June 16, 2009
How To

How to Negotiate Trials and Lower-rates with Vendors: 5 Strategies

SUMMARY: With marketing budgets as tight as they are, it’s especially important that you get the best possible return from your website infrastructure investments. One way to do that is to conduct full-featured trials of new systems before you buy them.

Some vendors resist full-featured trials, but in this economy, buyers are in the driver’s seat. We spoke with an eretailer to learn his secrets for negotiating free trials and favorable terms from his site’s technology vendors. His strategy has ensured that each new system his team installs has a significant impact on his business.
Ben Kirshner, CEO, CoffeeForLess.com, uses at least 12 different vendors to power key functions for his coffee and coffee-accessory ecommerce site, including email, behavioral targeting, site search, customer reviews, payments, and more. The ultimate factor influencing the decision to adopt each of those technologies was performance: Kirshner and his team are unwilling to add tools that are not proven to lift sales or provide other benefits.

Because of this emphasis, Kirshner’s team tests every tool before committing to it. And they want to test them free of charge to avoid wasting anything more than the time required to setup and monitor.

Most vendors don’t like offering full-featured free trials, says Kirshner. But the current economic climate gives buyers an advantage. Kirshner noticed last year that many ecommerce technology vendors were being more flexible when negotiating terms, allowing the team to arrange for free trials, favorable exit terms, lower costs, and waved setup fees, he says.

"Two years ago, we never got these types of concessions," says Kirshner. "But nowadays, with the economy being the way it is, I tell everyone, ‘These vendors have to want to play ball.’"

The biggest benefit of a trial is that once it is completed, Kirshner’s team can see whether the tool’s performance justifies paying full price -- or if more negotiations are in order. Thanks in part to savvy technology investments, CoffeeForLess.com’s sales have grown an average of 60% a year for the last five years, and at well above 60% for the last two years, Kirshner says.

"I easily attribute it to these conversion-lifting technology tools," he says. "100% of the tools I mentioned before have had an impact on my business."

To help you with your own vendor negotiations, here are five strategies Kirshner uses to coax vendors into providing a free trial:

Strategy #1. Research the market

For any given site function, there often are several vendors offering similar services. Kirshner suggests researching the market in the following ways to get a better idea of the average price, features, and terms:
o The competition -- give them a call, check their websites
o Online search -- look for reviews and get a feel for a vendor’s reputation (Kirshner mentioned Twitter specifically as being helpful)
o Online forums
o Current vendors -- your current vendors may be partnered with similar service providers

Strategy #2. Set a benchmark

Most tools are intended to lift a key metric, such as conversions. Kirshner suggests asking vendors for the average lift that customers realize. If the average improvement is 10%, Kirshner suggests benchmarking that figure during a test period.

Kirshner says that, at most, 40% of the tools his team has tested have met the benchmarks quoted by sales people during calls.

Strategy #3. Be flexible on price

Kirshner does not always negotiate aggressively for a lower price. "My big thing is saying, ‘Let’s be partners here. You give a little up front, and I’ll give a little on the backend," he says.

- Kirshner tells vendors that after a trial, if the tool provided more lift than the benchmarked figure, and he liked the tool, then he will pay more than the vendor’s standard rate.

- If the tool had average performance, he’ll pay the normal rate.

- And (while he might not say it explicitly before a trial) if the tool performed below the benchmark, he’ll negotiate for a lower rate.

Tips for negotiating pricing

- Be willing to pay more

Kirshner emphasizes that his intention is to not get the lowest price possible, but to only pay a premium for tools that have premium results.

- Be willing to work with low performers

If a tool is benchmarked to lift conversions by 10% and it comes in at 5%, Kirshner does not automatically dismiss the vendor. He’ll suggest paying perhaps 50% of the vendor’s price. Many -- but not all -- vendors are open to this type of compromise in the current economy, he says.

- Offer to be a reference

Kirshner also offers to be a reference for a vendor if the test goes well and he chooses to adopt the tool. He will explain to potential clients all the research he has done in the market and why he selected the vendor.

"Potential customers see me as a non-biased reference. And the sales people know that I’ve done my homework and can talk about all the competitors."

- Be transparent

Offer to share your metrics after the test with the person that you’re negotiating with. You want to be able to indisputably show them the impact their system had on your site.

Strategy #4. Get a full trial

While some companies will provide a 30-, 60-, or 90-day free trial, others bill by impressions and will offer a few hundred or thousand impressions for free. If your negotiation takes this route, be sure that the agreed upon number of impressions is substantial enough to constitute a full trial.

Kirshner spoke with one company who typically offered 400 free impressions, and was willing to offer him 1,000, he says.

"But that’s nothing. That’s a few hours of time on the site. What am I going to get by monitoring for a few hours? What I’m saying is, ‘Give me a 30-day trial, and if there’s value I will pay you whatever your fees are per month.’"

Strategy #5. Negotiate for better exit terms

When vendors refuse to provide a free trial, Kirshner tries to negotiate for better exit terms in a contract. That way, if the tool hasn’t produced a positive impact within a few months, his team can remove the system.

"We can take them off, and we’re not locked into a contract."

Kirshner also avoids long-term contracts to give his team the flexibility to regularly test tools. Continual testing ensures that his team will have the best performing tools at the best rates, and that they will be fully informed of all the market’s options.

- More tests = more negotiating power

The more vendors you test, the more you understand the market and the more you can use that information during negotiations. Also, if you’ve negotiated for favorable terms with one vendor, you can mention that to a competitor that you’re interested in testing.

For example, if Kirshner’s team tested a tool that did not reach a benchmark, he may be able to negotiate a lower price on the vendor’s service. Then, several months later, he can contact a competing vendor and ask to test their tool -- at the same favorable price he negotiated with the previous vendor.

"Then we take down Company A, put up Company B for six months, and see what happens. If they don’t give me at least [the % lift that Company A provided], then I switch back."

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