Posted on April 14, 2021 by Travis Peterson
You just paid another huge DMS bill, or you heard about a great new system from your 20 Group, or you want better support. There are a myriad of reasons dealers decide to switch DMS providers. Whatever the reason, it’s a major decision because your DMS touches every aspect of your business.
I get it. I’ve been a Controller during a DMS switch and it’s a decision no one should hurry or take lightly. No matter what, it will disrupt your business and challenge your team. Yet, if you put in the time to carefully select the right partner, the positives will outrank the negatives.
The following information walks through the tips and tricks of DMS contract negotiations, what to expect, and what to watch out for when analyzing providers.
How to prepare.
Before you approach any new provider it’s essential to do a thorough analysis of your current system. Perform an expense analysis of your DMS and also of all third-party spending. This will tell you exactly how much your DMS is costing per month.
Prepare a list of all systems that integrate with your DMS. Start with the obvious – such as your CRM, desking product, service applications – then move to less well-known integrations, such as your parts scan gun.
Review business components not directly tied to your DMS, such as your website and inventory. I remember when my dealership switched; we battled for months to understand all the websites where we listed inventory to make sure prices were correct and reflected in the new DMS.
Next, meet with your dealership managers to learn what is working with the current system and what is not. Gather input on other systems they may have used before. Chances are, some may have some recent exposure; especially if they are newer to the organization.
Finally, narrow down exactly why you want to make a switch. Is it purely price, or are you looking for different functionality? Maybe you’re planning to buy another store and are concerned your current system isn’t flexible enough to handle the addition?
Once you’ve isolated your reason, set up a meeting with your current provider and discuss the problem with them. Maybe they have a solution you don’t know about, or they’re willing to negotiate on price to keep you as a client. There’s no reason to move if your current provider is willing to take care of you.
Set your priorities.
You’ve done your due diligence and decided a new partner is best for your business. Now, set your priorities for a new system. The biggest driver for most dealerships is price – they simply want to pay less for a DMS.
If this is your biggest priority, make sure you’re not losing something essential for that lower payment. When my store went through a transition, it sure seemed like it was going to be cheaper. But we ultimately had to source other programs to get the functionality we needed. Those cost savings virtually evaporated.
Determine what functionality you need to run your business. More times than not, dealers overpay for functionality their staff does not even use. You don’t always need the Ferrari of systems. On the flip side, don’t overlook core components that you absolutely need. Realizing you’re missing an aspect after the switch can be a major disruption, even if you can add it in later.
Support and quality of service should also be a high priority. Don’t simply listen to what a provider has to say about this issue. Lean on your 20 Group and other allies in the industry to give you honest answers. They’ll tell you if you can expect to wait on the phone for hours when you call with a problem. Then you can steer clear.
Add data retention and ownership to your priority list as well. You want to know your exit strategy. Will you have to pay to get your data back? Will there be conversion costs? Too often dealers ask these questions after signing a contract. Ask before so you go into the relationship with clear expectations.
Finally, think about DMS capabilities in regards to your long-term plans. Most DMS contracts last three to five years. During that time, are you planning to add a store? Start a wholesale parts department? Open an RV dealership? Whatever your plans, make sure the system can morph and adapt along with your business.
Know the timeline.
A DMS switch is a lengthy process with major milestones that begin far in advance of signing a new contract. The following timeline will help prepare you for what to expect.
24-months before current contract end – This is when you should start investigating a switch. Prepare your cost analysis of your current system. Meet with your dealership managers to discuss likes, dislikes, and needs. Complete a line-item review of your current DMS services. Determine the nuts and bolts that hold your system together and what is crucial for a new system.
15 to 6-months before current contract end – This is when you should begin to engage with new providers. Lean on your previous analysis to determine who to engage. If you want hardware support, approach Tier 1 providers, like Reynolds or CDK. Tier 2 providers, like DealerTrack, or Auto/Mate, do not provide in-house hardware support. Tier 3 providers are the least expensive but also offer the lowest level of support.
Set up product demonstrations with your managers present. Steer the conversations towards what your dealership needs, and have managers run through everyday tasks – such as cashing out a repair ticket– to get a feel for how the system works in real-world situations.
