Getting Software Budget Approved
How CFOs are thinking about software purchases in 2025
Today’s Sponsor: NetSuite
Download the CFO Agenda for 2025: An array of ever-changing regulations, technologies, and trends have CFOs wondering: What do I need to prioritize this year to set my team and company up for success? We’ve got you covered with 25 actionable ideas to help CFOs dive into 2025 without missing a beat.
The best way to sell to the CFO and get a deal signed is to understand CFO objectives. Many deals get killed by the CFO because the sales rep (and/or internal champion) don’t understand what is important to the CFO.
Salespeople (and budget owners): I will give you all the secrets you need to get your deal over the finish line.
CFOs and Leaders: I will give you my secrets to negotiating better deals.
What does a CFO want?
The CFO *should* follow the Rule of X when making decisions for the annual operating plan and budgets.
Rule of X = (Growth Rate * Multiplier) + FCF Margin
Based on this, CFOs are primarily concerned about the balance of two things:
Revenue growth
Profitability
The multiplier in this equation is also very important. While CFOs have to balance between revenue growth and profitability, the relative importance between these two variables can be very different depending on the company.
The relative importance of growth today is a lot different than 2021 (2.5x today versus 10x+ in 2021). Some salespeople haven’t changed their sales approach to reflect this.
Each company is unique though so it’s a good idea to understand what is most important to the CFO you are selling to.
The relative importance of growth vs profitability can also depend on the CFO. While a CFO should theoretically follow the Rule of X weighting that maximizes valuation, some CFOs won’t follow it. For example:
A CFO promoted from the controller role is likely more expense focused
A CFO from an investment banking background might be more sales focused
There is also a third category that is not captured in the Rule of X that CFOs must consider:
Mission critical
This is the stuff required so that your company doesn’t end up on the front page of a newspaper - cyber security, financial audits, legal, etc. The relative importance of this factor also changes between companies and stage of company.
It’s about acceptable levels of risk. If you are small then you care a bit less about some of this stuff. For example, you probably don’t need a financial statement audit if you have <$5M of revenue.
What is the likelihood of an issue and then what is the potential impact?
Every tool that doesn’t fit neatly into one of the above categories is going to be considered a “nice-to-have”. Salespeople will always pitch that their tool fits into one of the above categories, but some tools will fit much cleaner than others…
CFO Deal Questions
Be prepared to answer all of these questions!
Tool Need
Why do we need this tool now? What has changed?
Is the spend in the budget? If not, how will you make up the difference?
How does this tool help us meet our company objectives for the year?
How urgently do we need the tool? Do we need it now?
How does (or will) AI impact the decision?
Does the build vs buy decision change?
Will the tool add more or less value over time?
Choosing Vendors
Can we consolidate vendors?
If similar tools exist, why can’t we consolidate and use those?
Does the vendor we are considering have other modules/features where we can consolidate?
How big and stable is the vendor?
How much risk are we taking on with this vendor possibly shutting down in the future? If the impact of a vendor shutting down is high (mission critical, deep integrations, etc) then I want the risk to be low (for example, we can easily replace with another vendor)
How long will the vendor’s tool scale with the company? Will we have to replace it in 12 months?
How confident are we in the vendor? Are we confident they will still be the best tool for us in 6-12 months?
Hidden Costs
What are the people time requirements?
Does it require hiring more people to implement and maintain?
Can it help reduce headcount or help maintain current headcount for longer?
What are the direct and indirect implementation costs?
Will we need to upgrade plans soon to an enterprise tier?
Are there overages or other hidden fees?
Pricing
There are lots of opinions about pricing models, but a CFO just wants transparent pricing at a good price that can be accurately forecasted. You can do this with any pricing model if it makes sense for the tool.
Forecasting: If I can’t reasonably forecast spend for a tool, then there is a lot more risk. There has to be a reasonable way to forecast and put guardrails on spend.
Price: CFOs just want a good deal. But the “value” being delivered isn’t always a good deal. Value is the ceiling on how you can price while the floor is the alternatives.
Many AI products are pitching themselves as human replacements to justify a high price.
If you spend $150K on a human and I can replace that for 60% of their cost then that is a good deal. And it’s coming from existing budget!
