Application software – whether on premise or cloud – is priced and sold based on utility and value. Basing pricing on value enables vendors to charge a significantly higher price point than simple margin added to the cost of building the solution.
Therefore, when a vendor discounts an enterprise product steeply and offers you a “deal”, how do you know it’s actually a “deal”? In most cases, you have no frame of reference or data to compare your transaction with another buyer’s transaction.
How can you ensure that your organization doesn’t overpay? It’s simple: DATA.
Data that your organization is very unlikely to have on similar, recent purchases. As a consumer, you base significant purchases (car, home, TV’s, etc.) by comparing prices and the recommendation of experts.
As a business, shouldn’t you have the same practice to ensure you don’t overspend?
Allow me to compare this to the insurance industry. When you request an insurance quote on your car, house, boat, etc., what does the Actuary go by to quote your premium? Data. Mostly. They have data from dozens, hundreds, even thousands of “similar” people to evaluate your risk – including you. Age. Gender. Location. Credit. Driving record. The list goes on.
Why would any company that buys technology not want to use a similar actuarial process? If you were armed with data from similar purchases, it would give you a much better understand of what a fair market value price is. Example: An insurance company is purchasing a new Claims system. The vendor starts by giving you their “list price” based upon your Premiums and they say your licensing cost is $700,000. You may have even done an RFI and gotten 3-4 prices that are in the same ballpark and you instantly think, “ok, at least we know that this must be a good price”. But is it? What if you had a list of the final cost of 3 similar companies within the last year, and that data shows that the average price at the end of negotiations is $525,000. Imagine the leverage that brings. Worst case scenario at least the final price you received has been validated as being a “good price”.
SMF helps organizations by applying what we call Vendor Intelligence™ (VI). Vendor Intelligence™ is both data and process. Actuaries in insurance companies, when looking at larger commercial policies, consider the data, but they also have process around it which can be somewhat of an art form. SMF does the same. Our team comes from the vendor side of the business and we know pricing and practices. In many cases, because of our extensive network, we are often able to understand nuances such as, where they are at in their quarter (dollar goal achieved) as a rep or organization, the pressure to sell a newer product or simply the mindset of certain executives to take a “bird in hand”. And equally important, never underestimate the power of a 3rd party handling negotiations. It can protect the relationship with the vendor and apply an unspoken pressure on closing the deal.
Virtually all significant purchases you make as a consumer are based on the recommendation of experts (e.g.; car, home, TV, etc.) and the ability to view pricing from multiple vendors. Why would you settle for less in business? Why not use a pricing expert that can help you make an informed decision to ensure that your organization does not overpay for acquiring technology?
– Ted Allen