Procuring telecom and IT products and services can be a long and challenging process. Not only that, but it can also be extremely expensive! Luckily, there are plenty of ways you can ensure your organization doesn’t overspend on telecom and IT. Below, you’ll find 13 strategies that will save you money throughout the procurement process.
Would your team benefit from working with industry professionals to streamline procurement and achieve your business objectives? If the answer is yes, reach out to Technology Procurement Group today. We can help you develop an IT or telecom procurement strategy and guide you through the process. Fill out the form on our Contact Us page, email us at info@TPG-llc.com, or call us at 1-888-449-1580.
1. Spend Time on Preparation
A simple yet powerful way to avoid overspending on telecom and IT is to prepare effectively. In fact, you can avoid the vast majority of procurement mishaps through sufficient preparation.
This means starting procurement early. In general, you’ll want to begin around nine months to one year before you’ll need the products or services you’re procuring. In the case of telecom services, this means starting procurement nine to 12 months before your current contract ends.
Procurement can be a lengthy process, so giving yourself and your team plenty of time can reduce stress and ensure you have the resources you need to carefully move through each step. More often than not, rushing the process leads to overspending and means you’re far less likely to achieve the results you’re looking for.
Aside from timing, another useful method of preparation is to look at financial models for your organization. This will give you a good idea of your current position and future trajectory, helping you determine which direction you should go based on the data.
Looking at industry data to get a feel for the current market and pricing for the products or services you’re procuring is also wise.
You should also familiarize yourself with your own telecom and IT data; you’ll need it throughout the rest of the procurement process. Knowing your data means you’ll be able to state your needs, make projections, write RFPs, and avoid overinflated vendor estimates.
You can also assemble a procurement team during the preparation period. This team should include representatives from all departments that will be affected by the product or service you’re procuring.
If you’re interested in partnering with professionals for procurement, this is also the time to check out different telecom contract negotiations companies and consulting companies.
2. Clearly Define the Project’s Scope and Budget
You can also avoid overspending on telecom and IT by clearly defining the project’s scope from the beginning. Scope creep, when a project requires more resources than anticipated due to insufficient planning and communication, is one of the main causes of cost overruns. It’s not surprising that when a project continually grows larger, it costs more.
Harvard Business Review conducted a large study of IT change initiatives and discovered some interesting statistics. First, the average cost overrun for IT projects was 27%. However, far more concerningly, one in six projects was considered a “black swan,” incurring an average cost overrun of 200% and a schedule overrun of 70%.
As HBR explained, the true pitfall of IT change initiatives is “not that they’re particularly prone to high cost overruns on average, as management consultants and academic studies have previously suggested. It’s that an unusually large proportion of them incur massive overages—that is, there are a disproportionate number of black swans.”
In most cases, you can prevent black swans by clearly defining the project’s scope. Not only does defining your project’s scope reduce the chance of scope creep and overspending, but it has other benefits, too.
For instance, it aligns the project with established objectives, manages stakeholder expectations, and reduces risk. It also helps you budget and plan your resources accordingly. All of this means the project has better odds of success. To enjoy these advantages, all you need to do is define the scope with clear boundaries and have all stakeholders sign off on it.
Here are a few tips for doing so successfully:
- Document specific goals, tasks, costs, deliverables, and deadlines in the project scope statement. Include a statement of work, potential constraints, scope exclusions, and acceptance criteria as well.
- Ensure project stakeholders collaborate with project managers to establish this documentation.
- Consider project management software, such as Podio, Scoro, or Monday.com, to help you manage project scope.
3. Avoid Impulse Buys
An easy way to prevent overspending on telecom and IT is to never make impulse purchases. This is one of the most common procurement mistakes. (To discover the other most common mistakes, check out our article on the subject.) Unsurprisingly, impulse buys can lead you to go far over budget.
As in most parts of life, snap decisions are rarely the best decisions. When you’re buying telecom or IT products and services, it’s crucial to consider how the purchase aligns with your organization’s objectives and procurement strategy. Looking at the bigger picture takes some time, but it gives you a clear perspective of the purchase, whereas impulse buying doesn’t allow you to see how the purchase fits into your organization.
