From procurement negotiation to final agreement: A step-by-step guide

Closing a negotiation isn't always as simple as "Always be closing," as you might have seen in the movies. It's not about pushy tactics. In reality, closing a deal can be a challenging process. This challenge often arises due to talks that seem to drag on endlessly and a reluctance from both sides to reveal their best offers. The looming presence of tough competition makes it even harder to reach an agreement.

Procurement negotiation is a big part of this. It's the process of getting the best terms and value in business deals, not just about prices. This matters a lot in tech because it can make or break partnerships. 

Now, when it comes to negotiation, there are different ways to do it:

• Competitive: This is like trying to win a game. You want the best deal for yourself.
• Collaborative: Both sides try to win together, focusing on long-term relationships.
• Accommodating: Sometimes, giving in a little is better to keep things friendly.
• Avoiding: If the time isn't right or the issue isn't a big deal, you might skip negotiation.
• Compromising: This is when both sides find a middle ground.

In this blog post, we'll explore:

• Why you should negotiate during a SaaS procurement process
• The 7 stages of procurement negotiation and their importance 
• Five tips for successful contract negotiation to help you close the best possible deals
• Five common procurement negotiation strategies to get you started

Why it's an excellent idea to negotiate during the SaaS procurement process

Negotiations are your pathway to a win-win situation in SaaS procurement. Here's why:

1. Cost avoidance

SaaS vendors often have flexibility in pricing and terms. Negotiating allows you to secure a better deal, directly impacting your bottom line. You can negotiate for reduced subscription costs, volume discounts, or extended payment terms. For example, by negotiating a 10% discount on a $100,000 annual subscription, you save $10,000, which can be allocated to other critical areas of your business.

2. Key Performance Indicators (KPIs)

SaaS solutions need to align with specific business goals and performance metrics. Negotiating ensures that the software meets your unique requirements. You can discuss how the software will help you achieve your KPIs during negotiations.

For instance, if your KPI is to increase website traffic, you can negotiate for features or integrations that support this objective, such as SEO tools or analytics dashboards.

3. Other contracts

SaaS procurement often involves additional contracts like service level agreements (SLAs) and data security agreements. Negotiating these contracts safeguards your business interests. 

You can define clear expectations and responsibilities in SLAs. For example, you can negotiate for a 99.9% uptime guarantee, ensuring minimal disruption to your operations. 

In data security agreements, you can stipulate strict data protection measures to comply with industry regulations.

4. Value-added benefits

Negotiations can lead to extra perks beyond the standard software offering, enhancing the overall value of your investment. You can negotiate for value-added services such as personalized training sessions or dedicated customer support. 

For instance, a SaaS vendor might offer additional training sessions to ensure your team fully utilizes the software's capabilities, leading to increased productivity and ROI.

The seven stages of procurement negotiation and why they matter

There are seven important stages of procurement negotiation:

Stage 1: Preparation

In the preparation stage, you lay the groundwork for a successful negotiation. This involves:

• Collect all the necessary information, facts, and figures related to the negotiated procurement. Understand what you're buying, its market value, and any potential alternatives.
• Then, clearly define your objectives and what you hope to achieve through the negotiation. See if you are looking for cost savings, better terms, or additional value-added benefits.
• Research and gather insights about the supplier or vendor. What are their strengths, weaknesses, and motivations? Knowing their perspective can give you an advantage.

Stage 2: Opening

The opening stage sets the tone for the negotiation:

• Open the dialogue with a clear and respectful communication style. Clearly state your objectives and expectations.
• Then, build trust and rapport with the other party to take this up for the next level of negotiation. It can create a more collaborative atmosphere and increase the chances of a mutually beneficial outcome.
• Define the rules of engagement, such as timelines, confidentiality, and dispute resolution mechanisms.

Stage 3: Testing

Testing and understanding the other party's position helps you tailor the negotiation strategy for maximum advantage:

• Take a step ahead and encourage open dialogue by asking questions about their needs, priorities, and constraints.
• Pay close attention to their responses and concerns. This helps in identifying potential areas of agreement and disagreement.
• Assess how flexible the other party is and whether there's room for compromise.

