The "Preliminary Discussions" Gambit.

Procurement best practices argue that for the most part you want a competitive bidding environment when you're looking at procuring a product or service. It's extremely rare that there aren't at least 2 major players to choose from for any class or category of information service. Consider:

• Financial Analytics platforms: Bloomberg, FactSet, S&P Capital IQ, Refinitiv Eikon
• News Providers: Lexis-Nexis, Dow Jones Factiva, Acuris, TheDeal
• IT Market Research: Forrester, Gartner, IDC, IHS, Ovum
• Audience Measurement: comScore, Nielsen, Quantcast, SimilarWeb
• Oil & Gas: Drilling Info, IHS, Wood Mackenzie
• Private Markets: Preqin, Pitchbook, Datafox, CB Insights

and so forth.

In each case, you'd want to create a competitive process to get the best price. If, for example, Factiva thinks you may go with Lexis-Nexis, you're likely to get a far better deal than if they think they're the only outfit under consideration.

But sometimes, you can leverage an early non-competitive discussion into a great deal - if you're willing to go with a vendor without running a full vetting process.

There are risks, obviously. You're proceeding with a service without conducting a detailed comparison of competing products. You also run the risk that you may overpay.

But if the circumstances permit, you can try what I like to call the Preliminary Discussions Gambit (PDG).

Here are the necessary preconditions for a successful PDG:

1. The vendor is a disruptor to the space and challenging entrenched incumbents;
2. The vendor is flexible on price;
3. The vendor doesn't have a lot of customers yet, but have a fully commercialized and usable product.
4. The vendor is often PE backed and looking for customer growth and not particularly worried about maximizing revenue (i.e. they have cash to burn);
5. The product you're buying isn't business critical and is a low risk acquisition - the cost of failure is low;
6. You're already somewhat familiar with the products and vendors in the category.

To execute a successful PDG, tell the vendor you're just in "preliminary discussions". You haven't begun speaking with any other firms -- typically the incumbents they're trying to take business from.  You're almost always going to get a better deal if the vendor reaches out to you first, but it's fine if you reach out to them. 

Many times, a vendor will try to preempt your vetting process and try to land a deal before you've started. That's ok! In fact, use it to your advantage. You probably won't have more leverage than at any other time in the negotiating process - take advantage of it. You might even make the first offer - and be quite aggressive about it. You may be surprised - the vendor may go for it. 

It's rare that you will take a product from a vendor without undertaking a thorough review of the landscape. But occasionally, the circumstance are ripe for the Preliminary Discussions Gambit. Don't hesitate to try it - as long as you know the risks.

- Kevan Huston

Stakeholder Initiated Negotiations Can be a Disaster - Here's How to Avoid Them

As your firm grows, you're going to find it increasingly challenging to coordinate and manage who communicates what with your suppliers. Vendors have highly sophisticated CRM systems and aggressive outbound marketing processes: it's very easy for a vendor to find leads within your org. Those leads - stakeholders to you - may very well have legitimate content needs. But they can make your life more difficult depending upon how and when they liaise with vendors.

One of the more troubling scenarios occurs when a stakeholder interested in a product begins negotiating pricing and licensing with a vendor. This can be a disaster and completely undermine your negotiating position with the supplier:

• The vendor knows someone in the firm really, really wants their product. This gives them lots of leverage. It effectively eliminates your leverage on price. 
• The vendor will anchor the negotiations with a completely unreasonable first offer, as they know they're dealing with a stakeholder who doesn't negotiate professionally and understand how to handle a complicated multi-faceted negotiation with multiple stakeholders.
• The vendor will have potentially an inaccurate assessment of the breadth and depth of the use cases in your company. Stakeholder-led negotiations tend to result in incomplete business requirements as they are focused only their own silo or area of operation. 

Even in a firm with a robust and well-organized procurement and VMO function, from time to time a stakeholder will take the initiative and reach out to a vendor and begin negotiating terms. It's unavoidable. What should you do when a stakeholder-led negotiation eventually comes across your desk?

