Salesforce: Deal Challenges and Best Practices

Updated: Mar 29, 2021

Salesforce is poised for another year of aggressive revenue growth, fueled largely by an ever-expanding list of product offerings that come from its numerous acquisitions Vlocity, Evergage, Click, Tableau, Cloudcraze and MuleSoft to name a few which provide a list of vertical industry-specific solutions. Customers might be surprised to learn that Salesforce keeps these new revenue streams separate, which means there can be unique deal challenges for each engagement, depending on which solution is being purchased.

For example, the vendor is intent on moving the Tableau offerings from perpetual-based licensing to a subscription model, possibly as soon as next year. To help accelerate this process, the company has imposed large price increases on perpetual support and licenses. The Tableau sales reps are currently incentivized with bonuses when they convert customers to subscriptions, and customers are being enticed to switch for the same initial spend as their legacy maintenance costs. This is some of the best pricing we’ve seen, though it requires leverage and sometimes net new spend. We urge customers to take advantage of these factors now.

Another element to consider is that a lot of Salesforce/Tableau customers are used to core-based licensing under the perpetual model. Under the subscription model, however, this changes over to user-based licenses, which cost significantly more, depending on the size of the organization. And finally, conversions are typically offered at a promotional discounted price; this pricing will not be available at renewal time unless you lock it in before signing the agreement.

MuleSoft, a slightly older acquisition, is now being folded into Salesforce contracts. We’re seeing list price changes to MuleSoft products, as Salesforce moves to rebrand and incorporate the offerings into its portfolio. The big challenge that customers experience with MuleSoft purchases is the demand scoping: unlike other products, MuleSoft is sold on a platform-basis with its own set of metrics. Customers must rely on help from MuleSoft to forecast demand, and these models are difficult to validate. To make matters worse, the products are bundled, which means there is even less transparency in these deals.

Other Vehicles to Drive Growth

Along with changes to its MSA and product order forms, Salesforce is pushing two main deal structures to include as much product in agreements as possible. The Salesforce Enterprise License Agreement (SELA) is a capped agreement that provides a holistic way of looking at your environment. An Unlimited License Agreement (ULA) is uncapped and allows customers to deploy as much as you want throughout the term. In the past year, we’ve seen substantial growth in the number of both SELA (up 143%) and ULA (up 300%) customer agreements. We’ve highlighted the pros and cons of each structure in the charts below.

Details of enterprise license agreement benefits for customers and salesforce. Pricing plan gives unified costs but less transparency

5 factors of an unlimited license agreement with Salesforce. Pricing plan for various deal sizes gives a buffer, but there are additional payments and more expensive renewals

With regards to the ULA, there are three additional risks that the customer should note:

  1. Salesforce typically offers ULAs to customers that under-utilize the solution, meaning the customer is often paying for shelf ware.

  2. There is ambiguity in the ULA surrounding the price for license renewals and/or certification.

  3. Salesforce assumes that every single employee in the customer organization is a user in its demand calculations.

Four Steps to Win with Salesforce

There are four things customers must do to build leverage and guard against risk in a Salesforce engagement. The first is to build an accurate demand model of your own and start the process at least six months prior to a Salesforce deal execution. Customers should ask Salesforce for utilization reports to track which licenses are being over- and under-utilized to help map out needs. We also recommend using a confidence rating system which considers which business units are growing or shrinking and assigns a numeric level of certainty to predict usage probability. Salesforce will provide its own demand model; it is important to validate and reduce its inflated projections. And finally, it is wise to create a ramp plan since it is unrealistic to deploy everything on day one. By completing these tasks, you will establish a low baseline prior to the start of negotiations with Salesforce.

Step 2: Increase your supplier knowledge regarding its sales process. It is important to understand that Salesforce reps earn commissions based on the amount of net new spend in year one of a deal. Also, any commission of year one revenue is multiplied based on the number of years in the contract. The longer the term, the larger the compensation. And finally, determine which products the vendor most wants you to buy. Chances are that the sales reps are being highly incentivized to sell certain products, such as those from the newest acquisition. All this information can be useful to building leverage and gaining concessions during negotiations.

Step 3: Conduct a contract risk assessment, which calls for a careful inspection of the vendor’s master service agreement and order form. It is essential to determine your renewal terms, which have been removed from most MSAs. Also, be aware that tiered pricing tables are becoming standard for entitled rates, which can lock you into many different rates down the road. Other clauses that can result in significant financial exposure are those that relate to compliance (especially surrounding restricted use licenses) and volume requirements. And finally, it bears remembering that many of the vendor’s terms appear online only and are subject to change at any time.

Step 4: Investigate viable alternatives to your Salesforce purchases. While most customers are unable to move entirely off Salesforce, we know that the vendor responds quickly when competition is introduced in a deal, even for a portion of a solution. Microsoft, Adobe, and Oracle are offering many competing products and can provide considerable leverage by creating uncertainty for Salesforce surrounding the deal.

ClearEdge Analysts Rachel Annello and Dan Beyh contributed to this blog.

This blog post was inspired by the 2020 Salesforce Supplier Briefing. You can access the full recording to this webinar below. For more information on dealing with Salesforce, read our blog post on SaaS vendor responses to the COVID-19 pandemic or contact your ClearEdge representative.