How Customers Will Contribute to ServiceNow’s $15B Revenue Target

growth

During its Financial Analyst Day in May 2021, ServiceNow set ambitious targets and gave us a glimpse into how they plan to achieve their lofty goals of becoming a $10B enterprise vendor by FY24 and $15B by FY26.  Since then, they’ve gotten even more confident.

During ServiceNow’s Q4 FY21 earnings call in January 2022, CEO Bill McDermott told the analyst community, “Our organic growth machine is in full flight, and our pipeline is stronger than ever.  And as I look at the pipelines, they’re increasing, and they’re doing that across the platform, the employee experience, the customer experience, and the creator experience.  All of this now is really making ServiceNow one of those real standard platforms for well-run companies in the 21st century.”

When ServiceNow speaks to the analyst community, customers should listen.  These moments provide customers with valuable insights into ServiceNow’s plans which can be used to your benefit when negotiating a renewal or net new ServiceNow deal.

In this blog, we cover some key insights from ServiceNow’s 2021 performance and messaging to help you understand ServiceNow’s motives going into the new year.  We also reveal how you can use this information to help ensure you maximize the value you receive as a ServiceNow customer.

What is ServiceNow’s Growth Strategy?

Like most cloud vendors, ServiceNow executes to a robust land-and-expand strategy.  Obtaining new customers and new logos is, of course, a large focus for their sales team.  But it’s what happens after that initial sale that will really fuel ServiceNow’s aggressive growth.  Here are four key tactics ServiceNow will continue to use to ‘expand’ their customer revenue.

Cross Selling

ServiceNow currently groups products under four different “Workflows”.  IT workflows include the “core’ products (such as ITSM, ITOM, or ITBM) which ServiceNow has been providing since inception (although they were once under the ITSA Unlimited product).

But one of the key factors contributing to ServiceNow’s growing pipeline and ability to post impressive 30% revenue growth is their ability to sell their current customers more products across their various workflows.

Under the Employee workflow umbrella, HR Service Delivery (HRSD) and the more recently released Safe Workplace Suite are two other important products for ServiceNow to push into customer portfolios.  They are also focused on their Creator workflow products and getting them included in as many deals as possible.  Most specifically, they are looking to gain traction for products such IntegrationHub and App Engine.  Lastly, Customer Service Management (CSM), which falls under their Customer workflow umbrella, is one of their fastest growing markets.

It is clear that ServiceNow equates success with how many multi-product deals they have closed.  During their Financial Analyst Day presentation, ServiceNow called out that 87% of their deals include three or more products.  65% of their deals include five or more products, and only 5% are single product deals.  They also noted that many of their $1M+ deals included ITSM Pro, CSM, SecOps, and HR.

They have continued to experience tremendous success in selling products across their four workflows.  How successful? See what ServiceNow reported in its Q4 FY21 earnings in the table below.

ServiceNow Workflows Products Included What ServiceNow Reported in Q4 FY21 Earnings
IT Workflows IT Service Management (ITSM), IT Operations Management (ITOM), IT Business Management (ITBM), IT Asset Management, DevOps, Security Operations, etc. – ITSM was included in 16 of the top 20 deals and 19 deals were over $1M.
– ITOM was included in 18 of top 20 deals and 21 deals were over $1M.
– IT workflows represented 57% of net new ACV contribution in Q4 FY21.
Employee Workflows HR Service Delivery, Workplace Service Delivery, and Legal Service Delivery – 24 deals over $1M.
– HR Service Delivery (HRSD) was included in 11 of the top 20 deals.
– Employee workflows represented 28% of net new ACV contribution in Q4 FY21.
Customer Workflows Customer Service Management (CSM), Field Service Management and Financial Services Operations – 10 deals over $1M.
– Customer Service Management (CSM) was included in 13 of top 20 deals
– Customer workflows represented 28% of net new ACV contribution in Q4 FY21.
Creator Workflows App Engine and IntegrationHub – Platform solutions were included in 19 of the top 20 deals.
– Creator workflows represented 15% of net new ACV contribution in Q4 FY21.

