In the world of ERP software, many things are negotiable. Some of them, of course, involve the exchange of money or the “Fees.” These are very important. But there is another group of activities that are part of a long-term relationship between the vendor and the customer. I call these them “the Please” activities, and the sooner you – the customer – understand and negotiate the “Fees” and the “Please” the better off you’ll be. So, in order to help you not miss the forest for the trees (and the “fees” and the “please”), please read on:
Negotiating the Fees
The software: These days the acquisition of enterprise software occurs after a number of competitive ERP vendors have been considered. This provides the prospect with a sense of fair market value. A negotiated fee often involves a certain cost/named user. It is important for the prospect to understand the relative usage by named user (e.g., the heads-down transaction user, the decision maker/reporting user, the self-service user) and the value that each user will deliver to the company deploying the system. An understanding of value, when the value will be delivered, and a comparison to total cost of ownership are all critical to making the right decision about software fees.
The implementation: All ERP software vendors have professional services groups. You should expect that the ERP vendor is highly skilled at implementing its own software. There are many things to consider in figuring out the implementation fees: the ERP modules you are implementing, rapid implementation methodology, best practice, number of regions, number of lines of business, customization, analytic capability, other software to connect, etc. Expect to pay one to four times the cost of the software in implementation fees. And, even if you buy third-party professional services, a best practice is to have the ERP vendor as a subcontractor (at least 20 percent).
The maintenance: This represents a significant charge – often about 20 percent of your original software charges. What do you get? You get support services, and you get future enhancements (new tax codes, a new budgeting technique, etc.). Make sure you are getting the kind of support you need. And, if you want more support, you can arrange for it from the vendor (at an additional fee, of course).
Negotiating the ‘Please’
OK, now for the fun part. The more you say “please tell me about the X,” the less misunderstanding there will be later on in your relationship. So here goes . . .
Please tell me about the upgrades: Talk to the ERP vendor about the upgrade strategy. How often do these upgrades occur? (A good rule of thumb is every three to four years.) What has been the history of upgrades over the past five to 10 years? Relative to the cost of going live with the software, how expensive were the upgrades to implement?
Please tell me about the new software: If the software vendor invents something, is it part of your maintenance agreement, or is it a new product for sale? Two things are true: 1) There is no easy answer to this question, and 2) It leads to a set of spirited discussions between the customer and the vendor. You know what? Ask the vendor to show you all the new modules implemented in the past five years. Form your own conclusion about new features vs. new software. Talk it over with the vendor.
Please tell me about the post go-live sales, services and care: What are your expectations after you go-live? Do you want the vendor to have a keen understanding of your original pains and goals? How well you were equipped to meet your goals when you went live? Where you are now? You can always negotiate a formal ERP audit on a regular basis. Or you can ask the vendor to explain how they will manage your care after go-live. Is someone assigned to your account? Will they call on a regular basis? Will they know enough about you to really help?
Bottom line: You, the ERP customer, must carefully consider all the fees when entering into a business relationship with an ERP vendor, including the “please” factors that very often sustain your relationship over the long term.
