Salesforce.com had a strong Q4 and fiscal 2015. Specifically, Salesforce.com’s Q4 revenue grew 26% year-over-year to $1.44B with full year revenue growing 32% to nearly $5.4B. In addition to this top-line double digit growth, Salesforce.com’s deferred revenue grew 32% year-over-year to more than $3.3B with the dollar value of booked business on and off the balance sheet growing to over $9B.
Salesforce.com’s ability to report such growth in deferred revenue and dollar value of booked business is one of the best predictors of future revenue. This is something all clients and analysts should keep a close eye on when evaluating the financials of a cloud vendor. Salesforce.com has also decided to raise their guidance for fiscal year 2016 to $6.52B while remaining committed to improving their operating margin moving forward.
If you are an existing or prospective customer of Salesforce, you may find it helpful to understand where their focus will be moving forward.
Focused on becoming fastest to $10 Billion
Marc Benioff, Chairman and CEO, could not have been more direct in his aspirations when he said, “My dream is clear…to be the first one and fastest to $10 billion, first in the cloud, fastest to $10 billion in software and then onward.” He, and undoubtedly any Salesforce.com account executive, will be the first to mention that they are currently the sixth largest software company and the number one cloud company in the world. Positioning your revenue and where you rank amongst your competition is certainly common in the software industry but this has more to do with Salesforce earmarking the other providers as being behind in the market. Salesforce.com understands that an effective sales engine drives the growth of every company and they believe they have the best platform for driving sales and your company growth.
For those prospective customers evaluating Salesforce.com’s solutions or any existing customers with a forthcoming renewal, you should expect Salesforce.com to be very difficult to negotiate with in terms of upfront discounting and downstream price protections. They are quite confident of their position in the market, so it will be important for existing and prospective customers to fully understand how to manufacture leverage and how best to effectively navigate negotiations with Salesforce. If managed improperly, the operating expense can quickly get out of control.
Focused on Large Enterprises and Selling to the CEO
Keith Block, Vice Chairman and President, mentioned that getting CEOs to realize how Salesforce.com can help drive their company’s growth and facilitate their customer success was instrumental in securing CEOs as strong advocates for Salesforce.com. Block went on to state that the ability to convert CEOs into strong advocates was “one of the big reasons why we signed more large deals in fiscal 2015 than in any year in the history of the company.” In fiscal 2015, Salesforce.com closed roughly 550 seven and eight figure transactions (roughly 100 more than the prior year), with the number of eight figure transactions growing by 33% year-over-year. Block went on to add that all of the very large transactions involved scenarios where they were engaging with the CEO as opposed to the head of sales, customer service, marketing or IT.
If your company is a large enterprise or represents a large transaction to Salesforce.com, expect them to sell aggressively into the office of the CEO. Driving the top line growth of your company in a productive and efficient manner is of paramount importance; however, you need to ensure your CEO understands the importance of getting the deal right given the longer-term implications to the company’s IT operating expense.
Focused on the Analytics Market
Out of all Salesforce.com’s cloud solutions, the one Marc Benioff is undoubtedly most excited about is Analytics Cloud. Benioff went as far to say, “Salesforce.com is crossing over from the CRM industry into the analytics industry with this product.” Benioff feels analytics represents Salesforce.com’s biggest revenue opportunity going forward. He stated, “the CRM market is big and exciting and has fueled us…I think some would say the analytics market is bigger than the CRM market.” To promote this transformation and seize the most revenue associated with the analytics market, Salesforce.com is committed to making significant investments in data science and analytics. Salesforce’s acquisition of EdgeSpring in 2013 and its decision to have a dedicated sales team focused on analytics shows they are laser focused on providing their customers with robust analytics platforms, applications and ecosystems.
Come renewal time or during an initial sales cycle, UpperEdge expects Salesforce.com to be opportunistic and aggressively pushing its Analytics Cloud. It will be very important to ensure you are receiving Salesforce.com’s most competitive pricing in light of the downstream implications on operating expense. In addition, and perhaps, more importantly, should Salesforce.com present a “one-time” or “promotion” price, it will be critical to gain complete transparency and certainty into future pricing so you are not surprised by the magnitude of the subsequent increases.
If you would like to learn more about how we have been able to help organizations navigate and benchmark their net new or renewal negotiations with Salesforce.com, please do not hesitate to contact me at [email protected]. As always, we welcome your comments and feedback.