Customer Relationship Management (CRM) has become one of the most expensive IT investments for organizations around the world according to the annual “IT Trends Study” conducted by the Society of Information Management. This IT investment growth is being fueled by two primary industry drivers:
1. Large organizations are both replacing homegrown systems as well as utilizing their CRM platform to further connect their internal and external stakeholders, processes, and communication strategies; and,
2. Small to medium-sized organizations are rapidly acquiring this technology to make a positive step-change in their customer interactions and client prospecting.
While there are many Software-as-a-Service (SaaS) CRM platforms to choose from in the marketplace today, SalesForce.com continues to dominate the space. Subsequently, if you are looking at CRM solutions in the marketplace, you’re likely considering SalesForce.com as an option.
Why is SalesForce.com (SFDC) the market leader and what makes it different than the others?
While this article is not intended to be a tactical comparison of CRM solutions available today, our vast experience and focus on SalesForce.com naturally has revealed a few key points:
* SFDC has been, and continues to be, very strong in outbound and inbound marketing tactics;
* SFDC arguably was the first mover in defining a SaaS CRM solution that is decoupled from any other large enterprise agreement (ex: Microsoft, Oracle, etc.) making it easier to obtain;
* SFDC developed a buying channel that is direct to a business end-user vs. going through a channel partner/value added reseller (VAR);
* SFDC was founded with the intent of truly being a platform where vertical applications could easily connect and integrate (like the Apple App Store); and,
* SFDC has perfected the sales process inside of organizations in a way that their divide and conquer sales tactics commonly identifies continues growth opportunities across the organization.
Why is negotiating a SalesForce.com agreement so difficult?
The funny thing is that the entire go-to-market model of SFDC makes it very easy to acquire licenses as needed. This is in fact one of the many elements that make negotiating with SFDC difficult. In other words, very often our clients come to us after they have identified SFDC has spread throughout their organization without their knowledge and/or with very little governance. Our clients often describe this situation similar to an “internal virus” (their words, not ours) that spreads organically at a very fast pace. The result of this unmanaged growth can lead to the following (by no means comprehensive):
* Little to no license asset management leading to “shelfware” (acquisition of more licenses than are being used);
* Incorrect license purchase creating higher costs than needed;
* Different monthly subscription fees for the same license type;
* Lack of an enterprise agreement leading to contractual risk (etc.);
* No defined growth or utilization strategy; and;
* A platform that is very difficult to disengage which drastically increases the internal cost of
CIOs and IT Procurement leaders often find it difficult to negotiate a more favorable agreement when renewing their SFDC agreement.
We find the following to be the primary drivers:
* Like other very well-known and established software companies, SFDC has developed a sales process that is very difficult to crack if you don’t deal with them every day (like we do); Find out more about this here.
* The standard SFDC SaaS contract allows for SFDC to introduce price adjustments at any time;
* If a client is reducing their license count, SFDC’s standard contracts permit higher per unit pricing;
* SFDC sales leadership and staff are highly motivated to continuously drive revenue growth at existing clients;
- To be explicitly clear about this, if a client’s contract is renewed with flat revenue, this is a very negative reflection on your account management team;
* SFDC licenses are constantly changing; and,
* SFDC account management changes (by design) every 6 – 18 months which naturally destroy’s any continuity, etc.
The key to properly negotiating with Salesforce is understanding how the organization works. Salesforce is a brilliantly designed sales system that is set up to maximize revenue from every account. It structures its organization and its deals in a way that is going to benefit the company.
The way it is structured is not unique though. Many of the tactics it uses in its sales process and organization design are borrowed from other big players such as Microsoft and McKinsey.
Our goal with this article is to give you the lay of the land and help you understand the Salesforce machine so that you know what you are up against.
Understanding how your rep fits into the machine
Maybe you like your rep, maybe you don’t. We see clients all across the spectrum in terms of the relationship they have with their rep. Regardless of what your relationship is, it’s important that you understand how your rep fits into the actual Salesforce machine.