AI stuff is becoming mainstream in 2025 so pricing a tool based on value today won’t work for very long. The price of AI tools will move toward the floor of alternatives. Don’t get greedy in pricing based only on value because you will lose the CFO’s trust. The pricing ceiling with AI will move toward the floor very quickly.
CFO Negotiating Tactics
Discounts
We all know cloud companies have wiggle room to discount more. Nobody is being fooled by the *very* special end of month discount. I get the tactic and I know everyone does it, but don’t push it too far.
CFOs are checking with their network and other resources to make sure they get the best deal possible. CFOs have a lot more visibility into pricing today. The last thing a CFO wants is to feel like they are not getting a good deal.
Multi-Year Contracts:
While multi-year commits have a larger discount, the risk is too great to justify in a lot of circumstances.
For earlier stage, be *extremely* cautious with multi-year commits. Things change so fast that it often isn’t worth the risk. I tell folks to wait at least until the second year of using any software before committing more than 12 months - a lot can go wrong or not work as expected. Plus, what is relevant today may not be relevant in 24 months with all the AI innovation.
All else being equal, CFOs want shorter contract term lengths to reduce risk. While there may be lost discounts with shorter contract terms, the lost optionality might be even greater as new tools are developed that are much better and/or significantly less expensive.
Sales Folks: Don’t overly incentive and push sales reps to close multi-year deals. Getting pulled into the conversation is OK, but pushing it can cause more issues than it solves.
Auto-renewal & Renewal Conversations
I always try to negotiate these out and if the vendor refuses then I will just send an opt-out notice immediately after the contract is signed.
A side benefit of sending the cancellation noticed right after signing is that the vendor engages with you early for the renewal every time, which helps get more discounts.
Customers should always start the renewal conversations early because then you have more leverage and can typically get better discounts than if you wait too long.
Payment Terms
Annual upfront is typical for enterprise SaaS and I have historically been just fine with that (makes my accounts payable team’s life easier), but if it’s a high dollar amount then I will push for shorter payment terms. Gives me leverage as well if the software or implementation isn’t going well…
Build vs Buy
This discussion has been around a long time, but with AI advancements this threat has some more teeth.
To be clear, I do not want to be in the business of building and maintaining all of my software needs like a CRM. But…if the price is crazy for what we need or the tool is for a low impact area, then you better believe I am now considering building internally.
CFO Hardball
This one is my favorite and works 50%+ of them time and it is so simple…I just tell vendors that I have a hard cap on the budget of $XX and I cannot exceed that.
For new business it means I need to know a reasonable amount to put that cap. It usually means we have talked to a few vendors and received pricing, so I know about how far I can push it.
For renewals it often means capping it at last year’s fees so they don’t uplift the price on me.
The key to both of these is knowing pricing and having credible alternatives that you can go with instead. If you start the new business or renewal process early enough, then the threat is much more creditable.
The Secret to Getting Spend Approved
The CFO’s trust.
The #1 thing that makes a purchase approval easy is my trust of the internal buyer. The #2 thing is my trust of the seller and their company.
I DO NOT want to get on sales calls about software. I want my leaders (budget owners) to do that diligence themselves. If I trust them then I will mostly let them run the show. If I don’t trust them…then I am much more involved.
CFOs quickly find out who is lazy (or lacks experience) and hasn’t done much analysis/diligence. We push back hard, make them look at alternatives, ask other people, etc.
Sales Folks: Your job is to help equip your champions to earn the trust of their leaders and CFO. Spend extra time with those who are less experienced, new to a company, or may not have the trust of their CFO. Because they are the ones who need to earn trust to get the purchase approved.
To Summarize
Understand what is important to the CFO
Prepare the internal buyer to sell to the CFO
Be able to answer the questions above
Trust is SO important for selling deals in 2025
Trust of the internal champion they have done their homework
Trust of the company that their product/roadmap is a good bet
Footnotes:
Download the CFO Agenda for 2025 from Netsuite
Sign up for the OnlyCFO webinar series! Our next webinar is on February 19th on the M&A environment in 2025. We have two amazing guests - a software PE investor and the CEO of a company that sold to one of the largest cloud companies in the world last year.
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