Streamlining the sales process while appropriately protecting the company is a top priority for any organization selling goods or services. Deals can get held up by negotiations, especially during crunch time like End of Quarter. That’s why it is good practice to create a contract negotiation playbook to be shared with sales, procurement and legal. This post will give you an overview of how to create a contract negotiation playbook.
Identify a Negotiation Threshold
Identifying a negotiation threshold can help avoid negotiations for deals where the effort does not justify the end result. Many companies set a dollar amount threshold for whether they are willing to negotiate or not. For example, if the annual revenue from a contract is less than $100,000 – no negotiations are available. Identify this threshold, and only break the rule under extreme circumstances.
Audit Terms Previous Customers have Negotiated
You may conduct this step first. If you have an established sales organization, consider utilizing your contract lifecycle management tool to identify what Customers generally negotiate on your contracts. Based on that data, create a bullet list of often-negotiated terms – and what the general outcome of the negotiation on closed deals has been.
Identify Negotiable Terms
The base contract is generally drafted to give the selling organization an advantage. That means, inherently, there are some negotiable terms in the base contract – and the first step is to identify what each company is willing to negotiate on. This means a full understanding of the legal repercussions must also be identified. So, if a company is willing to negotiate on mutual indemnification and limitations of liability language – the decision makers must understand what this means if and when these terms are triggered. Create a bullet list of terms that are negotiable, what you are willing to accept as a counter, the repercussions, and the reasoning behind why.
Identify Non-Negotiable Terms
Just like there are some terms that are negotiable in a base contract – there are some terms that are non-negotiable as well. Identify these ahead of time, and in your playbook – explain why you cannot negotiate on these terms. For example, a SaaS company that offers annual agreements should not offer termination for convenience clauses because of their revenue recognition model. Create a bullet list of terms that are non-negotiable, and explanations as to why.
Identify the Walk-Away Point of any Deal
Every company has a risk pallet for deals and it’s important to identify what that looks like. Companies may be enticed to enter into more unfavorable terms for a bigger logo or deal. Identify what that risk pallet looks like and for what deal size or logo you are willing to bend on – but set a clear walk away point.
Identify Give and Takes
Companies may offer more favorable terms to Customers in exchange for a longer deal term, bigger deal amount, etc. These give and takes can make entering into negotiated deals more acceptable. Identify what the give and takes can be.
Create Playbooks for Specific Exhibits
Your base contract may also include a Data Processing Addendum (DPA), Business Associate Agreement (BAA), or Data Security Exhibit (DSA). Each of these should have their own playbook as well. These are particularly important as they may deal with specific laws and regulations, and it’s important to only accept negotiated terms you can actually abide by.
Let Us Help
A contract negotiation playbook is company and customer specific. If you need assistance creating a contract negotiation playbook for your company, feel free to reach out.
This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.