The first thing you must understand is that your rep is at the bottom of the totem pole in Salesforce. They are the “in-the-weeds Salesperson” who is put out to handle tactical sales and execution.
By design, your rep is given limited information. They actually are never fully educated on what the rates should be or what discounts they can even provide.
Let me repeat that: Your rep does not even know what rates other companies of your size are getting.
Now your rep may have a few other accounts that he manages of similar size and he can mentally benchmark your rates accordingly, but he has no idea what the actual rates are for similar deals nationwide.
Salesforce limits the information its reps get intentionally. The company does this so that your rep can sell to you in a genuine and authentic way. If your rep knew that other companies were paying 30% less than you, then he would feel guilty and sleazy for charging you 30% more.
But if your rep doesn’t know that you are paying 30% above market value, and instead actually believes you are getting a great deal, then he is going to deal with you in an authentic way. He is going to tell you, “This is the best rate I have ever given a customer of your size.” This may very well be the truth, but that doesn’t mean that this is the best rate that Salesforce has given for a company of your size.
Instead of thinking about your rep as the opponent in this negotiation who is trying to trick you, it’s important to understand how he fits into the organization. He is doing the best job he can with the limited information he has been given.
Our goal in the negotiation is to coach your rep and teach him how to send messages up the totem pole at Salesforce to ensure you get a better deal.
Understanding the “business desk”
So if rep’s don’t know what the real rates are, then how do we actually get a discount or a better deal?
In order to do that, we are going to need to work with the “Business Desk” at Salesforce. The “business desk” is this illusive concept that Salesforce has created. This is where reps go when the terms of a deal are outside of what they are authorized to do, or they are stuck with a specific contract renewal.
This “business desk” gives them the approval on further discounts and advices on how to handle accounts. This concept of a business desk is borrowed straight out of the McKinsey and Microsoft playbook. They create this illusive “bad guy” who you as a customer never interface with. This gives the reps the ability to be genuine and authentic in their communication.
The business desk knows what the actual rates could be.
The business desk can give approval on discounts and alternative deal terms.
The business desk is where you really make an impact on your deal.
But here is the tricky part. As a customer, you will never directly interface with the business desk. Instead, your rep acts as a middleman between you and this illusive entity.
As a result, your goal in a negotiation is to train your sales rep on how to best communicate and send messages to his business desk that is going to help you achieve more out of the negotiation.
Yes, you heard that right. Your job in this negotiation is going to be to train your sales rep on how to work with Salesforce to get you the best possible deal.
Our goal is to empower your sales rep to send the right messages to the business desk, at the right time, in order to achieve your desired objectives.
At the end of the day, the business desk is that one that will approve or deny your discounts.
But your rep is the middleman who will be carrying the messages to them.
Your rep’s emotions
Sometimes your rep may get emotional about working with his business desk. He may get worked up and say “I am doing everything I can to pull all of the levers here to get this deal through for you but I just can’t go any lower.”
When your rep says something like this to you, it’s important you don’t let it get to you emotionally. His goal here is to humanize the organization and make you feel bad in the negotiation. By playing on your emotions, he distracts you from the actual facts of the deal.
Now, your rep may be very honest and emotional about this because this literally may be a challenge for him to get this deal to go through. What you must remember is that this emotion he is bringing through is designed as part of the sales system.
This raw emotion he has is a result of him not knowing the true rates.
When your rep gets emotional about fighting for your discounts, that is Salesforce winning.
That is its system producing the exact desired result.
Your rep gets emotional because he has never pushed this hard to reduce a deal.
But the facts are that your rates are still 20% above market average.
This is why we call it the Salesforce machine. The dynamic between the Sales Rep and the “Business Desk” is brilliantly designed. This not only lets your rep sell with integrity, but it forces the human element into the negotiation by putting your rep in the center of it.
The key here is to understand this dynamics and be aware of it when it is at play.
Don’t get angry at your rep. He is just working as part of the machine.
Divide and Conquer Tactics
Whenever we describe this tactic to our customers, we almost always hear, “Yep, that is exactly what they did.”