Narrow down your choice and begin contract negotiations (more on this in the next section). Thoroughly read the final contract before signing. Contracts are complicated, often with many sub-items, so call in a consultant where needed. Don’t assume you know something. Make sure you do.
Finally, iron out implementation and transition details, schedule trainings, and lock-down how and when data will be converted, all before signing the contract. Don’t forget to draft and send a 90-day cancellation notification to your current provider.
6-months to the go-live date – This is when you begin to prepare your dealership for the switch. Put a hold on manager vacations for the installation period. Everybody needs to be on board and ready to go to minimize business continuity issues.
Communicate the transition plan and expectations to all employees. Employee buy-in is key for a successful conversion. Curtis Horne, a dealership consultant for over 20 years and former Reynolds & Reynolds VP of Sales for the Southern Division, understands that change is hard and employees may need a little push. “Compensation drives behavior,” he explains. “If there is a significant financial benefit, employees will change.”
You can incentivize employees for taking additional online trainings, for hitting major milestones, or for helping slower learners. Money is always a great motivator.
Learn the tips and tricks.
DMS providers are like any other business – they want to make money. If you know a few of their tricks, you can avoid over-paying for services, getting locked-into auto renewals, and giving up too much control over your business. Watch out for the following practices during your negotiations.
5+ year contracts – Many providers offer a standard 60-month contract as if it’s the only option. It’s not. There is the ability to sign a 36-month contract. According to Horne, you should “only accept a five-year term if the offer has clear financial benefits. The market is so volatile and there are so many providers, you don’t have to live with a long-term contract.”
Support price increases – Providers typically increase the cost of support every year. Make sure those price increases are clearly included in the contract so the provider cannot further inflate the cost as time goes on. Horne notes that you can “negotiate getting support locked in with no increases, but you must do it from the very beginning before you sign.”
Terms of installation and training – Make sure you hash out terms for installation and training (the cost plus the number of hours you will receive) in the initial contract. Consider that some people will learn fast, and some will not. Work out an arrangement that gives your team ample training so they can succeed after the trainers leave.
Contract term – It’s a common misstep to not verify when the contract term begins and ends. Typically, the clock starts when the system installation is complete, not when you sign the agreement. I recommend setting a calendar reminder 24-months before the term end. This is a good time to assess the system. Do it again one year before end, and 6-months before end. Then you won’t be taken unaware and miss your window to cancel, if you make that decision.
Contract extensions – Be aware that DMS providers can include an automatic +60-month term renewal when you purchase updated hardware. Don’t accept that. Request in the contract a clause stating that any updated hardware have the same expiration date as the existing contract. Depending on the provider, Horne goes one step further: “I have a termination letter already signed at the beginning of the term so that there cannot be an auto renewal clause. If you’re not paying attention to dates, a contract can be auto renewed for years.”
Bundling services – Some providers encourage you to bundle all your services with them. Everything from internet and phone, to accounts receivable, desking, and employee timekeeping. Dealers can, and do, get held hostage by providers who threaten to shut off access to their systems if they don’t renew. Rather than bundle all your services, take a step back and look at third-party providers. You don’t want to be in a situation where you want to make a DMS switch, but didn’t realize your current provider manages your IT. “Negotiate who controls the network,” says Horne. “Do you really want one provider controlling your entire dealership?”
Document management – Many DMS providers offer electronic document management solutions, but those solutions only work if you use their DMS. If you decide to switch providers, you have to buy the new document management solution. Consider instead using a third-party system. You buy it only once, and many are DMS-agnostic so you always have access to your data, even if you switch providers.
OEM integrations – Your OEM must communicate with your dealership so many DMS providers include OEM integrations. Before you jump to a provider that touts integration with your OEM, ask how many integrations are included. An OEM may have 30 integration points to a DMS, but a provider may offer only 12. There’s no rule that they must offer them all so ask before you sign.
Your DMS touches every aspect of your business, so you should never take a provider switch lightly. Invest the time in analyzing systems and learning negotiation tips and tricks, and bring in outside consulting help if you need it. You’ll significantly increase the likelihood of choosing the best partner, with the best system and terms, for your business today and far into the future.