Impulse buys can also come in another form: making a purchase based on a single factor. Most often, this is the cost. Maybe you’ve found an excellent deal and want to snap it up. But have you considered the overall quality of the products and services? Do you know whether the vendor provides excellent customer service? A great deal may not be as great as it appears if you’re not getting a high-quality product or exceptional customer service along with it.
To avoid impulse purchases:
- Always follow your organization’s established procurement procedures and IT or telecom procurement strategy.
- Make sure that the purchase aligns with the project scope statement discussed in the previous section.
- Shop around and explore your options to find the most beneficial deal.
- Remember to focus on facts and figures rather than feelings, which are often the driver of impulse buys.
- Use procurement and purchasing software to make more educated decisions.
- Work with IT and telecom contract negotiations companies or consulting firms for expert assistance.
4. Review Previous Procurement Processes
Looking back at your organization’s historical data and the information you’ve recorded from past procurement processes can also prevent overspending. Reviewing this information will remind you of previous costs, areas where you can improve, and what you’ve done well. It can also help you avoid past mistakes.
Look at your current and previous contracts to evaluate pricing, previously-negotiated conditions, and contract terms. You’ll also want to review the result of previous procurement performance measurements.
A few other areas to look at include:
- Vendor information – Which vendors stood out (for positive or negative reasons)? Which vendors were most responsive and easy to communicate with? What types of ploys did they use during negotiation? What set each of them apart?
- Your negotiation tactics – Which tactics have you used previously while negotiating telecom contracts, and how effective were they?
- Previous telecom procurement strategy – How did your previous strategies work for you, and how can you improve your telecom procurement strategy this time around?
- Your contract template ratio – How often do you use your contract template, rather than the vendor’s? Your company’s template will always be more favorable and may result in more cost savings.
- Contract quality – How do your organization’s signed contracts compare to your contract template? Ideally, the smaller the deviation, the better.
- Overall state of the marketplace – Look back at the state of the marketplace during previous procurement processes to see how it affected your final contract.
Reviewing past data arms you with the knowledge to move forward without spending more than you need to. Similarly, it can prevent you from agreeing to harmful terms that could result in you paying more for telecom or IT over time, such as MARCs or other terms that come with potential fees.
5. Use Benchmarking Data
Along with your organization’s historical data, you can use benchmarking data to your advantage. Benchmarking involves looking at the prices of the products and services you want to purchase and comparing them with real-time market rates. It determines the current best-of-breed pricing and helps you know what people are paying for the products and services you’re procuring.
If your organization doesn’t have access to benchmarking data, you could seek out benchmarking services or work with telecom contract negotiations companies, which will often have access to this information.
Benchmarking prevents you from falling for vendor ploys in which sales reps state that high rates “are what everyone pays” or that they “can’t possibly go any lower.” Benchmarking data gives you a realistic idea of appropriate costs, and you’ll know to continue negotiating downward, preventing you from overpaying.
6. Prioritize Effective Communication
Communicating clearly and effectively with everyone involved in the procurement process is vital. For things to go smoothly and successfully, everyone must be on the same page and operate with the same knowledge and objectives. Although this tip may sound simple, it can impact the amount your company spends on procurement more than you may realize.
Here are a few general tips for effective workplace communication:
- Remember that collaboration and communication go hand-in-hand.
- Whenever possible, speak face-to-face rather than through technology to leave less room for miscommunication and misinterpretation.
- Set aside time for team-building.
- Focus on the facts, rather than sharing your interpretation or opinion of the situation at hand.
- Always engage in two-way (rather than one-way) communication.
- Communicate with the correct people using the correct channels.
- When you listen, seek to understand rather than respond.
- Make an effort to understand different team members’ communication styles.
When everyone is communicating effectively, there’s less of an opportunity for information to slip through the cracks and negatively impact procurement decisions.
7. Explore Your Options
An often overlooked way to avoid overspending is to explore all of your options, even if you’re positive you’ll end up sticking with your current supplier. No matter how great your supplier is, you don’t know exactly what is out there, and it’s worth it to find out.
You could discover a vendor with an innovative solution to address a particular pain point, or maybe you’ll find a provider with new technology that would benefit your organization. Maybe there’s even a vendor with pricing so low you hadn’t realized it was possible.
