5 Tips for Negotiating with ServiceNow

Are you considering becoming a new ServiceNow customer or do you have a ServiceNow renewal coming up?  Beyond just getting the best ServiceNow pricing and discounting, you will also want to negotiate an agreement that provides transparency, long-term price protections as well as flexibility to meet your company’s evolving needs.  These ServiceNow negotiation tips can help you get more from your ServiceNow relationship.

1. Understand What ServiceNow Wants from Their Customers

You have a much better chance of getting what you want in a negotiation if you understand what the person (or company) on the other side of the table wants.  Like most cloud vendors, ServiceNow ultimately needs to land and expand.  Here are some of the areas they are most focused on:

  • $1M in Annual Contract Value – ServiceNow now has over 1000 customers with annual spends greater than $1M. They want to continue to grow that number by pushing customers to the most robust offerings (i.e., ITSM Pro) allowing them to quickly increase the valuable average revenue per user (ARPU), increase usage, the number of user counts, and the number of products they are subscribed to.
  • Multiple Product Adoption – ServiceNow knows that it’s even harder for customers to walk away when there are multiple parts of the business that rely on their products. They also know that the more products adopted, the more likely they can keep competitors out.
  • Emerging Product Adoption – This shows shareholders that their investments in R&D are paying off. For ServiceNow, this means products in the Customer and Employee Workflows like HR Service Delivery and Customer Service Management (CSM) will be pushed.
  • Executive-level Attention and Mindshare – ServiceNow wants the opportunity to get mindshare with the executives at your company because they understand that the budget is not solely held by the IT department. They are aggressively looking to build relationships with the C-Suite.  CEO, Bill McDermott, has pulled out his rolodex to make that happen.
  • Strategic Cloud Partner Designation– ServiceNow wants to lead and drive your digital transformation, not just be a tool for IT within it.

Understanding what ServiceNow wants from you can help you put the right information forward to influence their proposals and land on an agreement that works for both parties.

2. Take Stock of Your Utilization

Many organizations already know there is some degree of unused products or at least product features in their portfolio without even doing a deep dive.  But having a high-level view of your utilization and the value received to date is simply not enough.

For underutilization to be a useful talking point and lever during your negotiation, you must have a granular understanding of the specific products and features you are not using as well as those you will most likely not use in the near future.  This becomes incredibly valuable if you consider jumping to ITSM Pro and realize that perhaps ITSM “standard” may be enough, because you would not realize the full value from the additional features that come with ITSM Pro, like Predictive Intelligence or Performance Analytics.

Raising the issue of underutilization and lack of expected value is not going to get you a credit or a refund.  However, if done appropriately and with the right stagecraft, it can help you gain negotiation leverage for improved pricing moving forward or even deeper discounting on any new products ServiceNow now wants you to adopt.  You can also position the need for ServiceNow to step up and provide investments in the form of service credits or funding to help unlock value moving forward.

Also, while it may be the case that you are partially to blame for low usage, ask yourself what ServiceNow actually did to help drive utilization?  How often did they check in, bring resources, and create workshops to help you receive value from what they sold you?  This is especially important when your underutilization is tied to a product that they heavily pushed on you at your last renewal.

3. Develop Your ServiceNow Roadmap

As part of your roadmap work, you need to look at what products and features you immediately need as well as those you envision needing in the future (immediate, near-term and longer-term).

As mentioned, ServiceNow doesn’t want to simply participate in your roadmap discussions.  They want to drive these discussions.  They will likely show their understanding of your needs and will focus on where they want you to go, such as adopting additional products, especially newly developed or released products like HR Service Delivery, Hardware Asset Management, Financial Services Operations, etc.

ServiceNow often even partners with big industry leading IT services firms like IBM, Deloitte and Accenture, so they can both come to you with a unified approach that drives the message of why you need to adopt more.  They lean heavily on the partner ecosystem to help drive adoption and penetration in organizations and this is not something that is going to slow down any time soon.  ServiceNow will continue to build out and expand its go-to-market strategies with these service providers.

You need to take control of these discussions and have ServiceNow appropriately focus on tying their proposed solution to real value that aligns with your needs and the timing of those needs. Having a detailed and realistic ServiceNow roadmap is critical to driving more valuable discussions and efficient negotiations.  Once you have this, you can start to shift the burden to ServiceNow to sell you what you actually need rather than what they think (or want) you to need.

Having a well-defined roadmap that is presented to ServiceNow also helps show them that there is a long-term vision and opportunity.  Once making this opportunity real, you can influence the deal at hand (how ServiceNow treats you now will influence whether you do more business later).  Also, when you are looking for price commitments for some of the future products you are not ready to adopt, you will have a better opportunity to obtain those commitments if ServiceNow does not perceive the ‘ask’ as one driven purely by procurement, but rather coming from the business and/or stakeholders.