• Get the scoop from your stakeholder. Stay calm! Find out everything that's been discussed. Gather their business requirements. Find out if they have collected requirements from other stakeholders who might benefit from the service. Typically, a stakeholder will actually be more than happy to have you take the work of negotiating a deal off their hands. Most people hate negotiating and haggling over price. It's not a job everyone can do and maintain healthy blood pressure. 
• With the vendor, your number one goal is to try and re-establish some negotiating leverage. Immediately dial back expectations for a quick and easy win. Without embarrassing or calling out your stakeholder, explain that they aren't authorized to conduct negotiations, let alone commit dollars to a new service. I often will say to vendors: "at the CFO's behest we have recently initiated a number of new policies around procurement, so we will need to take a step back and assess this interest against our budget for this service". 
• Begin vetting the purchase as you would any other -- run it through your established procurement processes: gather user requirements, assess the value and ROI of the service, check your budget. It may very well be that the service isn't something your firm can subscribe to at all - despite the wishes of your eager stakeholder. 

Ideally, of course, this situation won't arise. It can't be prevented completely, but there's a number of steps you can take to minimize stakeholder-led negotiations:

• Have a formal VMO in place. Your firm needs to have a formal vendor management office in place that handles all third party negotiations. Not only will you realize hard-dollar savings, but you will increase the ROI of your purchases because you can coordinate interest and use-cases across multiple stakeholders. And you'll reduce legal and compliance risk as well. 
• Have a VMO with teeth. You need to have executive sponsorship for the VMO. Employees need to understand that senior leadership backs a centralized purchasing process for your firm. Ideally a C-level executive will write a memo outlining the VMO and its responsibilities, at least once a year. Adding sourcing and procurement policy language to your employee Handbook doesn't hurt either.
• Market your VMO to end users. What good does it do your firm if people don't know you exist? It's not enough to rely on an annual communique from management and a page on the corporate Intranet. Make sure you're communicating regularly with stakeholders about what the VMO offers and what, if any, freedom end-users have to negotiate with vendors.

Scaling your firm's growth can be a challenge when it comes to third-party purchasing and indirect spend. A well-organized and well-marketed VMO can help reduce stakeholder-led negotiations. When these occur, assert your authority over the dealmaking process, and slow down the negotiation to re-establish the leverage you need to get a good deal. 

- Kevan Huston

The Ethics of Negotiating with Multiple Vendors for the Same Business

Should you concurrently negotiate, including redlining contracts, with two different vendors for the same business, knowing that only one will be selected?

Of course, you say. What a brilliant way to arbitrage competing bids and drive down the price. Why wouldn't you do this?

Well, what are the costs of doing so? And what, if any, ethical considerations should attend to this scenario?

It's rare that you will have a vendor offering service that's substantially similar to another vendor's service such that you could simply swap one for the other. It's common in highly concentrated sectors with two or three main suppliers. Banking analytics platforms, ratings agencies, and media measurement vendors are supplier segments where products are substantially similar for general business purposes. There are differences on the margin, but on the whole the services are comparable, if not completely fungible.

(Before you protest: yes, I am aware there may be material differences in what, say, Moody's, Fitch and S&P. I am speaking of general use cases you'd find in consulting firms, law firms, and advisory banking).

Let's take online media measurement. There are two main players: comScore and Nielsen. You are interested in subscribing to a service that track internet traffic in the US, Canada and UK. Both vendors can offer you this, with minor variances in price and features. Your marketing department desperately needs an online measurement service by June so they can start buying for the Christmas shopping season.

What are the advantages of a concurrent negotiations?

1. Timing. Often times you are under the gun to get a deal closed, either to meet a budget deadline or to meet user demand. The service is desperately needed to support a new business unit, and you can ill afford to wait for negotiations with one vendor to fall through and then start up with the other. You have a clear preference, but should it fall through, you can quickly pivot to the competing vendor. 
2. Price Arbitrage. In this scenario, you're actually telling each bidder you are negotiating with the other. You're creating a competitive scenario throughout the acquisition process. This is similar to an RFP, but the difference is that you're not selecting a vendor until just before you sign on the dotted line. 
3. Non-commercial Terms. As with price, keeping two vendors bidding for business gives you maximum leverage in achieving concessions such as licensing and content redistribution rights. 

Right, but what about the disadvantages?