Even if you go back to your current supplier after exploring the market, you’ll have gained leverage that can result in a more beneficial deal. When you let your supplier know you’re sending out RFPs, the fear of losing you as a client is likely to motivate them to offer you various deals and concessions. You could also let them know what another vendor offered you to see if they’ll match it.
You’ll gain the most leverage (and, with it, the power to save on telecom and IT) by maximizing your industry knowledge. Educating yourself on all of your options is one of the best ways to do that.
8. Negotiate Everything
As you move into IT and telecom contract negotiation, don’t forget that everything is up for negotiation. Negotiating as much as possible will help you save and keep you from overspending. Never accept the vendor’s first offer, because pricing can always go lower.
Something to keep in mind is that anyone can excel at negotiations, so don’t shy away from it. Although negotiation skills are important, preparation and timing are even more so. If these three components were broken down, negotiation would boil down to about 60% preparation, 20% timing, and 20% negotiation skills. Furthermore, being an effective negotiator is more about having a thorough understanding of ploys and tactics than anything else.
While negotiating telecom contracts, you should always keep two vendors in the game. This will maintain your leverage and a sense of competition. Think about it this way: If you’re only negotiating with one vendor, they have no motivation to offer you better terms and pricing. You’ve already chosen them, they have no competition, and they know you’re essentially forced to agree to whatever they offer.
Always focus on mitigating risks, as telecom vendors and their sales reps have numerous inherent advantages, ranging from their training, compensation, and resources to their ease of making executive connections and the way time works for them, rather than against them. You can learn more about vendors’ advantages and how to offset them in this article.
Below, find lists of common vendor ploys and negotiation strategies to be familiar with as you’re negotiating telecom contracts. Be sure to check out our detailed articles on these topics for more in-depth information.
Frequently Used Vendor Ploys
- Auto-renew clauses
- Multiple commitments
- Inflated traffic estimates that drive up pricing and increase volume commitments
- Delay tactics
- Hiding adverse terms in the service guide
- Catching you off-guard
- Impressing you to make you feel like you owe them
- Rushing you or requiring immediate action
- Acting as if they’re the only solution
- Making empty promises through weak contract wording
- Failing to deliver everything that was agreed on after you’ve signed the contract
See our full list of vendor ploys here.
Effective Negotiation Strategies
- Always get names and numbers of vendor sales reps
- Research and ask about rate variances
- Get familiar with vendors’ promotions and those run by their competitors
- Review SLAs carefully
- Ensure reasonable contract ramp periods
- Avoid MARCs/MVCs whenever possible
- Get everything in writing
- Watch out for commitments that grow over time
- Steer clear of exclusivity and primary provider clauses
- Use “approval delays” to achieve better timing
- Determine the vendor’s pricing model by asking about various pricing scenarios
- Always have a Plan B
- Request escalation for desired terms and pricing
- Remain silent or slow down
- Require commitment through strong contract language
- Use recitals in the contract
- Ask for redline comparison documents when vendors want to make contract changes
Learn more about negotiation tactics and tactic killers in this article.
9. Don’t Let Vendors Know Your Budget
An easy tip to avoid overspending is never letting vendors know your budget. Once they determine your budget, the pricing they offer you is sure to match it–even if they could have gone much lower.
It’s not uncommon for sales reps to ask you about your budget. If this happens, you could say that it’s none of their business or that you prefer not to reveal it. You could also say there is no budget for this project, but your company will find the necessary funds if offered a great deal.
For maximum effect, you could provide disinformation by stating that your budget is about 30% to 50% lower than it is in actuality. This can push the vendor to drop their prices or otherwise get creative with their pricing in a way that benefits you.
10. Set Strategic SLAs
Being strategic with your Service Level Agreements (SLAs) can keep you from paying various fees and even force the vendor to pay you particular remedies if they don’t keep up their end of the bargain.
SLAs define the level of service your organization can expect, and they discuss the remedies the vendor must provide if the established service levels aren’t met. During IT or telecom contract negotiation, be sure to establish remedies and penalties that serve your organization.
In addition, vendors frequently hide adverse terms within the SLAs. Look out for these and eliminate them during negotiation. In many cases, these adverse terms can contribute to you paying more than you need to.
11. Run a Reverse Auction
You can think of a reverse auction as a high-speed negotiating tool. It’s an excellent way to push pricing downward and uncover the true market price of the IT or telecom products and services you’re procuring.
