How You Can Win Against an 800-Pound Gorilla
Salesforce became the market leader in 2013 and has dominated the Customer Relationship Management (CRM) jungle ever since. With its fiscal year-end in January, now is the best time to review and optimize your Salesforce spend.
In the early 2000s, Siebel was the market-leading (and most expensive) CRM (and remained so long after it was acquired by Oracle in 2006 for $5.8 billion), until it lost so much market share that the once unassailable technology goliath finally met its inglorious end. Technically, Siebel is still part of Oracle’s lifetime support policy, but for all practical purposes, it's dead and Salesforce remains the 800-pound gorilla of CRM market.
Like most technology sales organizations, Salesforce uses mysticism very effectively to sell its solutions to customer executives who are hungry for the promised results. Salesforce lures customers in with trials and pricing that make sense at a low scale, but once customers are hooked, Salesforce locks them in at elevated unit prices and forces payment for committed terms and volumes regardless of actual use. Salesforce contracts can be extremely restrictive and Salesforce deployments can become extremely expensive at scale.
Salesforce has gone from the innovator of cloud-based CRM offered as a Software-as-a-Service (SaaS), to a conglomerate of acquired entities. In the process, Salesforce has expanded well beyond its own Sales Cloud and now offers a variety of other, add-on clouds, for things such as:
- Commerce Cloud (Demandware)
- Marketing Cloud (ExactTarget)
- Analytics (Tableau)
- Integration (Mulesoft)
Collaboration Cloud (Slack) is probably coming soon.
While Salesforce has been busy acquiring functionality, not as much progress has been made on making its products work better together, which remains our clients’ biggest complaint.
At $325/user/month, for the Unlimited Edition of Sales and Service Cloud (which is generally required for enterprise customers), Salesforce is now the most expensive CRM solution ever created. Today, people pay the equivalent of what they would have paid for a 3-year investment in Seibel on an annual basis for their Salesforce subscription, and they pay that amount every year in perpetuity.
Salesforce is typically priced by the user with pricing tiers based on volume. Clients should beware that (unless otherwise negotiated differently in a custom commercial arrangement), the initial purchase sets the applicable rate for future purchases, so the first deal can be extremely important. Increasingly, new Salesforce functionality is sold as solution add-ons which increases the associated cost of each user. This ‘stacking’ of licensed features can double or triple the costs per user.
Most clients think of Salesforce as a cloud solution, and believe that by moving to the cloud, they will get several benefits including reduced costs, increased flexibility, & consumption elasticity. Although Salesforce is indeed a cloud solution, it has broken most of the promises of the cloud, and these promises above are no exception. In enterprise accounts, Salesforce is extremely expensive, its terms are highly restrictive, and your consumption is only elastic if it goes up.
Things can be quite friendly with Salesforce while you are growing considerably every year, but Salesforce will generally increase customer costs by 7% per year or more, for those customers who fail to meet the 20% annual growth objectives that Salesforce sets forth.
How to Save
First step; everyone should benchmark their Salesforce proposal and/or agreement. With just a few pieces of information, NET(net) can benchmark your deal (in as little as 1 business day) and show you how much you can save.
The Commercial Arrangement
- Scope. Evaluate the user roles and processes required to achieve your goals and evaluate the Salesforce edition features and pricing so you can determine how much it would cost with a minimal deployment and feature-set.
- Volume. To maximize your discounts, you want to maximize your volume, so you should consider your existing user counts, plus your planned additional consumption during the contract term, even if not committed at the time of the initial agreement (more on that below).
- Bundling. If deploying multiple titles to a single user, press for bundled pricing discounts in addition to the tiered price consideration. For example, the Sales Cloud Unlimited user is $300/user as is the Service Cloud Unlimited user, but the Sales & Service Cloud Unlimited user is not $600/user, it’s $325/user (a 46% discount for the bundle).
- Incentive Pricing. Customers who add more quantities or additional functionality in complementary Salesforce growth areas should better pricing than in the originating transaction. Try also to get 'minimum' discount language so as not to set a floor on the price, rather a ceiling. This will enable you to evaluate competitive alternatives available in the market and help you benefit from the maturity of the market where prices generally come down over time.
