How to Negotiate a CRM Contract

Most CRM systems require some form of installation and customization services. This process entails risk, because there’s no way of telling whether a vendor or integrator will be able to deliver as promised, and there are many reasons that software projects fail, including loss of key personnel, unrealistic expectations, and unforeseen technical problems. As a sales manager, you need to manage the risk, so here’s a seven-step process for you to follow when you negotiate your CRM contract:

Step 1. Assess your integrator’s capabilities. You want to be certain that the integrator has the financial and personnel muscle to get the job done. Before entering into any contract negotiations, look carefully at the financial strength of the vendor as well as the technical strength of the product. It can’t hurt to find out what industry analysts have to say about the integrator – assuming the integrator is large enough to get on the analyst’s radar screens.

Step 2. Investigate the integrator’s history. Chances are that your integrator will hand you a number of canned reference accounts to contact. It can’t hurt to do so, but that’s not enough. If you want to really find out how well the integrator provides services, locate and contact executives within companies who have done business with the integrator. And then ask for their objective opinion of the integrator.

Step 3. Interview the integrator’s personnel. Have your IT manager visit the integrator’s engineering group to assess, firsthand, how they operate and whether or not their programmers are professional and capable. And have your IT manager interview the programmers that the integrator intends to assign to your project. After all, the success of your CRM project depends upon the quality of the technical personnel who will be working on it.

Step 4. Negotiate a fixed price for major customization work. The ROI for any CRM system can be clobbered by cost overruns. So make certain to pay the systems integrator in a way that makes it more likely that your ROI goals will be achieved. Most systems integration contracts either stipulate a fixed price or payment for billable hours. In nearly every situation, a fixed price fee structure is preferable to a billable hours fee structure. A fixed cost fee structure pushes the integrator to complete the upgrade in a timely manner, lest the integrator lose money on the deal.

Step 5. Negotiate billable hours for minor customizations. With a fixed price fee structure, you can end up paying a premium price for integration services that are fairly standard and which cost the integrator very little to provide. The way to avoid spending too much is to negotiate the fixed price only after you (and your IT manager) have figured out how much work actually needs to be done. If the work is minor, it can be cheaper to buy the hours piecemeal.

Step 6. Get an independent contract lawyer. Before signing any contract, hire a lawyer who specializes in software litigation to look it over. Sure, you may have a corporate lawyer or two to give the contract the eyeball, but they probably lack the experience to understand the complexities of software integration contracts, according to Tobey Marzouk, a partner at Marzouk & Parry, a Washington D.C. law firm that specializes in software litigation.

Step 7. Put milestones and reviews in the contract. Regular status and performance reviews – mandated in the contract – will not only help keep the project on track and on time, but will provide important documentation in the event of a debacle. After all, the last thing you want, if the CRM project goes bad, is to be the one holding the bag.