ERP Contracts Promote Customer Lock-In
Businesses often lean on their ERP systems to help navigate choppy, unpredictable waters.
In fact, improved agility is a key selling point of ERP. SAP, for example, makes the following pitch on its website: “Adopt cloud ERP with speed, predictability, and continuous innovation”. Microsoft’s messaging is similar: “Deliver more value in less time. Quickly adopt solutions—or augment existing ones—to enable your teams to accelerate results”.
Unfortunately, standard ERP SaaS Subscription contracts are often structured in ways that promote lock-in and not agility. (It’s interesting to contrast the marketing hype around cloud ERP scalability and the SaaS contracts that strongly disincentivize license reductions).
It comes down to this: ERP vendors draft standard form ERP contracts in ways that protect their own interests – they want to drive multi-year commitments, minimize their exposure to risks, and maintain flexibility to increase prices.
3 Tips to Secure ERP Contract Flexibility
For businesses that strive for agility, here are three tips to help you achieve flexibility in your ERP software contracts:
- Obtain scale-up and scale-out rights. As your business grows, it might need more licenses and additional modules. When you negotiate the commercial terms, try to protect prices for future software needs.
- Obtain scale-down rights. This is a big one. No matter how well you think you’ve mapped out your ERP requirements, your needs may change. If you’re dealing with SaaS ERP, try to secure terms that allow you to reduce your subscription services with minimal negative impacts to negotiated rates.
- Protect the price. This is another forward-looking set of deal terms. For ERP, subscription service fees are typically payable annually in advance for a defined number of years. Vendors like to reserve the right to increase prices both during the term and from term to renewal term. Meanwhile, customers don’t want to be shocked by major price increases for mission-critical software with high switching costs. When negotiating the SaaS subscription agreements, aim to protect the prices both during the term and across renewal terms.
The bottom line is this: ERP subscription service contracts are negotiable. Savvy customers negotiate commercial, legal, and technical terms that help them better align the contracts with their business needs. If you need help, learn about our ERP contract negotiation services and contact us.