Master negotiations by mastering preparation | #4

[Kristi]

Anybody who's working with enterprise companies, those are two dates that you should absolutely know. What is your fiscal year? Start and end.

And then also, what is the date or timeline that you start your budget planning process?

[Stino]

Welcome at yet another episode of the Customer Success Hotline. I'm here still with the bee to the gods. Like, look at that makeup.

Kristi Faltorusso. So I was here to get into another question of this week.

[Kristi]

Okay. Can we talk about this? Hold on.

Look at this. Hold on. We are giving such different vibes today.

Your hair is everything. And I am like the tightest slick back ever. I can't even feel my brain.

We are such different vibes today.

[Stino]

But this is like, this is giving me also, we're recording this on Halloween. Like this, you were going for a full like goth queen vibe. I'm obsessed.

[Kristi]

I should have given you like a big, bold red lip is actually where I failed you. I forgot. It's Halloween.

I didn't forget. It's Halloween. My daughter actually has been nonstop with Halloween, but I should have given you a big, bold red lip.

And I didn't. So I feel like I failed you. So I will show up a little bit differently next time.

[Stino]

That eye makeup, I'm obsessed. I'm obsessed. I'm obsessed.

Literally, this is like...

[Kristi]

You're so good for my self-esteem. I feel like I should just talk to you every morning to start my day, just to like build me up so I can go take on the world. You're the best hype man.

[Stino]

But this like, this made me doubt my sexuality literally for like 10 seconds. This was, this, I was like...

[Kristi]

Don't tell Tom.

[Stino]

He knows. I'm like, if I'm on a call with Kristi, like either way, she has the best pair of Valentino earrings or Chanel earrings or necklaces. Again, just appreciation about how good she's looking today, because she ate, she left no crumbs.

She ate, she's been to the gods. Bear in mind, it's also 7am in New York. So I mean, it's like 12.30pm for me. And I look like I just rolled out of bed at 7am in New York. And you look like you've been like going to the Met Gala.

[Kristi]

Listen, I have to show up for you. Are you kidding me? I can't come here and like disappoint.

[Stino]

You never, you never disappoint. Well, let's hope that we don't disappoint with the answers to our next question. The next question comes from Sarah Areco.

She wants to know on how we can reduce the negotiation time or enterprise renewal. Enterprise for her means that it's an annual recurring revenue of 170k and the negotiations can take months. Longest one I did lasted 18 months for a two year renewal, which is already one year of that two year renewal.

Well, take it away. I would say I've been talking already. Okay.

[Kristi]

All right. So let's unpack this. So right.

I think when we talk about enterprise companies, it's not about the value. It's about their business, right? So like when I think about enterprise companies, I'm thinking like GE is Oracle, Adobe, like big, massive companies, right?

So it's not about the spend. I think just so we can all get on the same page here, not about how much they're spending, but the type of organization they are, right? Like if you're working with Google, they're big companies.

So right. So now that we've all kind of just, we're on the same page talking about the same kind of company, that's how we'll standardize enterprise for today's conversation. But like, let's start with the basics.

Why are you doing a 12 month contract with an enterprise company spending over six figures? Like that would be my first place of like, are you kidding? I would just make sure out the gate, all of these contracts are at least 24 months, but 36 probably should be their standard.

So I'd go back to the sales team and ask, what are we doing on a 12 month subscription here? Can we start doing 24 or 36 months? Right.

Like I would even just start up front and start even just all contracts be a multi-year.

[Stino]

Yeah.

[Kristi]

Also, I don't know what your thoughts are there to start.

[Stino]

One and two. And I also think it depends on the product, right? Like the thing is some of the products you want to give value straight away, but sometimes it takes a while to get to that value point for the customer while an entire tool is rolled out.

So sometimes it can take up to like six, seven, eight months, but if you're on your contract, like indeed like that, it makes the negotiation for renewal that much harder because like you want to start like at least six or five months up front, but if you're not getting that within your first year, there is no negotiation. Basically like, okay, we're still going for your value win, but I want to take your money already for the second year. So in that sense, completely agree.

If it's like enterprise customers, regardless of how many money they're spending, it are these clients that also, even if they start small or the land and expand kind of deals that you want, you only can land and expand from a customer success point. If you actually have those long-term contracts, you want to have those 24, 36 months.