4. Beware of Product Changes

Like with all cloud vendors (or software vendors for that matter), you must understand that product changes are going to happen.  Sometimes products simply get renamed, but often they get re-bundled or even unbundled, and that becomes very problematic.  As cloud vendors expand their portfolios and make once-core products no longer available, they might split the functionality from the retired solutions into standalone products or they may even make the functionality part of another bundle/suite (an often more expensive offering).

When it comes to ServiceNow, the discontinuation of ITSA Unlimited is a perfect example of this.  There are some customers still subscribed to ServiceNow’s legacy cloud offering but many have been faced with the challenge of having to adapt to the fact that ITSA Unlimited is no longer available.

The graphic below shows how certain functionalities within ITSA Unlimited were broken into four separate products, IT Business Management (ITBM), Governance Risk & Compliance, Customer Service Management, and IT Service Management (ITSM).

ServiceNow ITSA Functionalities moved to new products

Through a simple licensing change, ServiceNow instantly converted a single-product customer into a multi-product customer.  If that customer already had other products, their portfolio became much bigger.  This is a huge win for ServiceNow.

Lastly, beware that these product changes can cause you to lose previously negotiated commitments as a result of no longer meeting specific conditions.  The best example would be that renewal protections (e.g., cap on price increases) that many companies have in place require the same products to be renewed or for the product to still be commercially available.  When ServiceNow gets rid of ITSA Unlimited or decides to re-bundle products in the future, those price protections go away.  So not only are you susceptible to likely increased pricing from such product changes, but you are also now completely exposed to further price increases at renewal.

5. Evaluate the Health of Your Current Deal

If you’re heading into a renewal negotiation, it is critical to know how competitive your current ServiceNow agreement is. The goal isn’t to change the past but to use this information to ensure that the deal you are about to get is now an appropriate one moving forward.  Presenting ServiceNow with the understanding you now have and shaping your discussions with them in a more informed manner is always impactful when pushing for concessions and the right ultimate deal moving forward.

There are many commercial terms and aspects of the contractual relationship that you must get right.  To ensure these terms make it properly into your subscription agreement as well as the associated order form, I recommend initially focusing on the following key items:

  • Pricing and Discounting – Obtaining unbiased, fact-based, relevant ServiceNow pricing benchmarks can help you understand whether your current product pricing and discounting (or the special discount they offered you) is actually competitive in relation to the market (i.e., in similar scenarios).
  • Volume Discount Structure – Do you have commitments that your pricing will go down as your user volume or license metric grows?  Unfortunately, this is something that requires an orchestrated negotiation armed with insights into forecasted growth as many cloud subscriptions don’t provide it.  Having a negotiated and meaningful volume discount structure included in your cloud subscription agreement (or order form) will convert your transactional relationship into one that is more strategic.
  • Renewal Price Protections – These are absolutely critical and ServiceNow does not have a standard provision in place in their master subscription agreement, so you are completely exposed to costly downstream price increases which are often significant.  You will definitely need to get this adequately addressed and included as part of your contractual relationship moving forward.  Having a renewal price protection at all is good but we often see that the negotiated price cap is too high or that there are far too many conditions found in the fine print that remove the provision you thought you had (see “Beware of Product Changes” section above).
  • Current and Future Product Price Protections – Did you obtain price protections (e.g., established pricing and discounting) for volume tied to currently subscribed products added in-term and/or for future (new) products added in-term?  If you know a product is part of your roadmap but you can’t include it in the deal or order form now, you should still push to get price commitments today.  Remember, the more you can show the roadmap is real, the more likely this type of concession can be obtained from ServiceNow.  And don’t settle for list pricing being included for future products.  Push for discounted pricing to be provided.
  • Swap Rights – A lot of organizations had subscribed to products and features that they are simply not using, or they had made volume commitments beyond what turned out to be needed.  Ask ServiceNow for a commitment to have the flexibility to swap products and/or unused volume for other products you could use, or for more volume tied to other products you are also subscribed to.

Perhaps you have some or many of these items addressed in your current ServiceNow subscription agreement or order form.  The question then becomes, do you have the right level of commitment relative to each of these?  Did you leave anything on the table and is there further room to improve as part of your upcoming renewal negotiation.

Preparation is Key

To establish a more strategic relationship and partnership with ServiceNow, you must take the time to develop your roadmap, identify areas for improvement, and create a plan that takes the present and future into account.  An ideal time to start preparing a comprehensive negotiation strategy is 6-9 months prior to your discussions.  Many customers even take a full year to orchestrate the preparation and execution phases of the negotiation most effectively.

Comment below, follow me Adam Mansfield on Twitter @Adam_M­ansfield_, follow me on LinkedInfind my other UpperEdge blogs and follow UpperEdge on Twitter and LinkedIn.  Learn more about our ServiceNow Commercial Advisory Services.

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