There’s no question about it, vendors love to bundle services and support with product costs. The reason: the margins on services are the highest for vendors, and no vendor wants to make it easy to negotiate these costs. But for the purchasing organization, these services are usually the best to negotiate down exactly because of their high margins. Ensuring the vendor breaks out the pricing is obvious, but sometimes the vendor won’t budge on support, training, or implementation costs. The reasons for this are numerous.
First, an organization may have been so successful at product price negotiation, the vendor’s only deal profit is in the services. Vendors will often look at deal margin across the entire potential sale and too much of a discount in one area naturally creates resistance for aggressive discounting in other areas. If an organization has secured what appear to be ‘too good to be true’ product discount levels, the reason is often baked in service or support margins.
Second, the vendor only has flexibility if their personnel are performing the services. Often, a vendor will subcontract the work to another firm, making those costs essentially inflexible for the vendor. That inflexibility is passed on to the purchasing organization. Many vendors for example use third parties to provide training so their ability to cut pricing by very much in this area is limited. Conversely, implementation is often an area where vendors often use their own personnel and therefore may be more flexible, based on their ability to spread the associated personnel costs over multiple clients and implementations.
Lastly, a vendor may fear erosion to its support pricing or overall deal values as future prospects begin to recognize how the vendor is pricing its services and what its price flexibility is. This is a particular problem when the products the services are associated with are essentially IT commodities.
However, even when a vendor won’t drop pricing further, an organization can use scope to make the money they do spend go further. Try asking a vendor who is inflexible on price if they are willing to provide additional services such as product or solution optimization, tuning, testing, or quality assurance. Additionally, try asking for project management services to reduce risk or asking the vendor to take responsibility for installing and configuring more parts of the solution stack such as databases or storage. Another area where the vendor may be willing to provide services at no charge to win a deal is disaster recovery planning including help on how to configure the product or solution for disaster recovery or even providing recovery plan detail for the system or solution.