At a time when many small to mid-sized businesses are looking for ways to hold down costs, Locum Leaders ^[1], an Alpharetta, Ga., temporary medical staffing company, is looking toward future growth.

The company renegotiated with its software-as-a-service (SaaS) provider, reducing annual and per user costs but also committing to paying upfront on an annual basis. In this economy, paying upfront might seem like a leap of faith for a company that previously operated on a month-to-month basis with its software provider. However, Alex Gramling, vice president of marketing for Locum Leaders, says it was a well-researched, calculated move.

“As we looked at the trajectory growth of our business, it made sense. The more people you have [using the software], the higher your bill is,’’ says Gramling. “We wanted to cut that cost.  In exchange for a cost reduction of close to 50 percent, we agreed to pay up front on an annual basis.

“Everything is negotiable in this economy, and now is the time to make investments in growth.”

The time might be right to negotiate

Because software vendors are also facing tough economic times, they’re more likely to offer concessions on upgrades and bundles. “If your business is stable and you have capital dollars to spend, you are probably in a very good position to extract some very good deals out of vendors today,’’ says Jeffrey Gordon, a professional negotiator and author of the book and blog“The Software Licensing Handbook.” ^[2]

Gordon says the climate to make a deal might be right if your business meets one of these criteria:

• Your business has planned for growth. If you’re adding new users or a new software product that expands your footprint with a vendor, you can likely ask for some consideration in return.
• Your software contract allows for annual renegotiation or adjustments based on the current state of the economy.
• You don’t yet have a contract in place with a software vendor.

Concessions to consider

A bit of creativity can help when it comes to asking for concessions, say the experts.

For instance, the slow economy can work in your favor when it comes to personnel, says Bob Corrigan of IFS North America ^[3], an enterprise software vendor. “Right now,

enterprise software vendors like IFS might be in a position to price more aggressively on hourly rates for services staff involved in the upgrade process because backlogs are not where they were a year ago,’’ Corrigan says.

It’s also likely that your own critical personnel will have the time to implement upgrades because of the economic slowdown, Corrigan points out.

Other possible concessions include:

• Asking a vendor to renegotiate mid-contract in exchange for extending the contract.
• Asking for a break on annual maintenance fees or on the escalation of annual maintenance fees.
• Changing the nature of your arrangement with a vendor, as Locum Leaders did. Offering to pay upfront on an annual basis brought significant savings to the company. However, Gordon cautions that businesses should evaluate carefully whether investing that much capital is a wise choice. If a discount isn’t substantial or your company’s outlook is unsure, you might be better off simply investing the capital, he says.

The two-way nature of negotiation

Locum Leaders brought research to the table in its negotiations, showing the vendor projected growth and offering cost comparisons to comparable vendors. “We told our vendor, ‘Let’s try to bring costs in line with these other vendors,’’’ says Gramling. “The thesis goal is not about just nickel and diming someone to get a better value for something you’re not going to use. It’s understanding their pain points as well as your own.’’

In some cases, large vendors are unlikely to offer concessions to small and mid-size business, says Gordon, the professional negotiator. That’s why several experts say now likely isn’t the time to upgrade to Microsoft Vista. Waiting for Windows 7 is a better option for small businesses, says Jay S. Hemmady, a veteran CIO of mid-level businesses. The improvements Vista offers over XP aren’t substantial enough to warrant an upgrade right now, Hemmady says.

It’s most important to remember that it’s not a deal if you don’t need the upgrade or the service, says Gordon. “Just because the economics have changed doesn’t necessarily make your needs change. Buying for a hazy future, an unsure future, just because you think something may happen is too risky. You have to make some very strategic decisions.”