License Overages vs Reshaping existing contract

George Haywood

Hi - After some advice if possible, please :)

Context:
My customer, due to commercial constraints and the EB losing faith in the value my solution provides halved their license size at renewal in Jan 23.

Since then, we have been invited to "sell your solution to us again" and are about to kick off a PoV that will undoubtedly add value above and beyond anything we have done with them before.

However - Since they halved their license, they have consistently burst their usage limit, and in turn have overaged to the cost of around $100k. Typically, if a customer is working with us in good faith to address these overages (which this customer is doing), we won't take any immediate action and automatically bill the customer, but it will need to be addressed.

My Question:
How would you approach this conversation with the EB? Before kicking off the PoV I want to be clear that the overage costs need to be factored into the reshaping of a new contract (with the new solution being PoV'd) as well as address their need to uplift the contract to ensure the overages don't continue moving forward.

My take on it is, that they are going to need to pay the overage difference + the required uplift to bring them into a compliant contract anyway, and they may as well, if the PoV is successful, use the required true up to fund the new products that we are offering.

I want to ensure that the EB and I are clear on the path forward and that we are collectively working on doing a deal at their next renewal in Jan 24 (or sooner) based on these factors.

Curious how you would articulate this conversation to convey that while we are focused on delivering outcomes that will positively impact their business, the customer needs to understand that they have to spend some money.

Thanks, and sorry for rambling on.

George

Tim Caito

George - Two quick thoughts... one for internal consumption, one external with the customer.

First, absent your knowledge of how this customer operates, I recommend that you do indeed set firm expectations on their need to pay for the past overage/true up. For some this is a classic opportunity to negotiate with the vendor over the vendor's money. In other words, many facing the prospect of a true up like this will go old school, dig in their heels and tell you that there will be NO NEW DEAL unless you first takes the true up off the table... or at least expect a full credit for it in the new deal. Unfortunately those folks have been taught multiple times that this tactic works. The sooner you get out in front of it (as it appears you are preparing to do) the better! Internally, socialize the concept that we must not be a victim to the possibility of the customer trying to negotiate with us over our money, rightfully due us, per our contract. This preserves it as a powerful asset in the upcoming negotiation. Doesn't sound like you need it, but setting a firm expectation with the customer that the money is owed is often best delivered by a senior manager/leader.

Now for positioning this conversation with the customer I strongly suggest an early stage Anchoring strategy. In other words the time is now for laying out that these are either two different conversations (1 - The True-up & 2 - The New Deal)... OR... a new agreement that reflects a deeper/different long-term relationship. You should have a list of things that would be required if your company would even consider addressing the true-up in the new deal... multi-year, full coverage/deployment, impact/roi measurement, platinum services, your contract paper vs theirs, etc. In other words, now is the time to put more value on the table to ensure the customer knows this upcoming conversation/negotiation will be about multiple items, not just # of new lucenses and the true-up.

So, the short version is a recommendation to change the conversation... from a negotiation over licenses and true-up to charting a new, long-term relationship going forward so issues like this don't surface again... and that is the key to create a lot more value for both organizations!

Good luck growing the pie and avoiding a discounting your way to a great agreement!

George Haywood

Thanks Tim - That's really helpful.

I am going to jot down some ideas about what I/we would want out of a new agreement that reflects a deeper/different long-term relationship and position some of those points during my next convo with the customer.

Appreciate the insight and I will let you know how it goes!

George