Ten Reasons Software Sales Negotiations Are Unique
In order to succeed in software sales, a salesperson needs to recognize what makes selling software different from selling other products.
So what specifically makes software sales negotiations unique?
#10: In the software vertical, list price is a joke, just like in the furniture industry or health care.
#9: Software buyers are more likely to be formally trained to negotiate.
#8: Even though buyers know who they want to work with in the end, they almost always try to create an artificial buyer’s market by getting at least three bids.
#7: Buyers are advised not to make a selection until they have been through competitive negotiations with at least two vendors.
#6: Software publishers have a lot of options for pricing and purchasing vehicles (i.e., leasing, SAS, on premises, etc.). That gives sellers a lot of room to maneuver. But it also makes it easy for buyers to triangulate the pricing. Buyers ask for several quotes and then point out the differences in pricing for what appears to be the same line item.
In addition, this pricing flexibility leads to maverick discounting by salespeople.
#5: The salesperson feels a greater dependency on the buyer, who has the money and who therefore appears to have all the leverage.
#4: The salesperson feels a greater onus to protect and preserve the relationship. Buyers are trained to take a transactional and adversarial approach.
#3: A concession that appears minor might result in revenue that cannot be recognized due to the introduction of a contingency.
#2: Managers and market share. In the early phases of growth, software CEOs want to become the gorilla in the market. They issue a decree that they will not lose a deal on price. Sales reps take this “commander’s intent” to heart.
One rep said to me, “I can’t have a walkaway point. If I walk away, my manager will do two things: First, fire me, and then discount the deal.”
#1: Mythological margins. I recently trained a very successful start-up, and a couple of the reps argued for deep discounts. One of their proof points was that the margins in software are 70%.
In reality, software net margins, per RBC Capital Markets Research, are more like 20%. When compared to other vertical markets, this is on the high side. But it’s not what these salespeople seem to think. If salespeople think they are practically committing a crime, they may well try to redeem their souls by reducing the price.
Looking to further understand the unique process of software sales? My book, Negotiating With The Savvy Software Buyer, can help.