Updated on February 23, 2021
Like all cloud vendors, Salesforce’s ultimate goal is to grow each customer’s annual run rate by increasing user counts and expanding product adoption. Salesforce is exceptionally good at this and has a proven track record of upselling its customers. They have highly predictable revenue since their platform and associated subscription contracts are designed to grow and lock in revenue. This is just one reason why negotiating with Salesforce is extremely challenging.
Tactics like quietly weakening, or even removing, price protections in order forms and in their standard Master Services Agreement (MSA) have made high renewal price increases more commonplace. For companies that received an incredibly low introductory rate in their initial contract (i.e., order form), this could mean a renewal price uplift as high as 20%.
Key Considerations for Restructuring Your Relationship with Salesforce
Salesforce’s highly successful sales strategy for enterprise accounts drives constant incremental revenue and positions its customers for potential enterprise-wide agreements. By selling directly to the line-of-business executives at a business unit level and pitching directly to the C-Suite and IT executives, Salesforce has actively created a decentralized environment that creates buy-in and often presents multiple challenges for its enterprise customers.
More specifically, we have seen longstanding Salesforce customers face the following challenges:
- Disaggregated demand: A lack of visibility into the overall future roadmap with business units meeting their functionality requirements on an “as needed” basis.
- A decentralized purchasing strategy: An incremental purchasing strategy resulting from disaggregated demand and limited shared visibility and input 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 loss of value from underutilization of Salesforce users and products.
If your company falls within any of these categories, you may have an opportunity to restructure and optimize your Salesforce relationship ahead of your next renewal negotiation. 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 to a more strategic partnership.
The opportunity to right-size is real and understanding Salesforce’s negotiation behavior and appetite at that point in time, will be instrumental in successfully optimizing your overall commercial construct and go-forward relationship.
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 and revenue per user: Salesforce is not interested in reducing its existing revenue stream and is, for the most part, unwilling to allow you to reduce your annual costs (regardless of your level of underutilization).
- Extend product footprint and volumes: Salesforce may initially push for volumes at the outset that align more with your downstream demand. They will also look to extend its relationship with your company beyond its existing footprint and push for the adoption of strategic solution sets.
- Solidify executive relationships: Salesforce typically circumvents your company’s procurement team to interact directly with line-of-business, IT, and C-Suite executives, often derailing the traditional negotiation process. In other words, do not expect to obtain any significant concession from Salesforce without having internal executive alignment in place.
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 (or at least should).
In my experience, Salesforce is particularly receptive to the following:
- Enterprise Agreements: Committing to an Enterprise 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.
- Net-new product adoption: Salesforce needs to have their customers adopt as much of Customer 360 as possible.
- Acquired product adoption: Salesforce needs to show their acquisition strategy is sound and the acquired entities (Tableau, MuleSoft, Slack, ClickSoftware, etc.) are folding in nicely to the larger Customer 360, based on ramped use and customer adoption.
- Moving to a more robust plan: Salesforce wants customers to utilize their most robust and costly plans (i.e., Unlimited Edition). Not only are they more expensive but they are more difficult to move away from if feature sets only available in Unlimited Edition are ultimately used.
- Customer testimonials: Salesforce knows the power tied to this and has done an incredible job leveraging it to not only build brand strength but also increase revenue along the way.
- Early renewals: Beyond pulling in a deal earlier than expected (which is especially powerful if before Salesforce’s January yearend), offering a “co-term and/or extension” of all contracts (order forms) will simplify your contractual relationship but also substantially increase your company’s contractually committed revenue with Salesforce in one swipe, which can provide additional leverage during negotiations.
However, note that an early renewal including a “co-term and/or extension” alone (without net incremental user commitments or adoption of key solution sets) will offer limited leverage as Salesforce will consider any upcoming renewals as revenue they should get anyway (they know how “sticky” they are).
Longstanding Salesforce relationships operating under disaggregated environments have set commercial precedents which are sometimes difficult to adjust. However, there are steps you can take to right-size a sub-optimized commercial construct and work towards a mutually beneficial partnership in the future.
To get the most out of your Salesforce relationship, taking the time to truly prepare for your renewal is critical. I recommend getting started with these five steps at least 6 months prior to your renewal date. I have worked with many customers up to a year in advance. The fact is, it is never too early to start preparing and you can bet Salesforce has started their planning (and executing to their plan) at least one year in advance.
1. Understand the Current State of Your Salesforce Relationship
Strengthening your relationship with Salesforce should be a continuous effort, not just something you work on when becoming a new customer. Throughout each term, you should strive to develop a more strategic relationship that is mutually beneficial rather than settling for a transactional relationship that mostly serves Salesforce.
Typically, relationships with Salesforce change for the worse after the “courting phase” when Salesforce was trying to win new business. Most of the companies we speak to have already gone through multiple sales representatives during their first term. They often say that the sales representative only reaches out to introduce the next “latest and greatest” solution that Salesforce feels they should consider even if it doesn’t align with their needs.
IT executives often feel left out of the conversation because Salesforce intentionally focuses all of its time, money, and effort on the line-of-business executive. They believe that this is how they will be most successful in gaining adoption of new products and ensuring that the customer is a customer for life. Salesforce wants each of its customers to be lucrative, ongoing revenue streams that will ultimately help it reach its lofty annual revenue goals.
Before even considering an Enterprise Agreement, your company should fully understand its current state and future demand. I strongly recommend engaging all business units and conducting detailed roadmap reviews to validate your future requirements and confirm your organizational needs to justify the substantial commitments (products and volumes) that come with an Enterprise Agreement.
