Many people assume that once software is implemented and embedded within an organisation, it’s impossible to renegotiate the agreement at renewal time for better terms and pricing. While it’s true that you may not have as much leverage as during the initial purchase, overlooking software contract renewals is a huge savings opportunity missed.
With the right planning, strategy, and approach, you have a strong chance of improving your contract and delivering savings. In this article, we offer a step-by-step approach to help you successfully negotiate your software contract renewal, covering;
Initiate the renewal process with sufficient time
The size and complexity of the agreement determine when to start renewal discussions. Large ERP software renewals or Microsoft Enterprise Agreements should begin at least 18 months in advance, while smaller renewals can start 3-6 months ahead. Early engagement shows suppliers your intent and provides time to switch suppliers if necessary.
Pro Tip: Beware of suppliers who stall by saying it’s too early to discuss the renewal. This tactic is used to reduce your bargaining power as they know that reduced time will work in their favour.
Evaluate business benefits before renewal
For higher-value software, revisit the initial business case to see if the expected benefits /ROI have been achieved. Often, software is underutilised or doesn’t solve the issues it was intended for. This assessment helps determine if a renewal is the correct course of action or if an alternative supplier should be considered.
Pro Tip: In your ROI calculation make sure you consider the total cost of ownership, including internal support costs, not just the subscription fee.
Audit current software usage needs
Review your actual usage metrics (e.g. user count, transaction volume etc.) and compare them to your original commitments. Business needs can change over long-term contracts, and reduced usage can provide a valuable source of savings and act as a negotiation lever. Obtain accurate usage reports and assess how much of the software's functionality is truly being used.
Estimate future software usage needs
At renewal time, you have a clearer understanding of software adoption within your organisation. Consider any future changes, such as acquisitions, divestitures, or new systems or functionality required that could impact usage. This foresight will help determine the optimal, rightsized and future-proofed software contract.
Assess supplier performance
Consider the supplier’s performance over the contract term. Did they meet service expectations? Were they responsive and supportive? How has the relationship been? A poor performance record can strengthen your position in price and term negotiations.
Perform software contract price benchmarking
A software contract price benchmarking analysis on your renewal quote ensures transparency, prevents overpaying, and strengthens your negotiation stance. Benchmarking identifies whether the renewal price aligns with market pricing, helping you avoid excess costs. Our software contract price benchmarking service typically reduces renewal fees by 20-30% on average, empowering you with the data needed for a strong negotiation position.
Pro tip: Always request that the supplier breaks down their renewal quote to a line item level, this makes it much easier to perform software contract price benchmarking.
Want to read more about what software contract price benchmarking is and why it is so important?
Review and negotiate agreement terms
Thoroughly review the agreement terms, especially if your organisation is complex or frequently undergoes acquisitions and disposals. There could be restrictive terms on usage by affiliates and during periods of divestiture.
Some terms may also restrict negotiations, like discount protection or price holds, so consider these carefully. Our comprehensive software contract price benchmarking service includes business and legal terms review for added confidence in negotiations.
Explore the market for alternatives
Understanding the competitive landscape, even if you’re not planning to switch suppliers, provides valuable leverage. Identify direct competitors and emerging threats, and review capabilities of current suppliers that may have overlapping functionality.
Time the renewal deal for maximum leverage
Timing is crucial. Align renewal dates with the supplier’s fiscal year-end when they’re often more willing to offer concessions to meet targets.
Pro Tip: For publicly listed suppliers, review their latest earnings update to see if they’re meeting targets. This information can reveal which products are most important for them to sell, potentially increasing your leverage.
Develop a clear negotiation strategy
Create a well defined negotiation strategy based on your preparation. Identify the main levers, like unmet value expectations or competitive offerings with better functionality. Use software contract price benchmarking data to demonstrate any above market pricing. Prioritise key terms, and determine ideal and acceptable positions for each. Be prepared to trade lower priority items for higher-priority terms, such as a lower price for a longer commitment.
Pro Tip: Ensure alignment among all stakeholders, including IT, Legal, and Procurement, on negotiation priorities. Misalignment often results in conflicts that weaken the negotiation.
Execute the negotiation carefully
Negotiation is a team effort, and clear roles are essential. While input from multiple stakeholders is valuable, one person should control the narrative and lead discussions. Avoid inadvertently disclosing information that could weaken your position. With a clear strategy, you’ll be equipped to achieve the best renewal outcome.
Conclusion
Negotiating a software contract renewal requires preparation, strategy, and careful execution. By following these steps, including the crucial software contract price benchmarking step, you can improve terms, achieve cost savings, and ensure the software continues to meet your organisation’s needs.
How Can Swan Procurement Support You?
At Swan Procurement, we specialise in software contract price benchmarking, providing insights at a granular, micro-SKU level across more than 13,000 Tier 1 and Tier 2 software suppliers. Our proprietary market intelligence enables us to pinpoint any pricing and demand discrepancies with precision, uncovering the potential for significant savings. Whether you need direct or indirect negotiation support, we're here to enhance your position.
Our expertise lies in optimising technology supplier spend, reducing supplier risk, and advancing procurement maturity. By combining in-depth specialist knowledge with data-driven insights, we offer a broad range of services—from technology contract benchmarking to procurement target operating model design. As your trusted partner, we work alongside you to tackle procurement challenges. Reach out to discuss how we can make a difference for your organisation.
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