Stage 4: Proposing

Making and responding to proposals is where the negotiation progresses:

• Initiate by clearly presenting your offers and demands, making sure they are well-documented.
• Listen carefully to the other party's proposals and provide constructive responses.
• Be prepared to address differences and objections, seeking common ground.

Stage 5: Bargaining

Bargaining is where the negotiation gets dynamic:

• Engage in back-and-forth discussions, exploring different options and compromises.
• Look for creative solutions that benefit both sides, such as bundling services or adjusting payment terms.
• Maintain a balance between assertiveness in pursuing your goals and flexibility to accommodate the other party's needs.

Stage 6: Agreement

Reaching a formal agreement is a significant milestone that ensures that both parties are aligned and ready to move forward:

• Document all the agreed-upon terms and conditions properly.
• Make sure both parties have a clear understanding of what's agreed upon and achieve consensus.
• Prepare for the final steps towards execution, such as legal reviews or implementation plans.

Stage 7: Closure

Closing negotiations professionally ensures a positive and lasting relationship with the supplier, potentially leading to more favorable terms in future dealings:

• Show appreciation for the collaborative effort and express a willingness to maintain a positive relationship.
• Confirm the agreed-upon actions, responsibilities, and timelines.
• Make no room for any fuss, and leave a positive impression. This will pave the way for future collaborations.

5 tips for contract negotiation in procurement process 

When it comes to contract negotiation in procurement, here are five actionable tips to help you succeed:

1. Nothing beats preparation

Before entering any negotiation, make sure you know what you want, what you need, and what's happening in the market. The better you're prepared, the stronger your position.

2. Who is the supplier, really?

Go beyond surface-level information. Understand your supplier's motivations, strengths, and weaknesses. This understanding helps you negotiate in a way that benefits both sides.

3. Manage your team (and their emotions)

Negotiations often involve a team of people, and emotions can run high. Make sure your team is well-coordinated and emotionally composed. Emotions can derail negotiations, so keep a cool head.

4. Listen and be open to alternatives

Don't just talk; listen actively. Be open to creative solutions and alternatives that can benefit both parties. A win-win outcome is often the best result.

5, Reflect on lessons learned

After each negotiation, take the time to reflect on what went well and what could be improved. Learning from past experiences helps you continually refine your negotiation strategy.

5 common procurement negotiation strategies

Here are five procurement negotiation strategies you should watch out for and how to respond:

1. Deflect or discredit your value proposition

Some negotiators may try to divert your attention away from the value your offer brings. Stand firm, reiterate your value, and provide concrete examples of how your solution meets their needs, such as case studies or testimonials.

2. Commoditize and control responses

Negotiators might attempt to treat your product or service as a mere commodity to drive down prices. Emphasize the unique features and benefits that set you apart, showcasing why you're more than just a commodity.

3. Limit access to the business stakeholders

Sometimes, access to key decision-makers is restricted. In response, focus on the importance of involving all relevant stakeholders to ensure a well-structured decision-making process.

4. Use past performance/history against you

Be prepared for them to bring up any past issues or failures. Address these concerns by highlighting improvements, lessons learned, and specific steps you've taken to prevent recurrence.

5. Good cop/bad cop and mystery decision maker(s)

If faced with a good cop/bad cop routine or uncertain decision-making dynamics, maintain a steady approach. Engage with both sides professionally and seek clarity on the decision-making process to avoid falling into traps.

Assisted buying with Spendflo

Getting good results from negotiations is about knowing what you're doing and getting along with people. Always have a backup plan, and don't hold too tightly to your first idea. Be ready for negotiations, pay attention to what others are saying, and prepare for any hiccups.

Spendflo’s procurement experts can assist you with real-time concierge services. Through the platform, you can chat with an expert to fast-track your procurement and save time.