Articles on IT Acquisition and Doing Better Deals
Tips & Tactics
- Negotiations: Principled Concessions
- Financial Analysis — a Refresher
- Presenting vs. Positioning
- Even Pros Make Mistakes
- The Power of No
- The Dip
- Caveat Venditor
- Champagne and Scarcity
- Urgency—Guard it at All Costs
- They Know That You Know
- Why a Checklist
- Beyone the Handshake
- The Challenge with Buying Technology
- The “Try It, You’ll Like It” Ploy
- The “We Don’t Need To Write That Down, You Can Trust Me” Ploy
- The “Low Ball” and “When I Hit Your Hot Button, I Gotcha” Ploys
- The “Price Protection Contract” Ploy
- The “Form Contract” Ploy
- The “Solutions” Ploy
- The “We Can’t Do It For You Because We Would Be Setting A Precedent” Ploy
- The “Unfortunately, I’ll Have To Get Any Changes Approved By Corporate” Ploy
- The “Price Protection Contract” Ploy
- The “Tie-In” Ploy
- The “Fait Accompli” Ploy
- The “Price Increase is Coming” Ploy
- Table of contents
- “We Don’t Need To Write It Down. You Can Trust Me” And Other Grim Fairytales
- The Negotiations Agenda Part 1
- One Bite at a Time
- The Negotiations Agenda Part 2
- Don’t Let Vendors Hold You Hostage
- The Right Attitude
- Finding Responsibility
- A Fair Audit Clause
- Looking Beyond “Needs”
- Before Saying “I Do,” Think About Divorce
- A ‘Top-Down’ Look In Challenging Times
- Don’t Allow Vendor Disappearing Acts
- Vendor Short-listing: The Long and Short
- If a Vendor Offers the ‘Lunch’ Ploy, Don’t Bite
- Make Sure Consultants Will Keep Your Secrets
- Two Essential Parts for Service Contracts
- Keep Consultants Far From the Enemy
- Be Wary of Annual Revenue Commitment
- Leasing’s Different When It’s Laptops
- Two Truths Behind Securing Better Deals
- Not in the Contract, Not Part of the Deal
- Feeling Safe With IT Security
- Avoid Surprises in Subleasing Deals
- Insist on Language to Cover Billing
- Manage the Contract
- Clear Ordering Procedures
- Winning with Leases
- A Ploy that Didn’t Fly
Be Wary of Annual Revenue Commitment by Joe Auer
By Joe Auer
A customer recently negotiated an agreement that called for an annual revenue commitment to the supplier. It’s quite common for a supplier to exchange pricing concessions for this type of guarantee from a customer. But what happens if the customer fails to do the guaranteed amount of business with the supplier? In their excitement over getting a great discount, customers often overlook this point. Before agreeing to an annual revenue commitment, you must answer these three questions: • Do we have the ability to meet the revenue commitment?
- What’s the likelihood that we will actually achieve the commitment?
- What if we fail to meet the revenue commitment?
Ignoring these issues can result in a costly problem such as – at the minimum – having to make up the revenue shortfall to your vendor. This alone could wipe out the great discount you got on the front end of the deal.
In verifying your company’s ability to meet its annual revenue commitment, survey the end user of the product you’re about to buy. The end user should share the responsibility for the commitment you’re about to make. Review usage history with the end user so you can determine with a high degree of certainty what the optimum order level should be.
Regardless of the best plans, estimates and negotiations, the world changes. The best protection against a changing world is the “significant business change” clause. If this clause is drafted correctly, it will protect you if your company’s revenue or profit falls. On the other hand, if business booms, you can secure discounts for purchasing more of the vendor’s products.
This clause should specifically allow you to reduce the level of your annual revenue commitment to a vendor without having to pay any adjustment fees. Here is the “downturn” portion of such a clause:
If the customer is unable to fulfill its obligations for the annual revenue commitment due to a downturn in business, customer and vendor shall negotiate, in good faith, appropriate and commercially reasonable changes to this contract. In any event, the customer shall not be liable for any fees, charges or penalties due to a change in the customer’s annual revenue or profits.
This clause effectively hedges the downside and eliminates a nasty contract “gotcha.”
Ted Vahan, a vice president at systems integrator Covansys in Charlotte, N.C., sent me this note:
I found your article in Computerworld about protecting your trade secrets interesting [Business Advice, April 9]. As a consultant, it is a topic I have debated with clients and colleagues in the past.
While I understand the need for protecting intellectual property, many clients want it both ways – you have to have the experience coming in the door, but they want you to leave it behind when you’re done! Let’s face it – you always stand the best chance of winning an engagement if you can demonstrate that you have done the same thing before. In fact, that’s very often the deciding factor in awarding engagements.
All that being said, I think your article makes a lot of sense. However, you should point out that most consultants want to get repeat business with existing clients as well as add new clients, and the best way to approach such situations is to work it out with your consultant to set appropriate restrictions that both parties can live with.
Thank you, Ted, for the note. I feel strongly that we should strive for appropriate rights and obligations that both parties can live with.
You’re also right on when you say that clients want consultants to have related experience coming in the door but that clients should, of course, be very leery of a consultant they suspect might use another client’s intellectual property.
JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at email@example.com.
Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.