In a reverse auction, vendors compete against each other to sell their products and services by offering lower and lower prices. As you can imagine, this is a quick way to get the best negotiated price without going through several rounds of telecom contract negotiation.
To run a reverse auction, start by selecting a reverse auction platform. A few common ones are K2 Sourcing, MarketDojo, and Vendorful. You’ll need to set the start and end times, maximum bid and minimum bid decrement, and overtime rules. Invite prospective vendors at least one week in advance, and consider running a mock reverse auction so that everyone can familiarize themselves with the platform and the process.
During the reverse auction, it’s a great idea to reserve a conference room with a TV where the procurement team can sit together and watch as prices fall lower and lower.
Run the auction itself using the “Rank Only” bid strategy, where vendors can only see their rank within the other competitors, but not how many vendors are bidding or the current low bid. For instance, a vendor might see that it’s in third place but has no clue how many other vendors are participating or the prices anyone is bidding.
The benefit of this bid strategy is that it allows for more aggressiveness with pricing. Nobody can see how much others are bidding, so they have a sense of security knowing that their pricing is confidential.
In most cases, the vendor who wins the auction will also win the contract. This may not always be the case, but there’s typically a strong correlation between the auction winner and the contract winner.
Once the auction has ended, don’t forget to let all of the participating vendors know that it is over, whether they won or lost. You can then enter into negotiations with the auction winner and other leading contenders before signing a contract with your final choice. Again, inform the other vendors that the contract has been awarded–never leave them hanging.
12. Utilize Multiple Rounds of BAFO
Another strategy to avoid overspending on telecom and IT is to ask vendors for multiple BAFOs, or Best and Final Offers.
An overview of this process is that after receiving vendors’ initial bids, your procurement team issues multiple requests for BAFOs. After receiving each round of BAFOs, one or more vendors are eliminated as the remaining vendors’ bids become more favorable.
The first step is to send out your RFPs as usual and receive vendors’ initial bids.
Next, evaluate all of the proposals and combine the best parts. Add in any desired concessions, such as pricing, business terms, and contract terms. This will function as a benchmark or ideal proposal that you can use to guide vendors to your desired offer.
Eliminate the least desirable vendors before asking the rest for their BAFOs.
Repeat this step by eliminating one or more vendors and asking for an additional round of BAFOs. You might state that the previous BAFOs didn’t meet expectations or that the project’s budget changed.
At this point, you should be able to narrow the contenders down to your final two. This is a good time to reach out and schedule meetings to talk to the vendors about how they might improve their bids in order to win your business. You can refer to the ideal proposal you created earlier in the process to determine specific areas where the vendors can improve.
After the meetings, give your final two vendors several days to submit their BAFOs. Then, you can continue negotiating with these vendors until you’re ready to make your choice and sign the contract.
This process of asking for multiple BAFOs can keep you from overspending and save you money. When you first ask vendors for their BAFOs, it indicates to them that they have competition and makes them realize other vendors may be offering better deals than they are.
However, once they’re asked for another BAFO, they’ll begin to realize that their bid is getting close to winning. They’ll generally believe they only need to adjust their pricing or a few terms to win your business. This process can be a fantastic way to earn multiple desirable proposals with low pricing.
13. Work With a Telecom Consulting Company
Teaming up with consulting companies or telecom contract negotiations companies gives you a massive advantage when it comes to contract terms and cost savings. When you work with experts, you benefit from their decades of experience and in-depth industry knowledge.
If you’re looking for low pricing and products and services that will help you reach your business objectives, a consulting company will ensure you get them. Not only do these companies often have close relationships with vendors that give them massive leverage, but they can also help you with all the steps of the procurement process.
They’ll assist you with writing and sending out RFPs, negotiating telecom contracts, ensuring vendors stick to the established terms, and everything in between. Plus, they’ll keep your company’s objectives in mind throughout the process.
Save on Procurement with TPG
It’s easy to achieve procurement success when you’re working with industry experts. At Technology Procurement Group, our telecom procurement specialists use their decades of experience to earn you cost savings and take the stress out of procurement.
We offer a variety of services, including the following:
To partner with us or get more information, call 1-888-449-1580, email info@TPG-llc.com, or fill out the simple form on the Contact Us page. We look forward to working with you!