Often times you will be presented by a vendor with the opportunity to adopt a group or enterprise license. I wrote that you must be careful with these offers: you may end up overpaying and reducing your ROI. As I often say: not all users are equal.
At a broader level, whether looking at a per user or a group license, always keep in mind that you run the risk of premature scaling of your contracts.
What do I mean by this? I am borrowing this concept from the VC world. It means, essentially, that a business, usually a startup, prioritizes growth of a team, customer acquisition strategies or over building the product without getting to product/market fit first.
I repurpose this: don't grow a contract beyond what the business can support.
To guard against this, you need to maintain close relationships with the senior business planners in your company, usually the CFO and/or CEO. There may be corporate finance activity that you're not privy to, at least at a detailed level. It is helpful to know what kind of growth, either organic or via acquisition, the firm is anticipating.
Such insight can be critical to ensuring your contracts are adequate to your needs and not over-bought.
For example: you may have seen annual growth in headcount of 15% over the previous 4 years. This trend can only take you so far: as the saying goes, past performance is no guarantee of future success. The firm may be slowing down on hiring. It may plan on divesting a business.
Suppose you're preparing to renew a major contract - a 6 figure contract with strategic vendor. You may believe that you need to accommodate 15% headcount increase annually over the 3 year period of the contract.
As such, you elect to migrate to an enterprise agreement from a per-seat agreement. The ROI is certainly there -- provided growth is in line with your expectations.
Unbeknownst to you, the firm is planning on selling its Latin American business to a competitor and investing in a new business that doesn't use the service you're renewing. Net effect: your user footprint for the service is actually dropping 10% next year, and then growing organically 5% over the next two years - or the final two years of your three year agreement.
You proceed with a new contract, proudly sporting an enterprise agreement with improved unit economics and able to absorb all the new hires your firm won't be making.
You tried to do right for the firm and worked hard for the terms you negotiated - yet ended up reducing the ROI on the spend significantly.
One way avoid this: the firm has a robust procurement policy in place that escalates purchases above a certain dollar amount to senior management, who can veto the purchase. Of course, this is a fail safe mechanism to ensure you're resourcing in a way that aligns with the firm's overall priorities. You still ended up spending several weeks (and lots of goodwill) negotiating for a contract you can't close.
A better way: maintain open lines of communication with the C-Suite. Know what the lay of the land is for future growth - even if just in broad terms. You should be able to get a sense of this during your annual budgeting process, but it never hurts to be able to reach out to the CTO or CFO and run a couple scenarios by him and see what he thinks.
Communication before action will save you a lot of time and trouble in managing your contract portfolio, particularly when it comes to buying more product than you need. Avoid premature scaling of contracts by communicating early and often with senior management.
- Kevan Huston
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