Updated: Jan 18, 2021
Many clients are experiencing economic hardship in the wake of the global pandemic and are expressing frustration over SaaS pricing risk that has suddenly been deemed too inflexible for the uncertainty of the "new normal." IT leaders are no longer willing to entertain deals that they can’t get out of or adjust when business abruptly changes.
Fortunately, some vendors are taking notice. In the wake of the COVID-19 crisis, we’ve seen Salesforce become decidedly more flexible regarding its terms and conditions. We’ve observed the vendor offering customers “free trials” for many products, which has the added benefit of expanding its reach into businesses whose budgets aren’t allowing them to spend freely right now.
Though free trials do offer flexibility during this time, still be aware that free trials are not without risk. Free trials commonly come with hidden terms that can result in purchase premiums down the line. If the customer ends up adopting these products long-term and fails to identify and eliminate the hidden risky contract language, the vendor will have the ability to charge a hefty cost for these free licenses at renewal time, when the free promotional period typically ends.
Salesforce has also started offering attractive swap rights in its contracts. Previously, we’d seen license transfers and swaps only in Enterprise License Agreements (ELAs), but now we’re seeing these terms in Salesforce order forms. In addition, the vendor has begun offering more competitive renewal rights in the 3-5% range, instead of holding to its standard 7% renewal cap.
Finally, we’ve seen Salesforce providing a new level of financial flexibility to its customers. Right now, many businesses are conducting employee layoffs and want to reduce licenses accordingly. Prior to the pandemic, if a client tried to reduce their Salesforce footprint, we would see the vendor increase unit pricing in order to preserve the annual run rate as much as possible. We’ve now seen clients successfully reduce their annual spends with Salesforce when they reduce licenses. For businesses that are not reducing license counts, we have seen Salesforce waive the renewal increase for this term.
There are three common themes in deals where clients successfully reduced their Salesforce spend:
1. The clients leverage their total spend with Salesforce,
2. They sent a strong message to the vendor, focusing on high-level budget constraints, and,
3. They consistently escalated their deals to the executive level within Salesforce.
We urge clients to escalate deals within Salesforce because we know that the executives value their customer relationships more than they value a single deal. Sales reps, on the other hand, tend to focus on their individual deals and commissions. By escalating the deal and having executive-level conversations, clients can use their total spend with Salesforce (Tableau, Mulesoft, Marketing Cloud, etc.) as justification for costs to be reduced. Many companies can legitimately point to pandemic-related budget constraints they are facing and suggest if Salesforce can work with them on this deal, it will induce them to grow their business with Salesforce in the future.
In the same vein, ServiceNow pledged to help customers affected by the current economic downturn. A June 30, 2020 article in The Register quoted the vendor: "While ServiceNow contracts are non-cancellable, we have taken measures to provide customers in highly affected industries with greater flexibility to manage through the challenges."
In the same article, Forrester Research’s Principal Analyst Ted Schadler asserted that many CIOs are now locked into paying for non-existent employees, users, page views, or transactions, which in today’s economy is considered unacceptable; “Their successors won't repeat that mistake.”
Schadler summarizes: “The SaaS vendors that will be most successful in the future will be those that best provide the agility and outcomes focus that customers need in the pandemic recession – and forever afterward – by aligning subscriptions with the value that customers realize from their software."
Matt Gowing is an Analyst at ClearEdge Partners.
To learn more about the impact of the COVID-19 pandemic on IT spending, sign up for our webinar on the subject or contact a ClearEdge representative.