Over the years, Salesforce has implemented a highly successful sales strategy with its enterprise accounts by driving constant incremental revenue and positioning its customers for future enterprise-wide agreements. By selling directly to the business owners at a business unit level, Salesforce has actively participated in creating a decentralized licensing environment which often presents multiple challenges for its largest customers.
More specifically, we have observed:
- Disaggregated demand: A lack of visibility into overall future roadmap with business units meeting their functionality requirements on an “as needed” basis
- A decentralized purchasing strategy: An incremental purchase strategy resulting from disaggregated demand and limited visibility into the overall future roadmap
- Inconsistent commercial terms and pricing: Pricing and commercial term disparities between business units and accounts resulting from complex and fragmented contractual structures
- Lack of centralized inventory management: Inventory management conducted at a business unit level often leads to underutilization of Salesforce users and products and loss of value
If your company falls within any of the categories listed above, you may have an opportunity to restructure your Salesforce relationship upon your contract renewals. If navigated appropriately, the negotiation process may allow your company to maximize the full value of its subscription with Salesforce and leverage future demand to elevate into a more strategic partnership. The opportunity to right-size is real and understanding Salesforce’s negotiation behavior and appetite will be instrumental in successfully optimizing your overall commercial construct.
What are Salesforce’s objectives for every customer?
Regardless of the size of your company and nature of your relationship with Salesforce, be mindful of their core objectives before entering into any commercial discussions:
- Increase existing annual revenue: Salesforce will be unwilling to reduce its existing revenue stream, regardless of your level of underutilization or what the results of your benchmarking exercise reveal about your current commercial relationship
- Extend product footprint: Salesforce will look to extend its relationship with your company beyond its existing footprint and push for the adoption of strategic solution sets (e.g. analytics applications)
- Solidify executive relationships: Salesforce’s CEO, Marc Benioff, has recently commented, “every large transaction was done at the CEO level.” Salesforce typically circumvents your company’s procurement team to interact directly with its executives, often derailing the traditional negotiation process. In other words, do not expect to obtain any significant concession from Salesforce unless you have something to offer in return.
What will bring Salesforce to the negotiation table?
Substantial incremental commitments and the adoption of “net-new” strategic solution sets will typically warrant significant concessions from Salesforce.
In UpperEdge’s experience, Salesforce will be particularly receptive to the following:
- Enterprise agreements: Committing to a Product Enterprise License Agreement or Unlimited Cloud Agreement will allow your organization to consolidate a fragmented and complex contractual relationship into a strategic partnership supported by market competitive unit prices and commercial terms
- Early renewals: Offering a “co-term and extend” of all contracts will simplify your contractual relationship but also substantially increase your company’s contractually committed revenue with Salesforce; which can provide additional leverage during negotiations
- **A “co-term and extend” alone (without net incremental user commitments or adoption of key solution sets) will offer limited leverage as Salesforce will consider any upcoming renewals as acquired revenue
Before even considering an Enterprise/Unlimited Agreement, your company should fully understand its current state and future demand. We strongly recommend engaging all business units and conducting detailed roadmap reviews to validate your future requirements and confirm that your organizational needs justify the substantial incremental commitments.
What if your company is unable to expand its relationship with Salesforce?
If your projected growth is flat and you find yourself unable to make significant further commitments, there are still opportunities to optimize your go-forward relationship through a tactical review of your existing Salesforce landscape.
We recommend organizations:
- Establish and implement a governance structure that will support a centralized renewal management and purchasing strategy
- Assess your utilization for each contract and manage renewals based upon underutilization (i.e. opt not to renew subscriptions that are not utilized for each contract)
- Provided your company has the contractual rights to do so, reallocate unused licenses to maximize utilization and reduce incremental user demands
- Assess user needs for each business unit and identify opportunities to assign lower-priced users with limited functionality needs
In addition to maximizing your utilization and recapturing the value attributable to any underutilization, rigorous renewal management and purchasing strategy may bring Salesforce back to the negotiation table over time. At the end of the day, Salesforce is looking to expand its footprint within its existing customer base and will likely be inclined to enter discussions with stagnant accounts for the purpose of creating new opportunities.
Long-standing Salesforce relationships operating under disaggregated environments have set commercial precedents which are sometimes difficult to adjust, however, there are steps that can be taken to right-size a sub-optimized commercial construct and work towards a mutually beneficial partnership in the future.
- Salesforce Agreements – Flexibility for Large Enterprises
- How Technology Cost Leakage Can Rear Its Ugly Head
- Salesforce.com’s Strong Growth and Raised Expectations Puts Customers in the Driver’s Seat