What Do You Know About Vendor Contracts? – Part 3

The following steps to negotiate an agreement with a vendor have been used for Over 20 years in the areas of local service, long distance service, point-to-point service (Voice, Data, Internet, other) cellular/mobility service, and of selling land. In each case, a Net cost reduction or increase of sale value (land) has been higher than expected. The average amount we have seen has been upwards of 30%, yet some as high as 43% with some individual pieces of the agreement as high as 70%.

It is about providing more objectivity of your request to the vendor. When you apply the 3 steps below, you will have the needed information that can improve your Net cost reduction from your vendor.

1. The Starting Place is Foundation

When negotiating a contract, it is important to start at the foundation, the place where business terms are negotiated and built upon and around. James Baker – Former US Secretary of State lived by a truth his dad gave him while growing up. It is called the 5P’s “Prior Preparation Prevents Poor Performance”.

Following the below 5P’s will be critical to your success in negotiating the best possible contract with your vendor. 

2. Obtaining Legal Documents

Agreements that are in place need to be collected and reviewed for key information. This sounds simple when first heard, yet in the telecom area, there could be a contract in place, or partially in place that was signed three years, five years or even ten years back. Once you find the latest agreement, say it is eight years ago, then you will need to look for any addendums.  There could easily be three or more addendums with an eight-year-old agreement. Next look for any side letters. These letters are not as prevalent as in years past, but they can still occur. Collecting this information is important so you will know where the baseline is and where you need to go.

The thought might be, ‘why not just ask the vendor for a copy’. Absolutely! Going down both paths is recommended. The purpose is not to solely use what the vendor provides, but to compare what the vendor provides to what your company has on file. It is not unknown for vendors to lose certain documentation that is needed to build this foundation. Depending upon the turn-over with the vendor representative and/or within your company this might be simple or become complicated.

If you don’t have an initial agreement in place, ask the vendor for their agreement related to your amount of spend and length of term.

Once you feel you have all the legal documents that are serving or could serve as the agreement between you, business terms will need to be pulled out to track additions and changes to see what is in place today.  

3. Breakdown of Service Used 

To know where you should request for a higher Net cost reduction, a breakdown of the services used is of great importance. In fact, this area is needed in order to negotiate both the legal and business terms of an agreement. Some might think of this as an inventory, yet it you will need to breakdown used services to the smallest denominator. It is about drilling into the spend, quantities, usage, locations, countries, peak time, trends, etc.

Think about it from this perspective. The odds that two companies are using the exact same quantities, in the same locations, etc. is very slim if not impossible. Sure, the  cellular/mobility vendors do their best to give good retail pricing that works somewhat for everyone buying their service(s), however it is up to you, the negotiator, to demonstrate what is being used and spent and how it may differ to other buyers. Because of this difference you are explaining why better Net rates are deserved.

In order to show that you deserve a better Net rate, you will need to correlate the breakdown into the many different categories using a minimum of 12-months, month by month. For best results, 18 – months should be used. When breaking your billing down, it is suggested you start at the highest level and then drill down on a monthly basis.

Using the discussed approach in the cellular area, the breakdown could look something like the following: 

  • Total spend
  • Taxes
  • Fees
  • Number of devices
  • New equipment cost
    • How many of each model
  • Plan cost
  • Feature cost
  • Usage of
    • Voice minutes
    • Data usage
    • Messaging
  • International roaming
    • Total cost
    • Number of users per month traveling
    • What countries travel to and from
    • Data usage total
    • Usage by country
  • International long distance (ILD)
    • Total cost
    • Number of users calling ILD monthly
    • What countries are users calling
  • More or less depending upon what you find when drilling down

Once you start to review your cost, usage and quantities, you should begin to see exactly where you need to drill further down. By correlating the contract information and how your company is using the vendor services, you will have key information needed to negotiate with the vendor. 

You now have important information when presenting your case to your vendor.

Yet there are additional steps that will be presented in another blog that will deal with how to approach the vendor so that the negotiation is a WIN, WIN for both parties. 

Remember that when negotiating the best possible Net rate or discount, you will need to correlate core information. Your core comes from agreements that cover legal and business terms and a breakdown of your spend. This will be your baseline that everything else will be derived from.

THAT’S THE POINT


About the Author Larry Treas

Larry Treas: My name is Larry Treas and I am the CEO and Head of New Thinking at Dagger Guild. I have 35 years of witnessing the madness that blows through companies around the world, and it’s a foul breeze. I created the Dagger Guild to forge peer discussions, mentoring sessions, and specific information pipeline deliverables to address, solve and alleviate the standard issue nothingness you go through daily. Dagger has no allegiance, no affiliation, and no ties to carriers, vendors, advertisers or telecom marketers of any kind. As a result, our advice is both untethered and unbiased. You can see from my CV/resume my track record and years of experience. The Dagger Guild is my dream built upon the belief that together, we will create the next generation of heroes.

 

2019-08-28T09:07:44-06:00

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