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 price protections 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, this could mean a renewal price uplift as high as 20%.
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 steps at least 6 months prior to your renewal date.
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 Salesforce reach its lofty annual revenue goals.
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 used licenses, 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 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, we are seeing 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 of 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. 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 point 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 an appropriate one based on the deal you’ve 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? In order 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 you, unfortunately, 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.
What to Read Next:
- The Escalating Costs Buried in Your Salesforce Agreement
- Post-Dreamforce Checklist: How to Turn Your Experience into Value
- HEAD IN THE CLOUDS: Why Salesforce Had a Strong Q2 and How Google Cloud Plans to Make G Suite Sticky
- HEAD IN THE CLOUDS: Salesforce Snags ClickSoftware and Microsoft Pushes O365