While it’s common for large companies to have negotiations handled by a separate department, typically called ‘Procurement,’ many leave the responsibility to whomever is actually making the purchase. In either case, security practitioners can personally say, do, and offer things the procurement department can’t to help obtain the best possible price. Remember, security product margins can range anywhere from 40-60% or even higher. I’ve seen discounts well over 50% of the originally quoted price. Some vendors will even take a loss to win your business, depending on the size of your brand and the reference you’ll provide.
Note: I’m not a big fan of this as you risk not being treated well as a customer long-term. The vendor may decide to drop you later because you’re unprofitable. So, allow vendors to make a profit, just not an obscene one.
Below you’ll find my ranked list of the most powerful negotiating techniques I’ve come across in the purchasing process, many of which are applicable beyond security purchases…
1. Negotiate Price at Quarter End / Year End
More than anything, businesses want financial predictability. They want to be able to plan out, with a high degree of accuracy, precisely how much business is expected to close at least two quarters into the future. Sales forecasting is largely a Sales department function. So when end of the quarter is just a few weeks away, and overall sales volume isn’t where it needs to be, the sales rep (and their bosses) scramble and make concessions to bridge the gap and hit their forecast. The larger the sales forecast gap, and the closer to quarter end, the more desperate they become and more open they’ll be to deep discounts or throwing in additional products / services to sweeten the pot.
Smart customers simply ask sales reps when their quarter or fiscal year ends, just after the vendor asks the customer what their budget range is. So, if you like the product, and you’re likely to buy it, let them know you’ll commit to the purchase in the current quarter, before the end, if they give you a good deal. Vendors will routinely knock 10-30% (or more) off the price, just with the ability to accurately forecast a deal closing. If the vendor is unwilling to work with you and the purchase isn’t urgent, let them know you’re more likely to purchase next quarter, which ads uncertainty to their forecast and they’ll have a decision to make. Rinse. Repeat.
2. Multi-Year Deals
As previously mentioned, businesses love predictability. For this reason, subscription-based businesses, like Software-as-a-Service, love predictable renewals rates. Security vendors know that just because you’re a customer this year, it doesn’t automatically mean you’ll be a customer next year — as the market is highly competitive. They know they’ll likely have to negotiate price with existing customers before the contract expires, which comes at a cost of time and sales forecast uncertainly.
To reduce this uncertainly, subscription-based businesses will often give attractive discounts to customers willing to sign up for multi-year deals. Two to three year deals are typical, likely fetching a 5-10% discount, possibly more if you’re willing to pay up front, but we’ll explore this more in a moment. It’s also best to refrain from committing to more than three years for security purchases as it’s difficult to know what the business needs will be that far out, or how the product landscape may have changed in that time.
3. Paying In Advance
For many security services, such as subscription SaaS products, you pay monthly or quarterly after services are rendered. For the security vendor’s finance department, that means they’re out some amount of money to service you before you pay them for those services. If you like a particular security service and plan to continue having it for a least another year, consider paying for a year or more in advance. For the vendor, having getting cash up front is often attractive and it takes payment uncertainty out of the equation, giving their business additional flexibility. Obviously, the bigger the deal, the better in terms of discounting. This method can win another 5-10% or so in discounts on its own.
4. Customer Reference, Case Study, Gartner Reference
In InfoSec it’s extremely difficult to get customers to speak publicly, or even privately, about their experience with a given security product. When a customer does consent to speak, it’s incredibly powerful, and few things generate more business for security vendors than vocally happy customers. Customers should use this power to their advantage, especially if they really really like a security product and want to see the company do well.
To do this, customers can serve as a reference in a few different ways:
a. Private Reference – speaks to other customers
b. Public Reference, Individual – willing to do case studies, press, events, quotes, but as an individual versus the company
c. Public Reference – Company – the company is endorsing the product and brand, including a logo on the vendors website, slides, etc.
All of this is good and even a non-contractual promise to be a reference can lead to great discounts. As a small warning, many organizations have policies regarding speaking on behalf of the company, so make sure to follow those. If you can find out if the security vendor is in the process of working with Gartner on the magic quadrant of their space, customers who are willing to be a positive reference in this time period are like gold. I’ve personally seen seriously deep discounts here, even free!
5. Ask for More Stuff, Not Always Price Discounts
Let’s say you’re asking for a discount, but for whatever reason the security vendor isn’t agreeable. This could be because they need to keep their average sales price (ASP) above a particular threshold so their business looks good to their board and investors. In these circumstances, you can instead ask for them to throw in things that are more easy for them to give away or commit to.
a. Extra subscription time, especially if full deployment will take a while.
b. Additional services or software licenses
c. A better customer support package.d. Free training.
d. Payment flexility. How and how often payment has to be made.
e. Product roadmap enhancements that’ll better serve you.
In many circumstances, security vendors will find the items on this list easier to give you than discounting the overall deal. You get more, but pay the same.
6. Find Out What Others Paid. Competitive Bids.
When entering pricing discussions, it’s always helpful to know what other customers paid as a point of reference. You may or may not be able to get the same deal as they did, but you want something in at least the general vicinity. There are a couple of ways to obtain this information.
a. Ask a colleague you personally know, who has already purchased a product you’re considering. What kind of deal did they get?
b. Ask the vendors for customer references during the evaluation process, which is something all customers should do as a matter of course. Not only ask the reference what they liked and didn’t like about the product, but what they paid.
c. Ask the vendor for their competitor’s pricing, and how they compare with it.
In some cases, pricing information is considered confidential, but it doesn’t hurt to ask. Having this pricing research on hand greatly helps get you the best deal possible.
Additionally, you’re probably considering between two or more comparable products to solve a particular security problem. If the products themselves are a toss up, meaning you’d be happy with either option, consider sharing the bids with the competing security vendors. No security vendors want to lose a competitive deal in the last stage simply because the competition slightly edged them on price. You’d be surprised how quickly vendors will knock off 5—10% as a take away from the competition.
7. Go Direct
Many customers have a preferred reseller, typically called Value Added Resellers (VARs), through which they make their security purchases. Among other things, VARs make vendor management much easier for customers. They’ll help identify security program gaps, document purchase requirements, product selection, answer questions, and more. For the value they add, VARs usually take a roughly 30% margin on each product sale. Then, of course, they can tack on additional dollars for consulting and implementation if there is a need. The remaining 70% of the sale price goes to the security vendor.
Here’s the thing, the business of the VAR is in the first two letters — V.A… VALUE. ADDED. If a VAR is not adding enough value, which is often the case, they’re justifiably not entitled to their 30%. And in these circumstances, the VAR can and should be bypassed to go direct to the security vendor where the customer can get a [30%] discount without costing the vendor anything. And, unless there is a good reason not to, get bids from 3 VARs so they’ll have to fight to get you the best deal – fight to win your business. Often VARs will cut into their own profit margin to land the deal.
There you have it. Seven ways to help maximize the purchasing power of the security budget. Good luck!