How to Negotiate a Customization Contract

Many of today’s software deals include a significant amount of custom work, adapting the application to the customer’s individual needs. The contracts for providing such work are typically more complex than vanilla software and services agreements. That means you may find yourself in a situation where you need strong negotiating skills.

We recently asked the negotiation guru Randall Murphy, president of the sales training firm Acclivus R3, how to approach complicated negotiations. He pointed out that mutually beneficial contracts tend to emerge when the negotiating process is cooperative, rather than competitive. The idea is to come up with a win-win scenario, where both companies feel happy with the result.

However, for such cooperative negotiations to emerge, a software sales professional can’t allow himself or herself to end up in the position where the customer can simply dictate terms. To prevent this, the software sales rep must continually accumulate "negotiating power" during the sales cycle. Here are eight steps to make sure that you have "negotiating power" when it comes to the final stages of the software sales cycle:

• STEP #1. Eliminate competitive threats before negotiating. Convince the customer that your product or service is the only one that can adequately fulfill the customer’s needs. Don’t go into a negotiation until after you’ve eliminated the competition from the picture through the power of differentiation.
• STEP #2. Develop at least three contacts inside the customer organization. Long before a sale enters the negotiation stage, you should have developed at least three contacts that can provide perspective to your solution-building process and information about the motivations and politics inside the customer’s firm.
• STEP #3. Display an ability to see beyond the obvious. Your status as an "outsider" to the customer’s firm gives you the potential ability to see problems and opportunities more objectively. Remember: even the customer doesn’t know everything about the firm, much less the market.
• STEP #4. Create the legitimacy that comes from consistency. Consistency means that, while you’re flexible in building a solution, you remain well aware of the strengths and the limitations of your offerings. Legitimacy also comes from adhering to your firm’s policies and procedures, and being willing to explain to the customer why they make sense for the customer.
• STEP #5. Position each interaction in terms of building mutual success. Building rapport isn’t building a relationship. A productive relationship is based upon mutual respect and understanding, and a sense of working together to achieve mutual goals. Ideally, a customer should always know you’re committed to mutual success rather than merely making a sale.
• STEP #6. Generate solutions that match the customer’s needs. Your value to the customer skyrockets when you help the customer crystallize needs and visualize the right solution. While many customers have a list of detailed requirements that constitute their best understanding of their needs, you can help the customer achieve a clearer understanding of what really needs to be done.
• STEP #7. Differentiate yourself from the competition. You must be able to communicate clearly how his or her products or services are different from your competition. This helps the customer see you as a unique resource rather than a replaceable functionary.
• STEP #8. Refuse to consider last-minute demands. Most of the time the customer is merely testing you to ensure that the negotiated deal is the best possible agreement. Giving in to last-minute demands undermines your credibility and may result in further demands.