Finding a new vendor can be a test of your negotiation skills, especially when nearly everything in business is negotiable.
Bancard Confidential recently sat down with ICBA’s executive vice president and chief digital strategy officer, Prabash Shrestha, to glean his winning tips and strategies for vendor negotiation.
In addition to managing ICBA’s information technology and digital strategy, Shrestha teaches a master’s program on technology management at both Catholic University of America and Georgetown University in Washington, D.C. where he instructs students on how to pair business management acumen with proficiency in emerging business technologies. Shrestha says:
1. Talk to Your Team. Before you begin the search for a new vendor, quiz your staff and document their needs and challenges. Doing so will give you a deeper understanding about what is working well and what could be improved. Your team will also feel validated and appreciate being included in the process.
2. Create A Scorecard. Prior to contacting vendors create a vendor selection matrix or some type of scorecard to efficiently compare the vendors you speak with. Create fields to not only capture information about the product or service, but also the human capital and any other additional resources that may be required to manage it. Include the estimated time for implementation and a place to include the company’s two-year road map.
3. What’s the Total Cost of Ownership? Create a three-year cost analysis or total cost of ownership. First-year expenses often include one-time implementation fees that do not repeat in subsequent years.
4. Don’t Share Your Hand. Never share your current costs or expenses (invoices, bills, statements or projected budget numbers) with any vendors or risk losing your leverage.
5. Sales People Say the Darnedest Things. Ask for the contact information of the vendor’s staff experts. While sales people typically are very knowledgeable, speaking with a project manager or subject matter expert will give you the opportunity to clearly establish your needs and will also give you a more realistic picture of what the vendor can promise.
6. Reinvent References. Would you ask someone to be your reference if you thought they were going to say bad things about you? Since any reference the vendor provides is most likely going to be a happy client, it would behoove you to do a little digging and try to find other financial institutions that use the vendor and contact them on your own.
7. Negotiate. Negotiate Again. Negotiate Some More. Don’t hesitate to ask for a 50-75 percent price reduction. All they can do is say no. They need your business as much as you need their product/service/support and as the adage goes, “It never hurts to ask.”
8. Keep Contracts Short. Draw a contract with the shortest term possible. One-year contracts are very common. Two year-terms can be a liability issue for your bank. Three-year terms are a no-go.
9. Ownership is Everything. Make sure to add a clause stating that your bank has ownership of your company’s data, processes, and IP address. It’s almost impossible to add these once contracts are signed without incurring a (huge) fee.
10. Measure Vendor Performance. Establish a process to assess the vendor frequently, but most definitely 120 days before the contract runs out.
11. Don’t Hulk Out. Be forthright and firm but remember that it’s not necessary to be aggressive when working with vendors. The goal is to build a respectful and mutually beneficial partnership.
12. One of These Things Is Not Like the Other One. Each vendor relationship and contract is different. Never forget that your North Star should always be what is best for your bank.