Divide and conquer is a brilliant tactic used by Salesforce that is key to selling corporate accounts.
The concept is simple: Build relationships with as many stakeholders as possible in the organization. Use their conflicting stories to create chaos in the negotiation process so that you buy more than you need.
If you are a smaller account under $300k per year, you may not see this happen. But as your annual spend reaches $500k or $1M+ then these tactics will most certainly be used as a way to grow your account.
Understanding the Divide and Conquer Tactics
Let’s take a simple example and imagine that you are the Salesforce Admin handling this negotiation deal.
As your renewal starts to get closer, you may suddenly find that your C-Suite has been invited to a basketball game with courtside tickets.
You may find that Salesforce starts talking to contacts in your IT department.
It may reach out to your VP of sales.
It may reach out to your top Sales Reps.
You may find that your team is invited out to a wine and dine evening.
Now this may not just be your rep. This could be other contacts inside of Salesforce who are a level above your rep who you don’t even have a relationship with.
For many organizations, they don’t think anything of this and just reap in the benefits of the gifts from Salesforce.
But what you must realize is that Salesforce is not just buttering you up so that you like them.
Instead, it is using this momentum to create massive chaos and confusion in your organization.
Why divide and conquer benefits Salesforce Imagine that you walk up to a married couple. You ask the couple “Here is an adorable and cute puppy. If you take this puppy you will have a wonderful and happy life.”
The husband says “Heck no, I don’t want that puppy tearing up our home.”
The wife says “Yes! I’ve always wanted a puppy.”
Two different opinions on the exact same topic.
Now imagine offering that puppy to three to seven different stakeholders inside a large corporate account.
Some people want the puppy.
Others hate the idea of the puppy.
Others don’t want to spend the money on the puppy because they have other plans for that money.
When Salesforce builds relationships with all of these different contacts inside your organization, it is creating massive chaos and confusion. Let’s take a look at an example.
CEO - Your CEO is taken out to a basketball game where the higher ups at Salesforce paint a picture of what their organisation could look like with added functionality and full adoption of Salesforce. They gain his buy in and suddenly your organization has pressure coming down from the top to roll out Salesforce.
CFO - With this new pressure coming down, your CFO is left scrambling to figure out how to create budget for these additional Salesforce expenses that were not budgeted for. Your CFO talks directly with Salesforce and they start getting creative on budgeting and offer to move your renewal to January instead of September to utilize a different years budgets.
CIO - Your CIO is furious because the CFO is now going to pull budget out of his overall IT budget. Your CIO had other plans for more important and business critical initiatives that needed to be completed this year. Your CIO talks to Salesforce and is arguing about how he isn’t even happy with their current ERP integrations and how Salesforce is working with their overall IT roadmap.
VP of Sales - When your VP of Sales speaks to Salesforce, he shares his ideal vision and requests more training for his team to increase adoption.
Sales Reps - Salesforce reaches out to a few of your on the ground Sales Reps for input. They tell Salesforce, “It would be really great if we had X functionality.”
Salesforce Admin - Your Salesforce Admin is the one actually handling the negotiation. They now have conflicting messages coming from every stakeholder in the organization.
What does your Salesforce Admin do in this situation? He asks Salesforce: What do you think I should do?
At this point, you have lost the negotiation. Salesforce has won the game.
It has created massive chaos in your organization and learned more about your organization than you even do as the one handling the negotiation. They gathered conflicting stories from various contacts in your organization.
As a result, Salesforce is now running the negotiation.
It is telling you what to buy and when to buy it.
It is creating a roadmap for how you are going to use Salesforce instead of you.
Your entire negotiation is now focused on “what” you are even buying instead of negotiating on price and terms.
If you let Salesforce divide and conquer, you will lose the negotiation.
An aligned organization is a rarity
The situation we just described to you is extremely common. Most organizations have so much going on that they are simply not aligned on issues like their plans for Salesforce.
Salesforce knows this and it preys on this lack of alignment to create more revenue in its business.
