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How to Deal with Vendors When You Have to Downsize
ISAMMar 23, 2023 11:56:00 AM4 min read

How to Deal with Vendors When You Have to Downsize

I recently read that a former employer laid off 80 people. Not really a big deal as it represents about 3% of their workforce; I may have even known someone who was laid off. This seems to be happening more and more lately as the economy attempts to recover. Companies who expanded too quickly during COVID realize their mistakes, or seasonally, things just happen. Companies who downsize are looking for savings to their bottom line and getting rid of unproductive workers does seem to be a good way to do that, since the companies save the salary and some benefits that are specific to the employee. But what about other things like office space, support costs, and my personal favorite, software licenses? Is downsizing the only way? Or just the easiest way? This paper will cover two related topics from a downsizing perspective. The first is whether other areas could be cut before the human capital side. And the second topic; how to save money on user-based licenses during a downsize.


Negotiating New Software Purchases Without Breaking the Bank

As a Software Asset Management (SAM) support company, ISAM is focused on one thing, reducing software costs. While that may sound idealistic, it is actually an efficient approach to business management and optimization of costs. Software costs are tied directly to events–events include buying new software, renewing software support, and expanding a software contract due to growth. Notice that downsizing is not one of those events, but more on that later. By utilizing a SAM support company, you can improve your current systems while not breaking the bank with your software licensing.

Software vendors make money by selling software licenses and selling support to maintain software. For user-based software, both of these metrics are based on the number of heads a company has. But greedy software vendors will often provide deals that look great on the surface by selling more software that is really required. Companies may set out to buy exactly 100 copies of a product but are tempted to buy 150 when the discount looks better. If a copy costs $10, then the original transaction was for $1,000.If a 20% discount is offered to purchase more copies, then the second transaction costs $1,200, leaving the company with 50 more licenses to use.

But if the extra 50 licenses were never used, then the utilized license costs were $12 per user, not $10. So instead of the 20% discount offered, the company actually paid a 20% premium. This is a simple example, maybe too simple, because the software doesn’t cost $10, it is more like $1,000 per seat for some products. Some companies will have as much as double the required licenses, ‘just in case.’ Negotiating for a new purchase of software need not break the proverbial bank. There are contract vehicles that are much better than the brute force of ‘buy more.’


How to Grow Your Software and Negotiate your Contract Responsibly

When you renew a software support contract, ask yourself, ‘do I really need a premium plan?’ With many companies, this is never a question they think the customers should ask themselves. The truth is that premium services like 24x7 support and onsite engineers are seldom fully used, are expensive, and are difficult to track. Better to track the services and ask for silver or bronze, especially if your employees only work 8-5 at best.

Growing a software contract because your business is growing is great. But just like buying new, grow only what you need and ensure that you can buy the next one at the same discount as the first one by not exceeding vehicles and clauses.

To ensure that downsizing is an additional event that can affect your contract, negotiate true-down options into your contract before you need them, not when you are downsizing. Every vendor requires true-ups at least annually. Why not ask if you can right-size the contract no matter what direction that is?


Engaging a SAM Consultant to Optimize Licenses

The second topic is when you find yourself in a downsizing situation. What can you do? If you have pre-planned a downsizing event, you are all set. If you didn’t, then you have some long-term planning options and one short-term option for your software contract.

If you have downsized, then during your next contract events like growth or support renewals, ensure the contract is rightsized. Look at all options including re-buying the software if the downsize was significant enough. Always know your Effective License Position for each vendor so that if you do need to expand after a downsize, you know how many free licenses you have.

Short-term solution? Ask your vendor for help. A good partner will look at your relationship and the big picture and will provide options. The last thing a software vendor needs is for their client to go out of business because a short-sighted rep was only looking for their next BMW payment.

While it may sound pessimistic about planning for the worst, the reality is that business is cyclical and today’s downsizing will lead to tomorrow’s upsizing. Plan for both during software contract events. And if this seems foreign, engage a competent SAM consultant to ensure compliance and optimized software licenses.


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