1. Hard dollar Costs.  There are hard dollar expenditures associated with procurement (regardless of how much operating leverage you've built into your process, this is unavoidable!). Mostly this is legal fees with outside counsel, and potentially some IT costs associated with a pilot / proof of concept and the build out of a test environment. 
2. Opportunity Costs. What else could you be doing with your time? How about your staff? Surely you have other things you could be doing instead of negotiating with a vendor you have no intention of retaining. Right? 
3. Ethical Considerations.  Do you want to waste a vendor's time when you almost certainly won't retain them? From a completely ruthless standpoint, you shouldn't care - this is just a cost of doing business for them - not your problem. But remember: companies (even vendors) are filled with people like you who are working hard. Is it fair to waste their time? My advice - be honest with yourself about the actual likelihood you will retain them. Don't string them along if there's no chance you'll close with them. 

I am a fierce advocate for negotiating hard to get the best deal possible. But always operate in good faith. The world is a small place, and your industry is even smaller. You don't want to develop a reputation for operating in bad faith. In paints you - and your company - in a bad light. The Golden Rule applies to negotiations as it does in every other part of life. Follow His lead!

- Kevan Huston

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

Don't Concede Things You Don't Need to Give Up

Keep your powder dry.

Good preparedness advice for all kinds of scenarios. Certainly for vendor negotiations.

Suppose you're undertaking an acquisition negotiation with a vendor that has a reputation for toughness. You already have a sense that the price is going to be dear, but the business is pushing you to get it done. You don't have a ton of leverage viz. demand - people really want the service. All your competitors are using it. Your clients expect you to as well.

How do you approach this?

Before any negotiation I always do a quick inventory of the terms, both legal and commercial, I want and stack rank by priority.  Figure out what you are willing to trade at little cost to you (the value of which is known only to you of course) with the plan that what you really want you'll get without it costing you dearly.

Scenario: Horizon Research sells North American and European shipping data. Because of their innovative IoT data collection agreement with every major port on both continents, they are the best data provider for this info. There's no one else even close.

You want both the North American and the European modules. You're based in Atlanta, your company is US-based. Horizon knows you really need the North American data. They don't really suspect you also want the European data - unbeknownst to Horizon, YourCo is actually going to open an office in Lisbon next month. You need the European Data as much as the North American!

Absolutely avoid the stream of consciousness open: "and of course we'd be willing to do a three year agreement and we're totally fine with limiting access to just one division and we'd be fine with a 5% annual price increase and we're happy to pay for print editions as well, and obviously we'd pay for republishing rights too ... just can we please get the European Data module included in our package?"

Congrats - you've just given up a bunch of stuff you may not have needed to give to get what you want - the European Data module. Now the vendor knows you want the European Data -- and how badly you want it - look at what you're willing to give up for it!

Instead, take a watch and listen approach. In all likelihood the vendor already has a strategy for cross-selling adjacent services - he's already got a plan for getting you to buy the European Data. Why sacrifice terms to get something he wants to sell you?

Here's an alternative approach. See if the vendor offers a NA + EU bundle right off the bat. That's great. Work the price down on the EU data - that's the product you'll have the most flexibility on. Perhaps you can even get it comped for 6 months if you're willing to agree to a 2-year. What else is a nice to have? Group license versus per seat? Trade that, give your opponent a small win, and keep working the price down.

What if they don't offer a bundle? How do you express interest without, you know, expressing interest? It's challenging. A turning point like this doesn't advantage you in the negotiation. The vendor will start high with his offer. To counterbalance this, try negotiating for other concessions before you express interest in the additional module. Or agree to a limitation on something you don't even need, like limiting access to just one business line, or forgoing research analyst access.

How ever you play it, keep your powder dry, don't offer concessions unnecessarily and never negotiate against yourself -- make your counterparty respond to your offer before modifying it.

- Kevan Huston

Beware the Exploding Offer Bluff

As we head into the Labor Day long weekend, we note that this year Friday is the 31st, a.k.a. the end of the month.

Yesterday I wrote about the car buying experience and its applicability to information resource renewals.

I have bought three cars from dealers over the years - one new and two used. In each case, I negotiated the sale on the 28th or 29th of the month - and one, on December 28th - the end of the month, quarter, and calendar year. I bet I was the only customer they had between Christmas and New Year's! And I got great deals each time.

As in buying a car, you will also find that the end of the month is a big deal for sales pros at market data and information services vendors.

