Does an ERP vendor’s fiscal year matter in the discount you get as a customer? Absolutely. Oracle’s fiscal year ended in May, and Oracle’s salespeople are notorious for pressuring customers into signing deals with significant discounts prior to year-end under the notion that the discount will disappear after the year-end. Customers need to take into consideration the vendor’s year-end and its impact on the vendor’s willingness to provide discounts. However, only focusing on year-end discounts is misguided.
While it is true some discounts will no longer be available, it is unlikely that the vendor will walk away or that all discounts will disappear. While a salesperson may want to close a deal prior to the year-end, salespeople are under constant pressure to make their numbers. In our experience, the discount being offered as an incentive to sign by year-end will change, but it is unlikely to disappear entirely.
Moreover, buying around a vendor’s year-end is not the most effective strategy for securing meaningful discounts. Customers should be methodical and creative to properly motivate sales representatives to achieve the discounts and concessions the customer seeks while focusing on managing the cost of operating the ERP system over the lifecycle of the customer’s relationship with the vendor.
While focusing on upfront discounts, price caps, future options, and the ability to swap out functionality are all important, focusing on flexibility helps reduce the likelihood of a breach of the contract, reduces the likelihood of an audit, and reduces the cost to operate the ERP software over time. Instead of only focusing on upfront discounts, customers should focus on obtaining the greatest amount of flexibility in using the software. The goal should be to minimize unexpected fees and costs. A customer also needs to think about the cost of hardware required to use the software, the training needed to use the software, and any changes required to the customer’s infrastructure to use the software.
ERP vendors do not play fair. The discounts they offer are heavily tilted to favor the ERP vendor over time. The goal is to get you to sign, and then sell you as much software as possible. As a customer, it is important to assemble a negotiation team, focus on specific aspects of the deal, and negotiate the contract so that the contract is tailored to your business needs.
Understanding how to utilize a vendor’s year-end during negotiation can be a useful tool, but focusing only on upfront discounts is short-sighted. A focus on upfront discounts will most likely cost a customer more over the lifecycle of the software product vs. a focus on flexibility.