As an experienced consultant who has helped numerous clients navigate the complex world of ServiceNow negotiation, I understand the challenges of securing a fair deal.
ServiceNow, a leading IT Service Management industry provider, is known for its aggressive pricing tactics that can significantly strain IT budgets.
However, with the right strategies and insights, you can negotiate better contracts and reduce your ServiceNow spending.
ServiceNow Negotiation Guide
Understanding ServiceNow’s Pricing Power
ServiceNow’s pricing power is a force to be reckoned with. The company has minimal internal costs associated with licensing additional users, allowing it to achieve high gross margins on the products sold. This profit margin provides ServiceNow with the flexibility to offer aggressive discounts while still maintaining positive net incomes.
Furthermore, ServiceNow boasts a customer renewal rate of 98%, indicating that very few buyers choose to switch solutions once they’ve acquired ServiceNow. This high renewal rate underscores the importance of achieving competitive pricing early in your relationship with ServiceNow.
Compared to its closest competitor, BMC’s Helix ITSM product, ServiceNow’s pricing is nearly double per license. Despite this cost premium, ServiceNow continues to dominate the ITSM market.
ServiceNow’s Pricing Tactics
ServiceNow employs a variety of pricing tactics designed to maximize costs for the customer. Two of the most prevalent tactics are module bundling and product changes.
Module Bundling
ServiceNow often bundles its product modules into suites, obscuring price transparency. Each module provides specific functionalities that customers use. However, customers must purchase additional complete suites if extra licenses are needed for the included modules.
This bundling tactic can escalate costs quickly, especially as most customers continue to expand with ServiceNow over time and require additional licensing. To combat this, validating costs for individual modules and negotiating better discounting upfront to minimize future costs is crucial.
Product Changes
ServiceNow frequently changes its product sets and module functionality, allowing prices to be changed. These product changes can undo the discount you worked hard to achieve and enforce premiums to achieve the same functionality you previously received.
To protect against these unforeseen cost increases, implementing price protections for all currently owned functionality is important. This will safeguard against ServiceNow re-branding the same solution into new products, forcing customers to make further purchases for the same functionality.
ServiceNow’s Sales Incentives
Understanding the motivations of ServiceNow’s sales reps can provide valuable leverage in negotiations. Compensation structures and quota initiatives primarily drive ServiceNow’s sales incentives.
Here are the top three ServiceNow incentives:
1. Net New Revenue
ServiceNow compensates their sales reps based on net new sales. Deals with higher net new growth commitments receive higher discounting on average. To take advantage of this, use license growth to reprice current and new licenses to competitive levels.
2. Licensing Model – Unrestricted User
ServiceNow has been pushing its “Unrestricted User” pricing model, their Enterprise License Agreement deal option. This model requires customers to license their whole organization but often comes with aggressive discounting. Pitting this deal structure against other options can help “move the needle” negotiations.
3. Product Weighting
ServiceNow reps aggressively promote new products and module releases. The company’s vision of what should be pushed to the market influences incentives on products annually. Leveraging net new purchases of newly released products or upgrades to new release families can help reprice your current licenses.
Conclusion: Don’t Buy Premium Products at Premium Rates
Negotiating with ServiceNow requires more than a price benchmark. The most competitive deals follow a strict plan to maximize leverage. Achieving competitive contractual terms is critical in mitigating future risk.
Remember, you don’t have to accept premium products at premium rates. With the right strategies and a thorough understanding of ServiceNow’s pricing tactics and sales incentives, you can negotiate better contracts and reduce your ServiceNow spending.
FAQ on ServiceNow Negotiation
What is ServiceNow's pricing power?
ServiceNow’s pricing power refers to its ability to set high product prices due to minimal internal costs associated with licensing additional users. This allows ServiceNow to achieve high gross margins on the products sold and offer aggressive discounts while maintaining positive net incomes.
What are ServiceNow's main pricing tactics?
ServiceNow’s main pricing tactics include module bundling and product changes. Module bundling obscures price transparency and can escalate costs quickly. Product changes can undo previously achieved discounts and enforce premiums for the same level of functionality.
How can I combat ServiceNow's module bundling tactic?
To combat ServiceNow’s module bundling tactic, validating costs for individual modules and negotiating better discounting upfront to minimize future costs is crucial.
What are ServiceNow's sales incentives?
Compensation structures and quota initiatives largely drive ServiceNow’s sales incentives. The top three incentives are Net New Revenue, Licensing Model – Unrestricted User, and Product Weighting.
How can I leverage ServiceNow's sales incentives in negotiations?
Understanding and addressing the motivations of ServiceNow’s sales reps can provide valuable leverage in negotiations. For instance, using license growth to reprice current and new licenses can take advantage of the Net New Revenue incentive.
How can I protect against ServiceNow's product changes?
To protect against ServiceNow’s product changes, it’s important to implement price protections for all functionality currently owned. This will safeguard against ServiceNow re-branding the same solution into new products, forcing customers to make new purchases for the same functionality.
Remember, negotiating with ServiceNow is a strategic process. With the right approach and a thorough understanding of ServiceNow’s pricing tactics and sales incentives, you can secure a fair deal and reduce your ServiceNow spending.
Need Help with ServiceNow Negotiation? Contact Redress Compliance Today!
Navigating the complex world of ServiceNow negotiation can be challenging. But you don’t have to do it alone.
At Redress Compliance, we have a team of experienced professionals who can guide you through the process, helping you secure better contracts and reduce your ServiceNow spending.
Whether you’re dealing with module bundling, product changes, or trying to leverage sales incentives, we’ve got you covered. Don’t let aggressive pricing tactics strain your IT budget. Reach out to Redress Compliance today and let us help you master your ServiceNow negotiation.
