IT Dept. switches from cost-plus to market-value to sell its
CRM software to joint venture business partners
- Negotiating from a weak position.
- Pricing a software service contract.
- Minimising business & legal risk
A £bn FTSE100 company had spent £M on developing a bespoke CRM (Customer Relationship Management) system for their call centre and regional sales teams. It enabled them to process retail customer sales, to collate sales statistics and record customer preferences in real time. The CRM system could prepare targeted mail shots and manage product campaigns - sending out personalised letters to selected individuals that met the campaign’s criteria. The company was increasing revenue with better directed sales campaigns for lower cost.
The company worked in a joint venture with several business partners who were very impressed with their CRM system. Consequently the company agreed to sell it to their business partners in exchange for sales leads and customer referrals under a revenue and work sharing arrangement. The company was in a weak negotiating position - not knowing how to charge for IT services and support. The IT and marketing departments had no experience of determining a fair selling price, negotiating a software licence, providing customer software support and preparing service level agreements. The best the IT department came up with was a “cost plus 20% formula” - about £5,000 per terminal to recover their direct costs. The company had no idea if this was too expensive or too cheap, and what the risks and legal issues might be in providing an IT service.
Our solution - using market value and standard IT license templates.
We quickly concluded that the CRM software was very valuable. It should increase sales revenue, reduce marketing costs and improve customer service and satisfaction. No wonder their business partners were keen to buy it. We advised the company to adopt a market value sales policy - a high price for a high added-value product. We proposed that the price was increased by at least 10 times - from £5,000 to £50,000 by moving away from cost-plus thinking. This price was based on customer value and was comparable with other sophisticated CRM systems. It should still enable their partners to achieve a high payback. We also used our standard document templates to help their legal and IT departments draft a customer software service level agreement and a software license. We also provided IT project management and sales account management advice and helped the company prepare a sales presentation which showed their CRM software in an extremely favourable and beneficial way.
Winning results - The joint venture is concluded on superior terms and quality
The joint venture with their business partners was concluded on vastly superior financial terms. In addition, the quality of the contract and related documentation, such as service level agreements and software licence, was much higher because we brought out into the open many overlooked issues. Consequently the final contract satisfied everyone. We also helped their business partners prepare business cases seeking authorisation for expenditure for the CRM software. We justified the cost and estimated a high payback.