[Kristi]

I'm thinking like maybe if you're doing a trial, right? So a trial might be something with a shorter term, maybe that's a 12 month, but in those cases, let's move past the multi-year agreement. You got to get to a place where maybe as a company, if you're getting into an enterprise business, right, you've probably already gone through legal.

You've probably already gone through procurement. You should be part of their approved vendor list outside of like you jacking up prices or really trying to expand your footprint where now you're selling into different business units. And like, there's a whole other level of complexity there.

Why is it taking 18 months?

[Stino]

Right.

[Kristi]

I would think like, yes, out the gate, the sales process. Yes. If you've got to go through all of these approvals, right, you're going to go through legal.

You're going to go through procurement. You're going to go through some vendor approval process. You're going to have to get into their database, their security review.

I get it. There's a lot to get into the company, but I can't imagine on the renewal end, it's got to be that difficult because you should have already overcome all those hurdles during the initial sales process to get vetted. Now, another thing I can think of is if you were acquired, right?

Let's just say there was MNA and then the large acquiring company, the parent company is now this large enterprise entity and you're not approved technology in their stack. And so now you're having to go through that process. I could see that being a long process, but usually they have also at least a short term solve for that saying like, okay, we can sign a 12 month.

You're basically in this like proof of concept review process. Right. And so we're going to let you hang out for a year while we do all this other vetting and approval.

But I don't know. I mean, like, are you as confused as I am? Because I'm like, I just can't understand on the renewal why it's taking 18 months.

[Stino]

Renewal is practically insane because it means that there is not sitting something right for, because in my eyes, if you're driving value and again, no shades, but if you're doing your job as a customer success manager and have like a very good tandem with your sales team, in my eyes, a renewal, and especially also for enterprise customers should basically be a non-issue. The only issue I can foresee, and especially in today's economic climate is pricing. Let's be honest, it's been a tough market.

Like there is inflation. There have been layoffs like 100%, but even that shouldn't take 18 months. 18 months means that it's basically spread over two years.

That already covers two budget meetings on your client's end. Like it's in the budget. That is a shingle.

Like you need to be aware of your customers, not billing, but you need planning or forecasting through the cycle or when the fiscal year ends your client's side. This is also, you need to know that. So it's your sweet spot.

And then maybe calculate six months or 90 days before, depending on the size, but especially enterprise always take six months when their financial or fiscal year ends. That is your sweet spot. Then you are in those conversations of, okay, well, how is the forecasting for next year looking like?

Do we have billing or like pricing blockers? But that is basically the only blocker that should pop up, especially for those enterprise customers. Because as you mentioned, you've been like whooping through all of these hurdles as like the circus artist with your sales team.

So basically it shouldn't be a problem. Indeed, I'm also super confused why it takes 18 months.

[Kristi]

Right. And listen, you called out two super important points and I will tell you, anybody who's working with enterprise companies, those are two dates that you should absolutely know. What is your fiscal year start and end?

And then also what is the date or timeline that you start your budget planning process? Now, what you're going to do if you're the CSM is three months before they start the budget, you should be preceding conversations around any price increases, any changes or product consumption, anything that is going to change the price that they are paying for your product or services. Those conversations should be three months before they start the budget.

So that way, as that person is going into the budget cycle, they already have an idea of what they need approval for. Now, those budget processes, I will say in these large enterprises can be six months too. I swear.

I mean, like, can we also get better about how we do these things, guys? Why is it taking you six months to do your budget? But yeah, so if you've got three months before the budget start, they have an idea of what that should be.

You should be negotiating in that three-month window. Now, this goes back to why are you doing a 12-month contract though? Because if you think about it, depending on when they signed their contract and their budget, you might sign a deal and then tomorrow say, oh, wait, we're three months away from the budget planning process.

Like, okay, let's start. Like, what, when do you even get a chance to do any of that work?

[Stino]

100%. And I do think with this question, I do have the feeling that you sometimes miss your mark or you're not 100% when taking on the renewal conversation. Maybe in this case, you took it too early because it took 18 months.

Like, was it 18 months of literal negotiate? Like, was it day in, day out 18 months or did you like send out a question and they didn't return to you for, let's say, six months?