You've likely heard one or more of the following from a vendor:

• The offer expires 7/31
• We really need to get this signed before the 1st 
• I won't be able to offer this discount next month. 

What's driving this? Simple: companies can book, and often recognize, the revenue (or a portion of it) in the current month. That's why sales people always want to close a sale in the current month.

The problem is, these "deals" don't "expire". In effect, the vendor is showing their cards on their ability and willingness to negotiate. Don't far for one of the oldest sales tactics on the books.

The "discount" will still be available on the 1st, just as it was on the 31st.

It's not like information services vendors have expensive inventory they're carrying. These are highly scalable, low variable cost businesses. They don't have lots of working capital tied up in inventory. In fact, they don't have inventory per se - their product is non-rivalrous: selling you a subscription to X service doesn't mean they can't also sell it to Y. So you're not taking any inventory off their hands. They don't have to ship un-sold inventory back to the OEM.

What to do?

First, consider the merits of the deal, independent of whether the offer is exploding. A deadline to sign shouldn't necessarily factor into your decision around the value of the product for your organization. However, if the deal is a good one, why not take advantage of it?

Second, see the "discount" for what it is: pricing flexibility. Look at what other concessions you can extract from a vendor that's not playing firm on price. Can you get a CPI cap? A flat renewal? Additional licenses, if the ROI is there? The opportunities that open up in this scenario are many. Take advantage of them.

Third, use the end of the month tactic yourself to negotiate better deals, particularly on renewals. The earlier you start the renewals process, the more likely you are to realize savings. Say you have a service that expires 4/30 that you know you want to renew. Why not reach out in February and discuss early renewal? Your sales people at the vendor may have more flexibility on pricing if you can close a renewal with them by 2/28. Take a stab at it -- but don't appear too eager to renew, thereby undercutting your negotiating leverage.

As with most aspects of negotiation, there are two sides to every gambit. Use end of the month urgency to your advantage when negotiating renewals - you may be surprised at the savings you can extract from the seller. But don't allow vendors to use this tactic on you to get you to sign for something you don't necessarily need.

- Kevan Huston

Create a Competitive Bidding Environment to Drive Down Prices

In 2004 I bought a new car, a Honda CR-V, for invoice price - at the time $19,152.

Invoice price is what the manufacturer invoices the dealer for the car. The dealer usually ends up paying less (dealer cost) than the invoice price due to incentives like holdbacks and rebates, but in car buying world, getting invoice price for a Japanese import, is a pretty solid deal. I was pleased.

How do it I do it? I created a competitive marketplace for myself, by getting dealerships to compete against one another. I called and faxed every dealership in the tri-state NYC area, told them I knew the MSRP, dealer cost, and rebate profile (there weren't any rebates for the CR-V I was buying) for the make and model I wanted.

I got about 10 offers, most of which were a few hundred over invoice price, a couple were MSRP, and one was invoice price.

The dealers knew they were competing with each other because I told them they were! I signed a purchase agreement from the winning bidder without ever stepping foot in a dealership. It was glorious.

To get the best price from your information services vendors, try to do something like I did with the auto dealership.

When you have a renewal coming up for a product that has direct competition from other vendors, put your spend in play for all comers. This is not unlike an RFP process, but here, you're requirements are typically much more limited -- you know the content you need, so you're basically selecting on price alone. In other words, you're buying a commodity-like service. Price is the differentiater.

When the incumbent vendor presents you with renewal papers (no doubt with an outrageous price increase), explain that you're carefully considering another vendor for the business. They will know who their competitors are and their product offerings, so make sure you know your stuff about the competitions offerings.

You may well prefer the incumbent, and have every intention to renew, even at a price increase, but why not make them work for the business? Tell the incumbent you are getting a very attractive offer from the other firm, one that beats their offer and compensates you for any switching costs associated with moving to them.

Odds are you'll get a revised offer rather quickly.

Be prepared for the incumbent to call your bluff. They may think their product is actually worth the bid they've put forward, but I have not seen a situation in which a vendor with a direct competitor won't revise their offer down when you threaten to switch. Not once.