What is exceptionally rare to find is an organization that is actually aligned.
An organization that has a plan for how they will use Salesforce over the next three to five years.
An organization where all of the key stakeholders are in agreement with that three-to-five year plan.
That is what we are aiming for as we prepare for our negotiation. We want to have you and your organization internally aligned on what you need from Salesforce before you ever enter the negotiation.
Our primary tool for doing this is our Salesforce Roadmap. At a high level, this is simply a detailed list of “What you need” from Salesforce and “When you need it.”
The key is to get clear on the “what” and the “when.” Then you want to gain internal alignment before ever starting your negotiation with Salesforce.
If you don’t create your own Salesforce Roadmap, then Saleforce will divide and conquer.
Once it does that, Salesforce is creating the roadmap for you. Its roadmap will typically lead to higher rates and buying things you don’t need.
If Salesforce is creating the roadmap for you, then you are left on your heels saying “Wait a second. Is this what we actually need? Or is this just what they are telling us that we need?”
Salesforce’s Fiscal Year
Another very important thing to understand about Salesforce is that their Fiscal year ends on January 31st. Now at first you may say, “That is odd. Why would anyone make their fiscal year end January 31st?”
Once again, this is done by brilliant design.
Salesforce is an expert at working with Corporate America, and as a result, it knows that most companies operate on a January-December budgeting.
As a result, most budgets are solidified and closed in December, and in January, there is a new coffer of budget available.
By placing their fiscal year at this time, Salesforce now has a great excuse to “Let’s renew early because we will be able to provide a discount to get you in before our fiscal year ends.”
While this is true and you can gain a great discount by moving your renewal from September to January, this is also going to open up the door for Salesforce to create a much larger footprint in your organization.
By moving your renewal to December or January, Salesforce is now able to have an active voice and can influence your budgeting conversations. It can also be flexible with its terms to help you appease your budgeting frustrations.
Maybe Salesforce pushes your renewal to December to use up the remaining budget you had left for this year.
Or it pushes you to January so they can capitalize on the newly allowed budget that just became available.
Or it can get creative with payment terms to capitalize on both years’ budgets.
The key here is to understand that the organization is once again designed to maximize its revenue and growth.
If your renewal is not in December or January, you will most likely eventually be given the option to renew early on one of your future contracts. If you are not given the option, you could also certainly ask.
In most cases, Salesforce will push for you to move your renewal and even offer a discount for changing the date. Just be conscious that this action comes with a motive.
The difference between a new and an existing Salesforce customer
Another thing that is important to understand about Salesforce is that it treats new and existing customers very differently. The performance incentives are different and the way they handle the sales process is very different.
When you are going into your first purchase with Salesforce, your rep is incentivized to sell you as much as possible. Now this may seem like common sense but in the case of a new customer, that incentive is extremely high.
Since selling a new customer is always harder than a renewal, Salesforce designs its compensation structure so that reps see a significantly higher sales commission from new customer accounts.
First, it motivates your rep to sell hard. This is where you see the used car salesmen tactics at their worst. Your rep is hungry for those extra commissions and will throw out every stop he can to get you to buy as much as possible.
In addition to commissions, Salesforce also wants to create a large footprint in your organization. This makes them much more sticky. If you only buy a few licenses to test things out, then it means it does not have enough traction to get a hold of you. But if it can motivate you to onboard an entire department, then the chances of you switching away become much more difficult. That is why Salesforce motivates its reps and will often offer discounts or comped licenses for a period of time to get a wider adoption in your organization.
Pre-pay for licenses you don’t need
For companies that are just starting with Salesforce, they often don’t know all of the terms you can negotiate. As a result, many don’t know that you are able to roll out licenses over the course of a contract instead of buying them all up front.
This is one of the most common mistakes that new Salesforce customers make. They buy a lot of licenses only to realize that adoption is far slower than they anticipated. It takes longer to get Salesforce implemented and integrated with their internal software. As a result, they end up often paying for licenses that sit there dormant for months. We had one client who had previously purchase 100 licenses that sat there dormant for 18 months, while they implemented Salesforce into their current IT infrastructure.