[Kristi]

Right. Or like, were you both so stubborn that nobody could figure out how to come to terms? Like, I mean, were both parties just be like, no, we're not budging on either end.

Were we to stand still for 18 months? I just don't know. It seems like a wild timeline for that.

And I keep trying to think through like, what are all of the things that could be causing that to slow down that long?

[Stino]

I don't know. Pricing is the first thing. And then maybe also your collaboration with sales.

Isn't that maybe the best, especially for enterprise building your like sales account. The thing is, again, it depends because like I'm working with smaller deals, not over 170K, but at least let's say 50, 60K. In my eyes, customer success owns a renewal.

We're driving revenue. We're driving value. So in my eyes, it's like, it should be a no brainer to have that conversation and be like, okay, let's like renew for another two years, 36 months, another year.

But if it's 170K, your sales team as well jump through hoops to get that signed. So when that renewal is coming closer, your sales team still maybe has a relationship, spread to work, spread the load.

[Kristi]

Well, listen, I've also seen on these larger customers in these big deals, if you're selling to all true enterprise companies, I've seen a lot of cases, you're usually going to have an account management team, or you're going to have an account team supporting these motions, which means if you're the CSM, you should have some support to help drive this. And now, especially if what's slowing it down is again, let's assume it's a land and expand model. And let's say you're selling to a new business unit or a new entity, or you're selling a new product across the company, whatever the case may be, those things could slow it down because you're going through a new sales motion.

So I get that and I can respect that. But in that case, are you the CSM who's doing that? Because if you are, how are you driving value then in your engagement with the current business unit that you're working with?

That's two different jobs. And unless you're a CSM and that's your only customer, or maybe like one of five customers, that's still a lot of work. So where is the division of focus and labor, I guess, that could be slowing it down?

Man, I don't know. I can sit here and try to come up with a scenario of like, I don't know, all the things that we could be doing wrong that would slow it down. But gosh, I seriously hope it's not just a negotiation.

[Stino]

And maybe it's also, and again, no shade nor blame, but maybe it was also because they maybe didn't see any value yet.

[Kristi]

Oh, well, so then listen, then that's not a negotiation. I would say that that's a save play. So then in that case, it's like if your customer hasn't seen value and now you're coming up to the renewal and you're basically like, we're going to re-onboard or we're going to re-enable your team or now we got to come up with a new proof of concept or proof of value, that's different.

Then that's not negotiation. No, that could take 18 months for sure. Especially again, to your initial point, how hard is the product and what does the product do?

Is it something that is more complex? Is it customizable, not configurable? Are we having to do a big change management within the organization?

Is there a lot of end users? Those factors can all slow these things down for sure. But then again, now we're not talking about negotiation.

We're talking about kind of a re-onboarding, save play, redeployment kind of thing.

[Stino]

Yeah. Those are the only two things that I can think of. It's basically or the pricing is not right because we're living in very weird times when it comes to...

[Kristi]

Weird times, but I mean, listen, how off is your pricing? Would you charge them $5 and now you're it's $500,000? I get inflation, but like...

[Stino]

18 months?

[Kristi]

Was this like a bait and switch? Did you say like, here, is this like 99 cents for the first year? But then after year one, it's like, here, it's a half a million dollars.

Okay, sure. Maybe that is going to require some negotiations.

[Stino]

But also 18 months is like basically twice inflation. Are you running two negotiations? Like first we went for like $100 and then a year...

[Kristi]

And then it's like, sorry, it's Tuesday. We got to price this up again.

[Stino]

It's $250. Yeah, no. How to reduce negotiating?

I don't think there was anything that you can do by basically reducing it. I do think that if you're, like we said, with the billing cycle or like their forecast planning and that conversation, if you find that and you understand on how your financial year runs for your customers, when the renewal date is, if you match those two and have a conversation when you're doing their budget planning, I think that is just the best way to handle a renewal. And then there is no questions asked on how to speed up that process.

Because again, you were with two in these negotiations. If it's just a staring match where the client doesn't budge, 100% is going to take you longer. But if you are sticking to the basics, I do think like it's feasible to get it done on a week.

It's feasible to get it done on two months. It's feasible to get it done on three months. But I don't think it should take longer than three months.

It's basically a fairly easy question.

