This past quarter showed a 30% year-over-year uptick in Cisco EA proposals submitted for review by Clearedge clients. With Cisco’s fiscal year-end fast approaching on July 31, sales reps are scrambling to introduce new spends and last-minute deals. The vendor is promising customers big savings and steep discounts, but let the buyer beware: Cisco habitually bundles these proposals in ways that make it hard to benchmark pricing, significantly over-estimates your demand, and includes few - if any - contractual protections.
The most frequently seen proposals this year were DNA EAs, though demand for Security EAs and Cisco’s latest version of Collaboration Flex Plan (3.0) remains strong. This article will discuss ways to mitigate Cisco’s sales tactics, reduce risk in the EA, and exercise leverage in your next deal.
Cisco EA Risk #1: Demand Inflation
Customers who make the mistake of relying solely on Cisco’s recommendations often discover that they have bought solutions not required by the business, or that the vendor has over-estimated a customer’s growth for the term, which undermines any promised savings. We urge customers to compare internal counts and transactional cost differences to determine if an EA is competitive.
For example, ClearEdge recently observed a client proposal for a multi-EA deals which included Collaboration, DNA, and Security solutions. While pricing appeared competitive, the offer was contingent on executing all three agreements on one quote within the month. The customer did not have enough time to go through and validate their demand across all three sectors, and if they opted out of one of the EAs, the costs on the other two would increase. Cisco aligned the proposal with its fiscal year end, ensuring that any renewals down the line would be executed in their last fiscal quarter and guarantee consistent sales revenue.
Cisco EA Risk #2: Terms and Conditions
Customers should be aware of the vague and ambiguous terms and conditions they agree to when entering into EAs. These include Cisco’s Knowledge Worker metric definition, which indicates any employee or contractor with a “device” capable of running the software is counted in the total volume on which the EA price is based. We urge clients to negotiate quantities based on only those who will use the software and minimize the risk of over-deployment.
Secondly, there is no protection on the back end of the EA: Cisco does not offer caps on renewal increases. This leaves customers open to significantly larger costs to maintain the solutions after the initial agreement expires. The only way to protect against this situation occurs when customers can leverage net new spend or growth to motivate Cisco to promise lower price increases.
Lastly, Cisco’s “true forward” fees may be incurred if customers exceed their entitled quantity of licenses, but these rates are not defined. Further, if a customer exceeds 5% growth in the first six months of the agreement, Cisco has the right to reprice the agreement. Therefore, customers must diligently monitor their usage and know that Cisco can request verification of their deployments at any time. Since both under- and over-deploying licenses come with financial risk, the need to validate demand cannot be overstated.
The Best Practices and Opportunities with Cisco Enterprise Agreements
1) Get the Demand Right
Accurately forecasting demand is the #1 best practice to ensure that an offer dovetails with the business’s direction and whether an EA is a valuable option. When planning your demand, be as conservative with your growth as possible, because a major benefit of Cisco EAs is that they allow for a 20% growth buffer with no repricing (as long as you do not exceed 5% growth in the first six months, as mentioned above).
Taking the time to certify current counts and determine anticipated growth over the term will guard against over-deployment. This includes removing any unnecessary solutions, especially any free value-adds Cisco bundled into the agreement that the business will not use. Why? Because these “free” bundled products will be repriced at unspecified levels set by the Cisco sales team at the time of renewal.
2) Consider Being an Early Adopter
When organizations plan their demand accurately, they will benefit from the better discounting that is often achieved in strategic EAs. Specifically, customers can take advantage of the incentives regarding Cisco’s Meraki and AppDynamics EAs. These products were recently introduced as Pilot enrollments and in our experience, it is common for early adopters of new Cisco offerings to be awarded more competitive pricing than those who wait until the model is more established.
For example, in a recent proposal reviewed for a Meraki EA, the customer got some of the deepest discounts we have seen across all past deals. Therefore, customers that are considering purchasing new Cisco products in 2021 may benefit from an accelerated EA transaction before the end of Cisco’s fiscal year.
3) Accelerate or Decelerate
If you have an EA is in the pipeline, accelerating or decelerating the deal’s timeline to align with Cisco’s fiscal year-end can provide opportunities to add value, as long as demand is validated in advance. Customers should review the contractual risks, filter out any users that will not require the software, and outline growth and potential spend they can leverage against Cisco at renewal time.
And finally, we recommend that customers review their entire relationship with Cisco to see if they can harness the year-end leverage and any additional incentives. Though Cisco’s fiscal year ends this month, we anticipate similar leverage situations to be available in January at the end of Q2, due to a recent restructuring of sales rep compensation schedules.
Brianna Foley is a Senior Analyst at ClearEdge Partners