Of course, this doesn't work with every vendor - there's lots of small specialized outfits like Nilson Report or Grant's Interest Rate Observer where the price is the price, take it or leave it. These publications have no direct competition! They know you'll renew. And of course, this tactic won't work with exchanges (monopolies) and indices (switching costs).

But for most syndicated content vendors, and many content platforms, creating a competitive bidding environment gives you substantial leverage - you may even get a price reduction from what you're currently paying.

- Kevan Huston

But Wait - Why Are You Increasing My Price at All?

In a post yesterday I advocated for CPI caps when renewing a contract.

But wait - why accept a price increase at all?

Think about it: vendors have us conditioned to believe that, year after year, the price of their product will simply go up as though by some universal and unyielding law of nature.

But why? Have you ever just straight up asked a vendor why they're raising prices?

Do it. Expect answers will be along the lines of:

1. We're rightsizing your contract to be line with the pricing of other firms like yours;
2. You've been on a discounted rate for several years now and we're aligning you with our rate card;
3. We're making some investments in the service that we think you will really appreciate;
4. We see that you're getting tremendous value out of the product and want to strengthen our partnership going forward

None of these explanations justify a price increase.  Consider the following counterarguments: 

1. There is no "rightsizing" of a contract. What you pay relative to other firms is not relevant - and not your problem. My response to this claim: we take that as a compliment to our negotiating abilities! Please send our regrets to our competitors that they weren't able to negotiate such a deal. 
2. Discounted rates are meaningless. There is no "rate card" - this isn't McDonald's. Price to value is the only metric that should matter. What value are you getting from the contract, and at what price? The only trend line that should matter is what you have been paying historically. 
3. Capex is one of my favorite topics to negotiate with vendors. I talk about it here. I'm not going to subsidize your product development unless I can thoroughly evaluate the value of the product enhancement first. 
4. This doesn't mean anything. If a vendor wants to strengthen the relationship, they can lower our price. 

More generally, when confronted with a price increase and there's no evidence of value-add, that it's simply an inflationary increase, I point to the reality of vendor's business model.

Content syndication, like SaaS, is a highly scalable business with low variable costs. All things being equal, why should our price go up 10%? Have the vendors Cost of Goods Sold gone up 10%? Highly unlikely. After R&D and editorial, most revenue in a well run content business drops to the bottom line. If a vendor publishes a research report, the costs of selling that report to a marginal user is minimal. So that 10% increase is likely just profit for the vendor. Why should you hand over that margin to them? 

Here is where, as a concession, a CPI clause can possibly be negotiated. Any more than that is highly suspect: what, apart from government manipulated markets like healthcare and education, goes up 10% y/o/y? The claim is frankly absurd - particularly in a highly scalable business like content syndication. 

This all assumes, of course, that even a flat renewal is acceptable. There are instances where a price reduction could be warranted, which I will address in a subsequent post. 

- Kevan Huston

CPI Caps are to Contracts what the Railroads are to Monopoly.

I have always argued that CPI caps are the Monopoly Railroads of contract negotiations: highly coveted and extremely valuable, one would be crazy to part with them.

OK, the analogy only takes you so far, but you get my point. If you can negotiate a CPI cap to your contract (perhaps even in a Master Service Agreement), you are setting yourself up for greatness.

What's a CPI cap you ask? Simple: it's a cap on how much a vendor can increase your prices based on the Consumer Price Index, commonly known as inflation.

In contract negotiations, I will often attempt to get a price escalation clause included for a service. It is more common to see these with larger vendors like S&P Global and Thomson Reuters, which offer services where demand is relatively inelastic -- and therefore predictable.  In return for this stable, recurring revenue, a vendor may be comfortable with a cap on price increases. Nevertheless, do ask for these clauses with smaller vendors - you'll often be able to get them added.

An escalation clause may read something along the lines of:

"Beginning on the anniversary of the Effective Date, and upon the each succeeding anniversary of the Effective Date, Provider may increase the-then current price of Service by U.S. C.P.I."

A couple of points here.

First, make sure it's indicated exactly what is meant by C.P.I. The Bureau of Labor Statistics in the United States published dozens of different consumer price indices. The CPI I see used most often is the Urban Consumer C.P.I., which is the broadest measure of consumer prices in the U.S.

