Here’s a comment we heard recently from a NPI client executive at a Fortune 500 Health and Life Sciences company after they’d just finished a Salesforce renewal negotiation: “We go through all this pain to sign the agreement and I wake up the next morning and have no idea what I paid for.”
If you’ve experienced the same frustration, you’re not alone. The majority of NPI clients communicate a sense of unease about whether they’re managing Salesforce spend effectively. And those that have tried really hard to assure their renewals are right-sized and fair are left feeling bruised and battered because of the experience. When new clients engage NPI to help them optimize Salesforce licensing and cost, the first question they ask is: “What are we doing wrong? Is it always this painful?”
The answer could be explained in part by the large number of acquisitions the vendor has made (70 and growing according to Crunchbase.com). Or the rapid growth of Salesforce over the latter half of the last decade and the near-religious popularity of the product. Perhaps there are a few vestiges of the Oracle mindset of the late 1990s that the founders and early employees of Salesforce brought with them.
But, in truth, it’s more complicated than that. Salesforce spend management has become as important and complex as other leading enterprise vendors like Microsoft, Oracle and SAP – a fact that has kind of snuck up on most customers and, perhaps, even Salesforce.
Some Insight into the Salesforce Psyche
The early growth of Salesforce had much to do with it being a cloud-based disrupter in the on-premise software era. Its early pitch even featured a character that came to be known as “SaaSy,” the “No Software” mascot it used in initial promotional materials. Salesforce started as a sales enablement tool (when CRM was the exclusive domain of sales organizations) that was competing against client/server software packages installed on your desktop or laptop and internal corporate networks. With zero installation friction, Salesforce quietly sold directly to sales leaders and individual business units, bypassing IT organizations entirely.
Shadow IT spend certainly didn’t start with Salesforce, but the vendor played a big role in speeding it along. As more sales leaders saw the value of Salesforce and became good at using it, customers found it easy to switch because the budget wasn’t coming from IT. There was no setup, no negotiating with your internal IT team, and no need to fit into the IT roadmap or backlog. This enabled Salesforce to experience rapid growth because it wasn’t accountable to the traditional gatekeepers of technology purchasing.
As Salesforce began adding products, largely through acquisition, the vendor expanded by selling into marketing organizations and, eventually service/support organizations.
But organizations have caught up. Migration to the cloud and the ubiquity of SaaS for almost every business function have added some necessary friction and oversight back into the SaaS sales and purchasing experience. With IT exerting influence over departments and business units to manage important factors such as compatibility with other systems, data privacy, and data security, IT and procurement teams are facing several challenges that are byproducts of the way Salesforce has done business for almost two full decades.
Challenge #1: Limited Visibility into Product Usage
Salesforce was originally designed to be a sales enablement tool. With the exception of Service Cloud (the support tool), most of the other products are not integrated in a way that provides customers with a consolidated view of usage across the enterprise. Customers use the different products in silos – MuleSoft, Marketing Cloud (Exact Target acquisition), Commerce Cloud (Demandware) Tableau, Slack and so on.
This distributed (vs. centralized) license management challenge is further exacerbated by the fact that most large Salesforce customers will have multiple instances (or orgs) of the same product across their enterprise. As NPI helps clients optimize licensing for upcoming Salesforce renewal negotiations, we have seen a wide range of variability. Some companies have a manageable number of orgs – like five or six. Others have as many as 40! All without any overarching native tools to help customers manage their entitlements and/or consumption rates, identify shelfware or realign deployment as needs naturally evolve and change.
Challenge #2: Divide & Conquer
The idea of divide and conquer is, on the one hand, a likely unintended consequence of the success Salesforce experienced selling to customers in the first decade of its existence. By focusing on business unit owners (Sales leader, Marketing leader, etc.), Salesforce developed the ability to nurture relationships with decision-makers across multiple business units.
Coupled with the frequency of acquisitions, customers often find themselves dealing with multiple Salesforce salespeople for different products, inconsistent terms and conditions in their Salesforce agreements, and multiple product-specific support organizations. This distributed (vs. centralized) relationship makes it hard to consolidate the Salesforce footprint for leverage, and hard to manage accountability when issues arise.
In addition to the practical implications for stakeholders, this distributed relationship makes it especially difficult for IT and Procurement to attempt to regain some control over the purchasing and vendor management process. Salesforce, like most IT vendors with well-trained sales teams, uses this to its advantage. During Salesforce renewal negotiations NPI often observes that while IT Procurement is running the process, stakeholders are unwittingly providing back-door information to Salesforce sales staff that reduces the company’s leverage during negotiations.
Challenge #3: Pressure to Grow
A consistent concern that NPI clients share about the Salesforce renewal experience is the constant drive to grow the size of their spend.
“We were told by our sales rep that they are under a great deal of pressure from Wall Street and that’s why we needed to spend more,” one NPI client shared. “What bothers me is there was no discussion about the value of what we were getting in return.”
Today, large Salesforce customers with multiple orgs have many SKUs and license metrics to consider as they define their demand for a three or five-year renewal. While there is temptation to simply renew historical purchases and add growth, the numbers are getting so big that NPI’s clients are pressing pause and digging deeper into actual usage as well as line-item pricing for renewals.
Of course, as mentioned above in challenge 1, it’s not easy for customers to establish “actual” usage. And NPI clients have observed a reluctance on the part of Salesforce sales reps to share line-item details of specific product costs and quantities in renewal quotes. The pressure to grow was often accepted by Salesforce customers as the “cost of doing business” but that’s starting to change.[We dig into this further in this short bulletin: Is Salesforce’s Rapid Growth Good for Customers?]
Challenge #4: The Shell Game
“I call it a shell game,” one NPI client said when talking about negotiating with Salesforce. Another described their Salesforce agreement as a balloon: “When you squeeze one end, the other gets bigger.”
Call it what you will but negotiating with Salesforce can be infuriating – no matter how good your Salesforce vendor relationship may be. The vendor practices wide latitude in pricing when it comes to an individual account. Price breaks on one product can often be offset by charging list or higher prices for another. That makes it incredibly difficult for Salesforce customers to understand what a good deal looks like. There are several products priced as a percentage of net spend, such as SHIELD, support options, and sandboxes – one tactic to look out for is the percentage being adjusted to counter a reduction elsewhere in the contract.
The complexity of today’s large Salesforce estate means that buyers need to give themselves more time to prepare for renewals and to dig deeper into the details to make sure they’re buying what they need at a fair price.
Where Customers are Finding Relief
All these factors create a challenging environment for large companies. With multiple stakeholders in the Salesforce vendor relationship and business units that are motivated by their own priorities, it can be challenging for a company to envision a path forward to keeping Salesforce spend well-managed. And let’s not forget the demands on IT Procurement, who are managing dozens of similar vendors in their portfolios (Microsoft, Oracle, ServiceNow, SAP, IBM…). It’s a lot to contend with and many Salesforce customers find themselves seeking relief from these pressures and challenges.
NPI’s team of experienced consultants, analysts, and procurement experts specialize in understanding the renewal process and working with Salesforce. We have visibility into what your peers are paying for Salesforce, common areas where companies overspend (unused licenses and features, anyone?), and insight into where Salesforce will be flexible at the negotiation table. This translates into significant savings for our clients as they renew with Salesforce.
If you’re a large Salesforce customer, it’s never too early to start optimizing your next renewal. NPI recommends at least nine months of runway. Companies that start planning early have seen that investment pay off with better terms, better pricing, and an all-around better relationship with Salesforce.
Contact NPI to learn more about how to save on your Salesforce renewal while getting the most out of your Salesforce vendor relationship.