How do you deal with an extreme price increase of your software renewal?
Imagine you’re nearing the renewal date for a software your company relies on, only to receive a shocking new proposal with significantly increased costs. You didn’t see this coming, and now you’re scrambling to understand the justification behind such a drastic price hike. This type of scenario can leave companies feeling blindsided and unprepared. In this blog, we’ll explore how to handle these surprising price increases and outline actionable steps to renegotiate with your software provider while keeping your budget intact.
A recent example: one of our clients was recently hit with a 100% price increase for their e-commerce software, blindsiding their budgeting process and forcing them to reconsider their next steps. Together with a full strategy, they used the following method to turn around the initial conversation involving a $497,000 price increase into what would be a flat like-for-like renewal.
Let the other party go first (most of the time)
In most negotiations, it’s wise to let the other party present their price first, even if it’s a shocking increase. This approach allows you to assess their position and avoid rushing to your maximum. When faced with a sudden, large price increase, stay composed. Emotional reactions play into the other party’s hands, especially when they use extreme price anchors to influence your decision-making.
To manage such situations effectively, you can deflect by responding with questions that make them explain their reasoning. Here are some examples:
1. "How are we supposed to accept that?"
2. "What are we trying to accomplish here?"
Phrases like these invite the other side to justify their position while keeping the discussion collaborative. These questions help steer the conversation and prevent you from getting caught in emotional haggling.
Using “What” and “How” questions encourages a collaborative dynamic. Instead of bargaining head-on and putting the other person on the defensive, you are instead asking for their advice and giving them the illusion of control. In response to their significant price increase, you can say ‘No’ without actually using the word ‘No’.
This tactic gives them a sense of control without conceding your stance and turns a potentially combative negotiation into a joint problem-solving session. By inviting them to problem-solve you can start guiding them into the direction you want the negotiation to head into.
Avoid bargaining early in a negotiation
If the conversation starts heading into pure price bargaining or haggling too early, shift the focus away from monetary terms. Say something like, “Let’s put price aside for now—what would make this a good deal for both of us?” This approach opens up discussions on other non-monetary terms, keeping the conversation strategic.
IMPORTANT!
In cases where you are pressured to present your price first, avoid doing so. Instead, allude to an extremely competitive anchor that would work in your favor.
This is your opportunity to position an anchor without directly requesting a specific price. The following can also be used to counter an extreme price increase to re-center the negotiation. You could say something like:
"Well, if we consider [Competitor X], they are offering an equivalent service for $XXX."
Then pause and use silence to strategically get them to open up and speak.
This approach thoughtfully re-centers the negotiation in a non-aggressive manner, and by introducing an alternative it gives you leverage to balance the conversation.
Ultimately, when responding to a significant price increase for a software renewal, the goal should be to gather information about the other party’s position first and uncover opportunities to steer the negotiation in your favor.
Facing an unpleasant software price increase?
We hope this has provided a valuable perspective into how you can begin handling the unpleasant news of a significant price increase from a software provider. If your company finds itself facing a significant price hike and wants expert guidance, feel free to reach out. We’re here to help you navigate the complexities of such negotiations, ensuring you secure the best possible deal while maintaining control over the process. Let us assist you in turning challenging situations into strategic opportunities.
If you would like more information, please Contact Us. Our team has years of Cloud & SaaS experience, having negotiated thousands of contracts from the other side. We know what to negotiate and how.
