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Bargain for a deal on SAP software licenses, Forrester says

Todd Morrison, News and Features Editor

SAP sales teams have some advantages when negotiating SAP software licenses, but there are several steps that customers can take to level the playing field, according to a report by Forrester Research Inc.

Strategies, such as tying payment to performance benchmarks can help counterbalance SAP sales teams, which often feel pressured to meet Wall Street demands for continually higher revenues. And that can also create an adversarial relationship with customers, according to Forrester analyst Duncan Jones, who wrote the report.

“[SAP sales teams are] really driven by the sales incentives which focus on revenue recognition rather than customer value,” Jones said.

Jones said that at least one of his clients has to fight for every discount it gets, despite spending tens of millions of dollars on SAP software every year.

It’s a situation that runs counter to the image of strategic partner that SAP would like to project, Jones said.

“[It] doesn’t help anybody. It’s not good for the customers and it’s not even good for SAP,” Jones said, adding that to most SAP customers the phrase “strategic partner” means they’ll get the best possible discount. “The leadership gets this. But structures of sales incentives and culture are quite hard to change.”

Tips for negotiating software licenses with SAP
So what options do customers have?

For

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one, customers can resist paying everything up-front and instead push for commercial terms that tie payment to the success of the deployment or agreed-upon project milestones, something that some Indian service providers do, according to Jones. That could include paying maintenance only after a project has gone live.

That goes for rewards as well, Jones said. A company that’s using SAP software and its consulting services to lower inventory levels might tie incentives to agreed-upon goals. For example, if levels don’t decline at all, the customer would get a discount, Jones said. Adoption rates are another metric that could be tied to incentives, Jones said.

In any case, don’t expect SAP to agree to those kinds of terms without a fair amount of pushback, he said.

“SAP is really reluctant to have this kind of conversation because they want to recognize the revenue immediately,” Jones said. 

That means key decision makers like the chief information officer have to support that approach and tell SAP about the company’s demands and what SAP can expect in terms of revenue if demands are met.

“ ‘If you agree to these three, four or five things, we’ll make you our strategic partner, and in return, here’s what you can expect,’ ” Jones said. “ ‘And if you don’t want to go down that route, we’ll continue to deal with you transactionally.’ ”

According to Jones, making SAP your strategic partner with multi-level contracts can have other benefits beyond discounts, including the ability to purchase licenses on an annual basis, instead of in advance, and grace periods during which organizations can test and evaluate software. 

Those kinds of demands have to be made up-front, Jones said. If the SAP sales representative knows the company needs or wants to go with SAP, he or she is going to be less willing to negotiate those kinds of terms with the customer.

Companies that prefer to deal with SAP on a transaction-by-transaction basis should lower their expectations for discounts, Jones said.

“If your enterprise wants to evaluate SAP product by product and site by site, then SAP will rightly price accordingly, basing its discount on each deal’s size rather than your aggregate spend volume. You may end up paying double the price for the software compared with an enterprise deal,” according to Jones.  But those extra fees may end up being worth it, given the flexibility it gives customers, Jones added. 

Companies should also purchase only what they know they’ll use in a certain time frame, even if they’re signing a multi-year contract with SAP, according to Jones. Some companies sign deals that allow them to implement a wide number of applications for one price and then find they don’t have a need for all that software.

First step: Get on the same page
To make sure you’re in the best position for negotiating software licenses, IT and its leadership have to be on the same page. To make that happen, Forrester recommends doing the following:

  • Survey colleagues’ opinions of SAP. Identify the “SAP zealots” who want nothing less than to run SAP for all the company’s needs. At the same time, identify which employees are more ambivalent and open to new options. “Don’t limit yourself to IT professionals -- business function leaders will be increasingly influential in business technology decisions,” Jones wrote.
  • Set up strategic alignment meetings between your executives and their SAP peers. Set up a forum for SAP to learn about your company’s priorities while pitching how they can meet those needs. Make sure SAP brings along the right people, who can clearly explain the relevant product roadmaps. This should help clarify for everyone involved where SAP stands, and SAP will see the company as more of a partner, not an adversary.
  • Document the consensus and get it formally adopted. List out where SAP is the sole provider for certain businesses or applications, where it has competition and where it’s unlikely to be considered. Getting clear consensus on SAP’s role on those three areas can help the negotiating team define the appropriate strategy.

 


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