Software Contract Negotiation Tips

Many people might get into the software business without realizing that they sometime will have to negotiate to even have the ability to make a profit with software. Software contract negations are a vital part to your software selection. You will find that software vendors write contracts to protect themselves in the business relationship and you will have to negotiate with them in order to be able to work with them.

When dealing with enterprise business software you will find that the vendors are very open to negotiation because they are looking for long term customers for their service. Without long term customers there business will fall flat because it is not possible to build a sustainable commercial software b0usiness on short term customers. They will do anything to lock you up for a purchase even discounted rates. They know that if there software revenue stream is any good then they have locked up a potential five to ten years of income. Software costs a lot of money to make and on the client side it costs a lot of money to change software systems. Keep this in mind when negotiating the software contract, you have an enormous amount of leverage.

The contract that you sign will have three sections.

Software License

The software license will outline the terms of use for the software. The price of using the software is usually set by the amount of users that the software will support. However, the end software price is usually heavily discounted in order for the software customer to acquire new customers.

Software Maintenance

This portion of the contract will outline the terms for support, maintenance, and the updates and upgrades given. This service will usually run about 18-22% of the total cost of the software and be charged annually.

Implementation

This portion of the contract will outline hourly rates, statement of labor, and the plan for the implementation. The cost of the implementation will usually be derived from the hourly rates for the implementation consultant. You can expect to pay one dollar for implementation for every dollar that you pay for the software itself. For larger companies, you may end up paying anywhere from five to ten dollars for every dollar spent on the software.

You have to understand that some clauses in the contract will be negotiable and some will not be. It is recommended that you get help in dealing with these software negations with someone with a large amount of experience in the software industry. Remember that you have the leverage when it comes to these negotiations because software companies are so desperate for big clients and the software competition is so fierce.

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