Next, be careful to specify which category you want to use - you may want to exclude energy prices, which are highly volatile. You may want to limit it to the category the most closely matches the industry you're purchasing from. And you may want to define geography, such as City Average. But as a rule, Urban Consumer CPI All-items will often suffice.

I also recommend to specify to use Non-seasonally adjusted indices: seasonally adjusted indices are subject to change and can add unnecessary confusion into your contract.

Finally, do you want to have floors and ceilings on C.P.I.? We've been spoiled for the last 35 years with relatively stable consumer prices (apart from housing and healthcare of course), but in a period of high or even hyper-inflation, how would you feel about paying a 15% increase next year for the same service? It's unlikely, but why take the chance? Similarly - and this is rare - what if C.P.I. actually goes down? Do you want to be able to reduce your cost next year?

With these factors in mind our example price escalation clause reads more like:

"Beginning on the anniversary of the Effective Date, and upon each succeeding anniversary of the Effective Date, Provider may increase the then-current price of the Service by the last twelve month percentage change in The Consumer Price Index for All Urban Consumers (CPI-U), U.S. City Average, All items, not seasonally adjusted, as published by the U.S. Department of Labor ("Index"). Notwithstanding the foregoing, the price for the Service shall not increase by more than 5% from the-then current price. In the event the Index declines during the applicable calculation period, the renewal price shall reflect this, but not to exceed a decrease of more than 5%."

Feel free to add an example calculation to this clause as well, and reference the actual URL from the Department of Labor's Bureau of Labor Statistics that shows the C.P.I. you want to use. Leave nothing to chance!

Caution: be aware that an escalation clause can often be accompanied by a volume or spending floor: you're required to maintain a certain spend with the vendor upon renewal in order for the cap to be applied.

Price caps can be a great addition to any contract and can help with your budgeting immensely. It never hurts to try to get one added to a contract.

None of the forgoing should be construed as legal advice. Consult a competent attorney before signing any contracts!

- Kevan Huston

I Didn't Ask for Nautilus Machines. Why Am I Paying for Them?

Do you enjoy seeing your gym membership go up 20% after the gym "invested" in a whole new set of Nautilus machines when you only use free weights?

Yeah, me neither.

One of the more frustrating aspects of negotiating a renewal with a market data or information services vendor is the Service Enhancement argument which goes something along the lines of:

"As you look at your investment for next year, we'd like to highlight several additional content sets we've added to your service".

There's so much wrong here.

I am being asked to pay for services I didn't actually contract for. IOW - the value of the service is based on the composition of the service when I subscribed to it. The notion that it's now "worth" more because a vendor added services I didn't ask for (and for which I haven't established a value proposition) is unproven at, and at worst, disingenuous.

Particularly galling, of course, is when a vendor tries to justify a price increase based on service enhancements that haven't even taken place yet.

Push back on these arguments. How? Point out that:

1) I didn't ask for the service addition and my value proposition is based on the product without the enhancement;
2) I have no way of establishing the value of the new service, particularly if it's one promised and not yet actually released.
3) Even if, as vendor-supplied data suggests, it was used by subscribers, this alone is unpersuasive: we didn't market the enhancement internally, train users on it, or otherwise systematically calculate an ROI for it.

For claimed service enhancements during your current contract period:

Tell your vendor you're happy to look at it on a trial basis, and require they ring fence access to the service to select pilot users so you can determine the actual value of the enhancement.

But the vendor will argue: the enhancements can't be carved out separately - they're embedded in the existing service.

Reply, that's fine, but how can I know what portion of product usage is based on these enhancements? When were they made? How can you claim there's provable value if the new service/content is commingled with the content set you originally contracted for?

Tell your vendor you're happy to properly consider the enhancements over a full contract period during which you can conduct a proper evaluation, and then pay more should it be worth it, but you won't pay for it for this renewal.

For service enhancements promised for the next contract period:

Absolutely put your foot down on this. Product development and go-to-market cycles are wildly unpredictable. A March release of an enhancement may well be pushed to July. The functionality may be limited or buggy.  You won't pay for a service that doesn't exist yet. You won't subsidize their product capex. Period. Would you take out a mortgage on a home that isn't on the market yet and pay interest on an asset you don't own? The notion is preposterous.

Pay for only what you need. Unsolicited product enhancements need to prove their worth before you pay for them.

- Kevan Huston