Buy slow at the start and then add along the way because adoption will always take longer than you anticipate.
As you would expect, Salesforce wants to see long-term growth in your account.
What you may not expect or realize is that Salesforce has already booked a 10% increase in your account size in your upcoming renewal. That means even though you may be going into the negotiation wanting to keep the same rates or even reduce them, they are going into the negotiation with the understanding and expectation that you will agree to increase by 10%.
This is how Salesforce operates, and it is what it expects from its Sales rep.
Now, it does not achieve this 10% increase in every situation, but at minimum, Salesforce at least wants this to remain a status quo.
One of the worst possible things for Salesforce is to lower the price of your contract at renewal, even by one dollar.
Salesforce will fight for its life to avoid this decrease due to how its incentives and organization is structured. But that does not mean it is impossible to get a decrease or to get more out of what you are paying for.
That means if you are dropping a service like Pardot or Premier Support, then Salesforce is going to fight to get you to reinvest those dollars into other licenses or add-ons. It wants to see you keep your budget at minimum at status quo.
When going into this negotiation, there are two ways to look at handling this situation:
The first situation is ideal for gaining the most value, but the second situation is entirely possible as well. The way to do this is to utilize what Salesforce calls it “Customer for Life” incentives.
These “Customer for Life” incentives are pools of credit that each rep and territory has to hand out at their discretion to grow key accounts. There are two ways in which they can use these incentives:
Their ideal situation is to use these credits to grow accounts into what will be more revenue in the future. That means it is our goal in the renewal to create the story of what Salesforce looks like inside your organization for years to come.
We want to paint the picture of growth and expansion of Salesforce inside of your organization so that they are incentivized to use these “Customer for Life” funds and invest in the long term growth of your account.
Understanding Salesforce’s Products and Services
What you must understand about Salesforce’s different products and services is that they are hard to understand. That is done by design.
Many of our customers who have now been with Salesforce for 3+ years often complain “It seems like they keep changing the license tiers or product names. It’s just confusing and I don’t really understand why I am paying more for what seems like the same thing.”
Once again, this is by design. This is a trick taken right out of the Microsoft Playbook.
Think about it like this. Imagine your renewal comes up and you have been purchasing X product or service for the past 3 years. The now tell you “We have actually discontinued that specific product and it has now been rolled into this product. You will gain all of these new features and the new price is X.”
You were just thrown a curveball. Suddenly you are no longer comparing apple to apples. They just shuffled their product offering which confuses you at the renewal and gets you focused on the entirely wrong thing.
Instead of focusing on the price of that new product, you are focused on what it is, and if this is a right fit. It’s a distraction that creates chaos and confusion at the renewal by intention.
Incentives vary by product and serviceThe other important thing to understand is that the incentives for reps vary across different products or services. Whenever a product is new and hot off the shelf, they are typically incentivized with higher commissions for selling that product.
This is another thing to be conscious about as your rep may push new tools on you that are not actually what you need.
Other products with higher commission incentives are products that act as a “land grab.” When we say “land grab” we mean a product or service that breaks Salesforce into a new department in your organization.
For example, Pardot is a land grab into your marketing department.
Service desk is a land grab into your customer service department.
Salesforce fights hard to make these land grabs for a few reasons.
Whenever you are considering offering up a “land grab” to Salesforce or expanding outside of just your core sales team, you are in a great spot with your negotiation. Salesforce is highly incentivized to make this happen and this puts you in a prime growth spot to lower your rates and get more out of the deal.
The Bottom Line
Salesforce is a brilliantly designed sales system. The first step to understanding how you can reduce your rates is to know what you are up against. A few key takeaways:
Our goal with this article has been to educate you on the key points of how the Salesforce machine operates. In the next article we are going to dive into your best defense against these tactics, your Salesforce Roadmap & Communication Strategy.
We can reduce your IT Software expenses by 10-50% through contract negotiation.