How to Negotiate a Services Deal

Tony Greenberg, CEO of RampRate (http://www.ramprate.com/ and DeepStrat (http://www.deepstrat.com/) describes how to hire services. Use these tips to negotiate a fair deal with a vendor, and get the most out of your agreement.

  1. Use comparable buyers to help you set a fair target
  2. Find a vendor's upside & build the relationship around it
  3. Consider the vendor's cost & calculate a way to help lower it
  4. Evaluate the trade offs for services with multiple price models
  5. Never lose sight of the incentives for the vendor's sales guy

As a buyer’s agent in the marketplace which I’ve been for – it seems my whole life – I’ve learned some key constructs or on how to negotiate the services deal so for me sourcing billions of dollars of IT services, I’ll lend some of these thoughts to you.

Don’t go into a market with an RFP. It only proves how stupid you are to the lenders. Start by setting a fair target from comparable buyers. Either use an outside adviser or your friends or your industry buddies to set a target.

Find the vendor’s up side, the growth, the restructuring, the extending of a relationship with that vendor. What is their fit to your firm? Are you really made for each other?

This is important to understand their margins so you can carve a successful deal. Being (there for) vendor versus giving them comfortable and finding their core focus are two very, very different feats.

Stop thinking about your cost. You’ve already done that in your baseline before you even go to the market so when you’re at the market, think about the vendors cost and their margin because if they’re going to lose money, they are not going to be successful today you a client. They may b e the wrong vendor. So think how they can find their margin, not how you can lower your cost.

Next, when services have multiple price models. Say for instance, content delivery networks. Gigabytes per second or gigabytes delivered. 955 capacity in a bandwidth provider or a different peak to average ratio. Look at the different cost models and compare the trade offs and you’ll find which one is best fit for you or maybe both.

Don’t ever, ever forget the incentives of the sales team and if they’re controlled by the margin of the sale or the revenue of the sale, they’ve committed something substantial to their boss. They don’t deliver that on what they sell to you. The things aren’t going to happen.

So really, playing your sales not around the end of the month or the end of the quarter – when you need to get them done and do it in a still time when you can have the attention of focus of that service provider and their engineers and others to actually map to your fit and what you need.

Buying something from a vendor is not outsourcing and turning the lights off. It’s a relationship you’re going to work with just like your team. So treat them like you treat your staff – family.

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