A Vendor's Fiscal Year End is Your Friend

You can never get enough intelligence when negotiating with an information service vendor (or any vendor).

One negotiating lever that may not be top of mind: your counterparty's fiscal year end.

Wait, what?

I wrote about the exploding offer bluff in which vendors will try to incentivize you to sign an allegedly discounted offer that expires at the end of the month (or quarter). In my experience, in most cases these tactics are bluffs you can call and not worry about the "discount" not being offered the next period. You can take your time and make sure the product or service meets your requirements and the vendor passes all due diligence flags.

But there is one instance when a time-based discount really is exploding and that's the fiscal year end. You can use this to your advantage, particularly if the deal is a renewal and your contract expires a few months after the vendor's fiscal YE.

How? Suppose you know the service is one you'd definitely like to renew. Let's say your contract expires 3/31 and the vendor's fiscal year end is 12/31 (as is common). Why not reach out in December and see what kind of incentives the vendor can offer for an early renewal, and one that they can book before their year end?

Here's what I like to do:

Under the pretense of budget forecasting, contact the vendor and say you'd like to lock in a renewal now while you have budget flexibility.

A vendor will always be willing to renew, but if they can actually modify the renewal such that the contract begins before their year end, they may well adopt a more flexible negotiating posture. In this case, if the contract were repapered to start in December they can book the revenue (or a portion thereof, depending on accounting treatment), before the new year.

So take them up on it! But ask for a 15-month contract with three free months. You'd be surprised how often a vendor would go for this - or at least a reduced rate that gets you a month free.

Our illustrative contract negotiation might look like this:

Current: 4/1/2012 - 3/31/2013. Cost: $60,000 or $5,000 per service month.

Expected Renewal: 4/1/2013 - 3/31/2014. Cost: $66,000 for 12 months or $5,500 per service month.

Alternate Renewal A: 12/31/2012 - 3/31/14. Cost: $66,000 for 15 months or $4,400 per service month.

Alternate Renewal B: 12/31/2012 - 12/30/2013. Cost: $60,000 for 12 months or $5,000 per service month.

Alternate Renewal C: 12/31/2012 - 3/31/15. Cost: $132,000 for 27 months or $4,888 per service month

Now you may not believe you could get a 20% reduction in your monthly cost, but I have personally negotiated deals this favorable, and all because we were able take advantage of the fiscal year end lever.

Even if you can't get three free months, there are going to be other concessions you can extract, monetary or non-monetary. Maybe you could counter with a flat renewal if you agree to move the contract period forward (Alternate Renewal B). Or perhaps you can get a flat two year renewal - that would make certainly make the three free months more palatable to the vendor (Alternate Renewal C). The options are endless, but you'll never know what you could get if you don't ask! In this case, a vendor would be very tempted by Alternate Renewal C.

Always look for unorthodox levers when you're preparing to negotiate. At the very least, you'll have negotiating points that you can relent on and then characterize this as a concession to get other, more desirable levers.  A fiscal year end sweetener is an unorthodox lever, and may just work if you play your cards right.

- Kevan Huston