the negative value of negotiated services

Normally I spend Thursday writing a post for htms, but today I spent it speaking at Santa Barbara Culinary School. I got to speak for a short while to the next group of leaders in the hospitality industry, which is always really rewarding. It was a great event hosted by the HFTP CA Central Coast Chapter, AND we had a great luncheon speaker in Bob Hazard (former CEO of Choice Hotels). I hadn't even looked at who the lunch speaker was so I was stoked to have such a huge name in hospitality. I also found out he is now the CEO of Birnam Wood Country Club just down the way. So COOL...

Anyway, since I was not able to spend much time writing I thought I'd shoot a quickie out about negative negotiation. If you're in the middle of purchasing a technology solution, or planning on it, it is likely that you have spent some time negotiating price with your vendor. If you are not, or have not planned to negotiate price you will probably pay more than you need to. Vendors expect price negotiation to occur and for that reason generally have decided on what pre-valued discount they will offer before they even meet with you. So negotiate away. But, there are areas of your purchase you should negotiate price and those you should not.

DO negotiate on hardware costs
Your prospective vendor has a price point for their hardware product(s). If a customer buys it at full price then they make great margin. But they expect that you will negotiate the price, and you should. Hardware is a fixed deliverable. You get the same hardware whether you get 0% discount or 50% discount. So negotiate and get a great deal. As a side note, end of quarter and end of year are great times to negotiate price with your vendor because they are pushing to meet quarter or year-end revenue goals.DO negotiate on software licensing
In the same vein your vendor has a price point for software licenses. Regardless of how much you pay for that software you get the same thing. If you negotiate a great price then you get a great price but the same product...great for you. The quarter and year-end purchase applies here as well.

DO NOT negotiate on services
I see this time and time again with customers where the quantity of services or total dollar value of services was negotiated down. DO NOT negotiate on services, because the old adage "You get what you pay for." applies here. Your sales person may try to make services the first place they negotiate on your order, and ultimately you don't think you care...but you should and you do. Often a sales person tries to cut services first because they are commissioned less or not at all on services revenue. Discounting hardware and software lowers their personal income, so discounting on services means they might not take an income hit. But discounting services will have a huge affect on your project!

The concept is simple really. In my experience almost every vendor quotes services accurately to what they believe it will take to do the project successfully. Services numbers are usually made up by the services group. Discounting or lowering this number may get you a lower price point, but it also means that the services group is doing the project for less than they think it will take. So you get one of two outcomes. One, you get a Change Order Request from the project manager after work has begun and pay the higher amount anyway. Or two, you get less or often poor service leading to struggles in the implementation and support of your technology solution.

Comment if you have a story on how discounting services hurt your project. I would love to hear from you. I'd also like to hear from you if you think I'm wrong. And as always, if you'd like to find out more about kevin sturm Consulting please visit my website or email me.