Wednesday, October 15, 2014

Tips from an industry insider: When is the best time to renegotiate your telecom, mobile and IT contracts?

Mid-Term Re-negotiations.
(If you're not renegotiating every 12-18 months, you could be losing millions in opportunity cost).
Due to the constant drop each year in telecom, mobile and IT cost, if you're not renegotiating your contracts at least every 12 -18 months, you could be paying more than 25-35% more than market and leaving millions on the table.
The most common objections we hear from prospective clients is. "We are in the middle of a contract and can't touch it". Or "We are going to put together an RFP as we get closer to the end of the agreement". Most companies do not realize that most contracts can be renegotiated well before the end of the term.
Optimal Renegotiate chart 659x637

There is formula that can identify the most optimal time to renegotiate early. The variables include the term, cost per unit of your existing services and the current market pricing at any point during the term of your agreement.  As a simple example, in the graph above, we assumes a 20% year over year decrease in costs. In this example, 18 months into this 36 month agreement is the most optimal time to renegotiate. At this point, the client will save over $1.4M compared to staying with their existing contract pricing and terms. This ratio will be different for each deal. It depends on the services covered; the market conditions contract terms and corporate objectives.
Your corporate objectives play a big role in determining the right time to renegotiate mid-term. The timing may not save you the most; however your quarterly numbers need a boost. In this case you may want to accelerate the renegotiates early to hit your numbers. Vendor leverage and commitments also play a factor. How much you have spent relative to either a MARC "Minimum Annual Revenue Commitment" or MTRC "Minimum Term Revenue Commitment" also plays a big part in our leverage assessment. There are many factors why vendors will come back to the table early. Some include the desire to extend the term, add new business to the account, or a fear of lost business.
Other factor includes present value of money and opportunity costs. Depending on the curve, if you wait 6 months to pick up an extra 20%, the amount of money left on the table waiting may not justify the wait.  While not every situation is ideal for mid-term negotiations, in our experience we find that over 98% are.