The Contractual Agreement
- A Subscription Agreement is something you can consider once you have a good understanding of the user quantities and roles required in your Bill of Materials to achieve your objectives. With a minimalist view, you can create an understanding of what a conventional subscription would cost with basic volume discounts.
- A Staggered Deal structure with a committed ramp-up of user access licenses is a way to get the pricing benefits of increased volume, but to delay the activation (and the associated charges) of a certain agreed upon number of licenses until such time as those licenses are deployed. While this provides for better pricing, the structure of this type of deal is committed and puts the risk of realizing the projected deployment solely on the customer.
- A SELA (Salesforce Enterprise License Agreement) can also enable customers to get lower pricing. Generally, enterprise deployments are better served using SELA agreement structures due to improved net pricing and more flexibility.
Terms and Conditions Alerts
NET(net) has discovered 242 concerns in the standard Salesforce contract. Here are some:
- Downsize. Be sure you can decommission/recommission licenses without losing pricing protections.
- Renewals. Be sure to include a clause in your contract that enables you to renew at your current prices because if you don’t have that clause, you could see a significant increase in your renewal costs.
- Swaps. Anticipate that not all purchased solutions will work out as planned. Include swap and transfer rights to enable idle or underutilized investments in users and/or functionality to be ‘traded-in’ and redeployed towards gainful use.
- Termination. Salesforce can terminate your agreement with or without cause with 30 days’ notice, which isn’t much time to find another solution and migrate all your data. Be sure to consider how much notice you might want, and in what format you might want your data returned to you, and what (if any) costs would be incurred should Salesforce terminate.
Systems Integrators (SIs)
As a result of its market dominance and rich feature sets, customers pay a significant premium for Salesforce solutions, but to make them work, they must typically pay another fortune to specialist firms to help them integrate the acquired products together to realize organizational objectives. In addition to major players such as IBM, Deloitte, and Accenture, Salesforce consulting providers include Access Global Group, CLD Partners, Coastal Cloud, Code Zero, CS2 Marketing, SevenPoints, and Simplus to name a few. These agreements are extremely important to negotiate as they often result in significant delays, huge cost overruns, and failure to achieve important objectives. Depending on your specific situation, you may benefit from one of several different implementation pricing models, but all agreements should include transparent timelines and cost estimates based on reasonable assumptions about tasks, resources, rates, and responsibilities. In addition, contractual instruments should be tuned to include all the appropriate documents to minimize potential disputes. Various terms and conditions should be reviewed and negotiated to ensure customers have the proper protections to minimize the impact of change orders, added costs, delayed value, and the loss of functionality. Negotiations with SIs is as much art as it is science, so we strongly encourage all clients to seek professional assistance in structuring their SI agreements.
Supplier Performance Management
Salesforce agreements are among the most in need when it comes to ongoing strategic supplier performance management. Not only do clients outsource their entire value chain when doing a deal with Salesforce, but they also become subject to 35 contractual SLAs, and need to consider 37 internal KPIs to ensure they are getting the right level of value from these investments. Combined with the 242 contract flaws in the standard terms and conditions, that’s 314 Ways a Salesforce.com Agreement Can Go Wrong!
NET(net) can help you maximize your savings on Salesforce, and with January’s Fiscal Year-End fast approaching, there is no better time to capture value, so Act Now.
Call to Action
To learn more about Salesforce, download our eBook: An Inside Look at Salesforce
Contact us today to learn more about how we can help you save 32-60% on all your SaaS investments, including those with Salesforce or Sign up now for a Savings Cloud subscription on Salesforce, and we will get started right away helping you minimize costs and risks, and maximize the realization of value and benefit.
Founded in 2002, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get and keep more economic and strategic value. With over 2,500 clients around the world in nearly all industries and geographies, and with the experience of over 25,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client captured value in excess of $250 billion since 2002. NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact us today at firstname.lastname@example.org, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and relationships.
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