As a side note, customers should be aware that ServiceNow has a 99% renewal rate among those with three or more products.  Therefore, if you are an enterprise customer that is committed to less than three products, prepare to become a focus in ServiceNow’s continued growth plan as they look to increase their stickiness through cross-selling to drive more product adoption and get you over the 3+ product threshold.

Upselling More Robust Editions

Another key factor contributing to ServiceNow’s growing pipeline is their ability to migrate customers to more robust editions of current products (e.g., Pro and Enterprise).  For example, getting customers to upgrade from IT Service Management (ITSM) Standard to ITSM Pro or even, ideally, ITSM Enterprise.

Out of the possible 25 features and capabilities that are available with ITSM, ITSM Standard comes with 16 of them (Reporting, Benchmarks, Knowledge Management, etc.).  Customers who are getting full use out of ITSM Standard and looking to unlock additional features may elect to go for the Pro edition which comes with 23 of the possible 25 features (e.g., DevOps, Predictive Intelligence, and Performance Analytics).  ITSM Enterprise offers the most robust and complete set of solutions.

ITSM is not the only product ServiceNow is focused on getting customers to migrate to.  CSM continues to be a major selling point for ServiceNow, with 30% of ServiceNow’s customer base already adopting CSM Pro.  It is also important to note that in Q1 FY21, ServiceNow launched the Enterprise edition, which is the more robust and costly edition of the Pro SKU, for ITSM as well as CSM.  ServiceNow will also focus on getting customers into the most robust editions of SecOps, HRSD (HR Service Delivery), GRC (now IRM), and Field Service Management.

They also see the ability to expand with their most recent acquisition of LightStep, which pushes ServiceNow into the app monitoring/observability space, and these AI-powered experiences will also help create new upsell opportunities.

Price Increases

ServiceNow, like other enterprise cloud vendors, often use their ability to increase pricing at renewal to influence the customer to add a net new product or move to a more robust edition.  These customers may hear something like, “We could do something about those price increases, if you would be able to pull in the product under consideration.”

Having price protections in place can help customers avoid price increases but the more products you have in your portfolio, the easier it is to overlook or forget to negotiate certain price protections.  This is another benefit of pushing customers into adopting multiple products.  They can hit customers with price increases if certain protections are not in place, or they may use the bargaining chip of forcing customers to keep certain products in their portfolio with the hopes of avoiding a price increase.  These tactics cause the customer to lose leverage and ultimately results in an increase in spend.

Customers who do not have the appropriate price protections in place, such as renewal-term price protections or future product price protections, can expect ServiceNow to leverage the ability to hit them with an increase to their existing pricing, which increases the go-forward ACV.

What Should Customers Do?

ServiceNow is going to lean heavily on their current customer base to become the $15B enterprise cloud software company they aspire to become.  Each deal and renewal puts them closer and closer to meeting and beating their goal.  This is no different than any other successful cloud company like Microsoft, Salesforce, Workday, etc. with similar land-and-expand strategies.

As you begin to prepare for your upcoming renewals or in-term product additions, it is important to understand the value received from the various workflows already in use as well as the expected value of additional products – whether in the same workflow or in new workflows under consideration.  This requires you to gain a granular understanding of the various product features and the differences between the available product editions.

Having a stronger understanding of ServiceNow’s solutions and where certain products fit into your overall roadmap will help ensure you are moving forward with the right products.  This insight can also be used to create leverage to help you achieve a more successful outcome from the negotiation.

Current enterprise customers and those considering starting a relationship with ServiceNow should be aware of the strategies that ServiceNow employs and ensure they build their own playbook to effectively navigate ServiceNow.  It is critical that enterprise customers not only adopt the right products, but that they are also getting the right pricing, protections, investments, and flexibility to account for ServiceNow’s significant win.

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