Tips for Budgeting, Negotiating and Renewing
Proactive CIOs prepare a set of well-thought-out principles that serve as the foundation from which they manage their ongoing SAP relationship. These principles are based on a combination of their personal and organizational values and should be informed and prioritized by an advanced understanding of the underlying issues that will arise during negotiations.
If you are negotiating a new SAP cloud deal or have a renewal coming up, keeping the following points in mind will help you effectively budget, negotiate, and renew.
Pricing Metrics and Tiering for Your Budget
The most common metric to develop your requirements and budget for a potential SAP cloud investment is simply the number of users needed. SAP’s user metric is rather simple, especially compared to competitors such as Workday’s FSE worker metric which includes a calculation that attributes weight to each of the different types of worker categories, such as salaried, hourly, part-time, etc.
It is important to know that SAP also offers additional metrics under cloud deals since customers must understand how changes to their business impact their demand for SAP cloud products. Other metrics, such as revenue or spend, require a more detailed understanding especially when it comes to what SAP considers to be in scope for such non-user methods of measuring use.
Even if you understand how a particular metric is measured, you should do some additional due diligence and require SAP to provide transparency into all relevant volume tiers for the products under consideration for purchase or renewal. Typically, SAP only exposes you to the pricing for the tier of users you are procuring instead of providing insight into the value and monetary benefit that you may realize by moving to a higher volume tier. Gaining transparency into all relevant volume tiers will help you make an educated decision on your requirements.
Informed customers also understand SAP will provide additional volume price protections, giving clients the ability to procure additional volumes at the same unit cost as the final, negotiated pricing in the original transaction. SAP will typically provide minimum purchase levels for additional volumes and customers should require SAP to define and include this level of detail in the agreement.
Budgeting internally for current future requirements for your business is essential when determining a deal with SAP, as many SAP cloud products are tiered. In other words, it can be more beneficial to purchase a higher number of quantities to secure lower per unit pricing.
Principles for Your SAP Negotiation
When negotiating an SAP cloud deal, the key commercial areas to be mindful of can be grouped into these principles:
After obtaining transparency into all relevant volume tiers, focus on obtaining market competitive pricing for the solution and for any enhanced service offerings such as Preferred Care. Preferred Care is typically part of SuccessFactors negotiations, but it is becoming more prevalent in other SAP lines of businesses like Ariba.
It is worth noting that not all SAP solution pricing is created equal and that customers should expect SAP to treat each negotiation differently based on numerous variables (e.g., your volume tier as they naturally build in some component of discounting into higher tiers).
It is equally important to understand your overall spend profile with SAP so that each negotiation does not sit in isolation and you are able to position other investments appropriately. In other words, the discussion does not start and end at the lowest discount tier.
- TransparencyDespite their preliminary resistance, SAP has been willing to provide transparency in cloud deals. This means that your company should be made aware of more than the blended discount provided. You should see the list price, net price, and associated discount for each line item. Not only will this provide you with the ability to confirm the discounting provided by SAP, but it will also afford the opportunity to validate the business case for each line item in lieu of a bundled approach.
Despite a customer’s best intentions to deploy the solutions at a pace and cadence aligned to the purchase, there are occasions where projects are delayed, priorities change, etc. Therefore, it’s critical for customers to have the ability to reallocate the value of this purchased, but unused investment, to other requirements. SAP has typically limited exchange rights to on-premise software. However, informed customers are better equipped to understand how to develop leverage and negotiate terms which allow greater flexibility to repurpose their cloud assets.
Some SAP customers negotiating their initial deal may feel comfortable leaving the terms related to renewals open and wait to resolve at the end of the initial term. However, understanding what renewal protections can be included as part of the executed agreement is often a negotiation lever. It’s therefore critical that renewal protections are a major component of your negotiation.
In our experience, overlooking the importance of getting the deal right the first time has long-term implications given the compounding effect to operating expenses. Your initial agreement sets the precedent for your future renewals so obtaining recent and relevant SAP benchmarks to help you negotiate a competitive deal from the start is critical.
When negotiating SAP cloud deals, the most important principles to aim for are value, flexibility, transparency, and predictability. Keep these factors in mind and try to gain a deeper understanding of SAP’s overall strategy for approaching the market, as this can often be used as leverage.
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