[Kristi]

I mean, listen, I have worked with companies, large enterprises where it's taken six, eight months. And I feel like that's long, but I'm not talking about a small company. I'm talking about one of the world's largest companies out there.

And I won't name the logo, but I would expect it took us eight months and that's okay. And we knew that, right? Because of their procurement and legal and security and like the vetting.

So eight months, it's long and I get it. But 18 months, that's two babies. I had two kids in the time.

Maybe like one and a half, maybe the other one is baking, but like you're like, you're almost done. So that just feels long. So listen, I don't know.

I think the processes around how you manage this internally, you can kind of go back to your SOPs and kind of figure out, is there something we can do to fix and solve for this? But I would say, get your customers all in multi-years. Let's start with that.

You shouldn't be negotiating a 12-month contract over an 18-month period. That's wild. Get your timeline straight.

So figure out what their budget planning cycle is, get their fiscal year, get your paper on their timeline. Do a rip in their place too, guys. Like this is a very viable path forward.

You can rip up a contract and write new paper with new dates and timelines that better align if you miss that mark initially. Pre-negotiate things, get some standard clauses in there. If you know that pricing is going to go up 10%, have in your contract, have things pre-negotiated, have future pricing, have tiered pricing, have some of this already set up so that when, as they are expanding and growing, nobody is surprised.

These are all things you can just put in place to reduce the time on all of this. And at the end of the day, if you know legal, security, procurement, all of this is going to be a thing, figure out your best way. Have those conversations up front.

How do we pre-negotiate timelines and set this up so that way we're moving as quickly through the process as possible?

[Stino]

Yeah, 100%.

[Kristi]

I don't know. Those are my thoughts.

[Stino]

No, that are super, super spot on, nail on that. That is a thing though. I do think, and I admit to that as well, sometimes we have in our head, we need to start renewal at least X amount of months before the renewal date.

But indeed, there is no shame in the game to maybe do it already early on while they're kicking off and be like, okay, if we were at our renewal, what are the blockers? What are the things that I need to take into account? I think it's a super normal conversation to have.

So in that sense, yeah, it completely makes sense.

[Kristi]

Listen, those are the business conversations we should all be having. Here's a good motion here. If we've got this huge, large enterprise company, my sales team sells them, they close, I'm going to get some context from my sales team on what happened there.

But as they're onboarding or whatever, I can have a parallel discussion and say, listen, we work with other companies that look like you. While we're going through this, I just want to make sure that I have a good, clear understanding of what your internal processes look like. So that way, when we get to this point of renewal, that I'm managing it as effectively as possible to make the experiences seamless on your end.

So help me understand what does that look like from start to finish? It's kind of like how a bill becomes a law. Let's just kind of lay out the process here.

That is not an inappropriate conversation to have. If anything, it's showing that you're doing your due diligence to make sure that at the end of the day, this is as seamless and easy as possible for your customer.

[Stino]

See, and there you have it. Then you don't need to have make two babies, but you can just...

[Kristi]

No, no, we should not be having two babies in a renewal cycle.

[Stino]

So now you can just do the fun stuff, like the making of the baby. If you have that conversation.

[Kristi]

Of course you have to take it there.

[Stino]

No, but I do think that we, I hope we answered the question. I think there is nothing about reducing the negotiation time. I do think that you can avoid making this longer by having those conversations, by having understanding from the sales team, by having understanding of their budgeting cycle, like all of these things.

So it's not making, how do I reduce it? How do I prevent it? I think that is a better way of putting it.

We aren't giving advice on how to reduce it. We just gave advice on how to prevent it, to make it a two baby cycle. So in that sense, and on that note, I hope...

[Kristi]

Just one baby.

[Stino]

Or just making a baby. And on that note, let's wrap it up here. I hope we answered your question.

If you have any things that you wanted us to answer, please reach out to us on LinkedIn, submit another question. We're so grateful that everyone is listening in to the Customer Success Hotline. I hope you guys have so much fun listening in as we have making them.

They get more wealth every episode, so we can't wait to get you on another episode of the Customer Success Hotline.

[Kristi]

See you soon.

[Stino]

Bye.

[Voiceover]

You've been listening to the Customer Success Hotline, produced by Lifetime Value Media and a member of the Lifetime Value Media Network. Visit the show at lifetimevalue.link for links to each episode, show notes and instructions on how to submit your burning questions.

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