of erp vendors annual revenue, reports amr. Most software vendors offer 15% to 20% discounts to open negotiations, without waiting for the year end. The following steps should be taken prior to first entering or renewing a contract with a. Top ten tips in negotiating service agreements insights.
How to reduce software maintenance costs in line with reduced. If your business is like most, its probably paying between 18% and 25% of its erp licence fees annually for maintenance and support. If your vendor asks for maintenance fees from the first day of work, it just doesnt make sense. When you purchase hardware, you can usually negotiate a warranty term of a year or longer. Negotiating with an hoa to catch up on hoa dues nolo. Try to find a property manager who does not markup these fees. Tips for negotiating software contracts hartman executive advisors. Because maintenance fees are calculated as a percentage usually between 17 and 22 percent of a customers software license fees, some vendors try to raise longterm maintenance revenue by. How to successfully negotiate lower prices in any situation.
Sap raises software maintenance fees for new customers cio. In that light, customers will be negotiating new sap maintenance contracts. Tips for renegotiating a software contract with enterprise software vendors to maximise value in software licensing, maintenance and other technology. Suspending users involves suspending the use rights and maintenance fees associated with unused users for a period of time that is mutually agreed upon by the licensee and the erp vendor. Just like everything else that you need to purchase from a supplier after the initial purchase of the product, equipment, of software, the best time to control your future costs is prior to making the. The software maintenance cost is driven by a percentage of the initial software license fee which is usually between 1625% of the license cost per year.
Dont pay for maintenance or support before you need it. If you need a copy of the software to test a disasterrecovery plan, are you required to pay full price for another license. By year five of the software life cycle, vendors have. The vendor might price professional services relatively low, assuming it will make its money, and justify its investment, through software license fees. The more complex the software, the more maintenance it will likely need to ensure continued use. To put this in perspective, a midsized business paying. What are typical maintenance fees as a percentage of up. An annual charge of 20% of the license fee list price is a good staring place. Imagine your software relationship starts with implementation or some other type of customization. My pms in ga and al do not have any markups on maintenance, although they do.
Other issues include limitations on increases in the maintenance fees, changes in technology, and assignment in the. Depending on your business model, you may need to discount the license cost deeply, but can still get the list price for maintenance. Support and maintenance fees go up despite the vendor paying lower costs to maintain mature software. High software maintenance fees and what to do about them software maintenance fees pay for two services from the vendor to the customer. It will not just save you the burden of repeating the whole process every year, but may also get you a discount from the vendor. Frequently i see questions on linkedin procurement and contracts groups about negotiating software maintenance fees. What are typical maintenance fees as a percentage of upfront. Kwm renegotiating with enterprise software vendors. The larger the commercial space you rent, the more likely you will be able to negotiate cam common area maintenance fees and any associated administrative. Best practices negotiating enterprise software the blend. Why vendors resist negotiating software maintenance fees. Negotiating software contracts is a necessity for individuals and businesses that are planning to invest in any type of software. Negotiating property management fees biggerpockets. How to beat software vendors sneaky price increases.
Apr 15, 2009 customers who purchased software after early 2008 and paid the higher maintenance and support fees can move to standard support when their current maintenance and support contracts end. Such hidden costs can add up to hundreds of thousands of dollars. These are inevitable and important in that they will entitle you to upgrades and support. It suggests that, if a buyer does not want to pay for maintenance it might not ever need, it should negotiate for an explicit written clause starting the maintenance term, and. First, they pay for ongoing product development that provides new product features, regulatory updates e. News analysis and commentary on information technology trends. As we all know, theres a lot of buzz these days about inflated maintenance charges.
Cap mechanisms vary it can be a fixed amount, a variable amount e. If you have not yet purchased the system, understand that your negotiating. In fact, most cios write that yearly check with a smile. Mar 28, 2014 the software maintenance cost is driven by a percentage of the initial software license fee which is usually between 1625% of the license cost per year. Dod esi white paper software maintenance negotiations best practices 7 i. Software maintenance negotiations best practices dod esi white paper i. Escrow source codes consultants and software vendors typically make most of their profit and continuing maintenance contracts rather than on the base license fees. The only way you would lower maintenance is if you join the board and are personally responsible for finding ways to cut costs in the building. And finally, a simple strategy to cut down costs when the time comes to negotiate software maintenance contracts is to extend the term of the contract. Alternative structure for software implementation agreements. That work begins on day one of your work with the vendor, and so does the maintenance and support planalong with maintenance fees. Home our perspectives best practices negotiating enterprise software.
The fees are, quite simply, a gift that keeps on giving. Maintenance fees alone average 20 percent of enterprise softwares original purchase price. Maintenance is the most profitable part of the business, says ray wang, a principal analyst at. Dec 15, 2015 fees for maintenance and other professional services might compensate the vendor for that investment, assuming those fees come with unequivocal payment obligations, but not necessarily. Nov 26, 2008 why vendors resist negotiating software maintenance fees ive been coming down pretty hard lately on certain software vendors for escalating costs of software maintenance contracts as well as the lack of value and flexibility in maintenance programs. Five negotiation tips for cutting sap maintenance contract costs. This varies and is a bit of a loaded question because every software product is different. Software maintenance fees pay for two services from the commercial software vendor to the customer. Five negotiation tips for cutting sap maintenance contract. Key provisions in an erp contract erp software licensing. All of my pms in ca operate this way, but rents here are higher as well, so their commissions are higher.
Tips for negotiating erp license agreements erp software. Software pricing considerations software maintenance. Maintenance fees as a percent of the license cost are not cast in stone. Jun 15, 2012 software maintenance fees frequently i see questions on linkedin procurement and contracts groups about negotiating software maintenance fees. Maintenance fees can be confusing for a new real estate investor. If they do, ask them to show you the value in doing so. Why vendors resist negotiating software maintenance fees ive been coming down pretty hard lately on certain software vendors for escalating costs of software maintenance.
A whopping 50% increase in software maintenance cost for this title. I am in the process now of negotiating with the vendor to see if we can lessen the impact. Software maintenance pricing fair or out of control. Oct 21, 2016 the more complex the software, the more maintenance it will likely need to ensure continued use. If the board was so inclined to cut the monthly cost to owners, then it would be across the board and not to just one owner. You should also consider negotiating a cap on maintenance fee increases. The firm might have inhouse maintenance or find vendors to service your property.
Ray wang, a founding partner with altimeter group, a california research and advisory. All other contract negotiations should start no later than three months before conclusion. If they outsource the work, they might tack on a 10%15% fee. Furthermore, annual fees keep the licensing cost artificially low. High software maintenance fees and what to do about them. Its possible to minimize maintenance costs through intelligent planning and execution, but its also possible.
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