To effectively develop the strategic relationship you want, it is critical to take the time to understand how your relationship has been, what you want it to be, and what you will no longer tolerate before you engage with Salesforce.
2. Analyze Your Utilization at a Granular Level
The more granular you can get when assessing your use, the better. The number of licenses used, utilized storage, API information, etc., should all be considered and fairly easy to access. Ideally, you should understand which product modules and which product features within those modules you are using and not using. You may not currently track usage at this product-feature level so this may take time and effort to pull together, but it is critical that you start doing this as a practice moving forward.
Many companies are pushed into the more expensive, robust editions at the outset but are simply not using what they paid for. For example, there are Sales Cloud customers with the Unlimited Edition that are only using about 50% of the included features. Underutilization is an issue in every Salesforce engagement, and it comes in many different forms.
There are forecasting issues that contribute but use at the feature level also comes into play. Companies are just not using all the bells and whistles. Mid-term and at the renewal itself represent good inflection points where you can at least try to do something about your utilization. Your ability to precisely demonstrate what you have and have not used is very impactful as you navigate renewal discussions.
3. Develop Your Salesforce Roadmap
When assessing your current needs and forecasting demand, it’s important that you also determine the timing of your needs. Understand whether there are certain volumes you’ll require at the outset, as well as 2 years, 3 years, and even up to 5 years out.
I highly recommend you ask your sales representative or the product team to walk you through the real benefits of these more robust product editions. As they do, focus on whether there is an opportunity for you to eventually upgrade based on an actual need for those additional features. You should also take this opportunity to determine if there are any new Salesforce products that may be of interest to you. If there is enough time ahead of the renewal to put a competitive bid process in place, consider whether there are any viable alternatives from competing vendors within and without your existing landscape.
When you develop your roadmap, it’s critical to assign a level of confidence to each one of these areas. Remember that Salesforce will not give you a refund. However, if your forecasted level of demand proves to be wrong, we have seen a willingness on their part to give you some flexibility in the form of swap rights to offset your forecasting issues. Why are they willing to do this? It goes back to the annual run rate. Swap rights do not impact the annual run rate.
4. Evaluate Your Current Relationship with Salesforce
If your projected growth is flat or you need reductions and you find yourself unable to make significant further commitments, there are still opportunities to optimize your go-forward relationship.
We recommend organizations:
- Establish and implement a governance structure that includes alignment across all parties that have interactions with Salesforce to support a centralized renewal management and purchasing strategy.
- Assess your utilization for each product under each contract (order form) and manage renewals based on underutilization. Even if you cannot “not renew”, arming yourself with the granular detail will increase your leverage and help with conversations around what is needed from Salesforce moving forward to ensure you aren’t paying for “air”.
- Reallocate unused licenses to maximize utilization and reduce incremental user demands (i.e., pull the trigger on your swap rights if your company has the contractual rights to do so). If you don’t have contractual rights to swap, Salesforce may still be willing to allow for such swaps to occur if handled correctly.
- Assess user needs for each business unit and identify opportunities to assign lower-priced users accordingly and/or as needed.
In addition to maximizing your utilization and recapturing the value attributable to any underutilization, a 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.
It is often very impactful to show Salesforce that your needs may evolve over time and that how Salesforce approaches you now will impact whether more business can go their way in the future. However, Salesforce needs to believe and see action towards an expanded roadmap in the future (i.e., executives communicating this vision, POCs starting, etc.).
5. Assess the Competitiveness of Your Current Deal
Knowing the competitiveness of your current Salesforce agreement is an important piece of information to have heading into your renewal negotiation. The purpose of gathering this information is not to point fingers or change the past. The goal is to use this information to ensure that the deal you are about to get is appropriate based on the deal you had in the past.
There are many commercial terms to get right in the deal, but I recommend initially focusing on the following key commercial terms:
- Upfront pricing and discount – Is your per unit pricing competitive? To fully assess this, you need to consider the size of your deal, what products are involved, how many users are involved, and what length of commitment you agreed to.
- Renewal price protections – Take a look at your agreement to see if you negotiated any price protections and if there are any restrictions or conditions on the protections you have in place.
- Volume discount structure – In your order form, did Salesforce include a structure that actually provides you committed, additional discounting as your volume thresholds are met? Are these thresholds obtainable?
- Flexibility – Are you obligated to make a full upfront commitment of users and dollars or do you have a flexible structure in place that accommodates the time of your changing needs?
- Transparency – Do you have pricing and discount commitments from Salesforce for products that you may be interested in down the road? If they came to you and said, “If you throw in a quantity of X, that should meet your needs because the price will be locked,” then unfortunately, you have a transactional relationship with Salesforce.
When you assess your commercial terms, it’s important that you don’t assess each in a vacuum and instead look at your deal holistically to determine how competitive your overall relationship is. For example, your stellar introductory pricing and discount doesn’t mean much if there is no renewal price protection in place.
These are just a few of the steps you should take to prepare for your Salesforce renewal negotiation. As you follow these steps, make sure your team is fully aligned and has unified messaging that you’re communicating to Salesforce. The story and how it’s told is ultimately what can stand between you and your ability to obtain a best-in-class deal.
Comment below, follow me Adam Mansfield on Twitter @Adam_Mansfield_, find my other UpperEdge blogs and follow UpperEdge on Twitter and LinkedIn. Learn more about our Salesforce Commercial Advisory Services.
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