Negotiating with Salesforce - Seven things you need to know about how Salesforce looks at a deal

Salesforce is good at negotiating. So your chances of getting a good deal are enhanced by understanding how they look at a deal and their goals. Your Salesforce Account Executive will lead the team you are negotiating with, in close coordination with his or her manager. This team is your path to getting the best overall deal. And while they are trained to maximize Salesforce revenue, they won’t get paid unless you make a purchase. So if you ask the right questions, and provide information that can help them get to a discount level you are comfortable with, this is the win-win situation all are striving for.

The remainder of this article provides some guidelines and background that will help you to get there.

1. Salesforce sales teams earn commissions on incremental revenue

Account Executives (also called “reps”) and their management are paid based on incremental revenue, not total revenue. If you don't buy additional licenses (or spend additional money), they don't earn commissions. More specifically, if your total spend this year is not more than last year’s, they don’t earn commissions this year. They are indifferent to whether you purchase licenses for more users, add-ons licenses for existing users, or you swap out one type of license for another, as long as the total spend is more. This is actually a good thing for the customer because it gives you more leverage and allows you to adjust your purchasing to your needs.

2. Salesforce AE’s are paid when the deal is signed

SF reps and management are paid in advance for the 12-month value of whatever you are deploying now. While they will ask for a longer contract such as three or five years, they are open to a shorter term, since most, if not all of their commissions are based on first-year revenue only. This varies from year to year, but the first year is always more important.

3. Timing matters

Salesforce's fiscal year ends in January. While this may seem strange, it is actually quite intentional. They can work with a customer the entire year to justify a new purchase, and wait until that customer's new fiscal year starts in January when the budget becomes available. And since the sales team gets paid on an annual quota they are quite happy with January deals. This often leads to very large February commission checks!

But it's not only the end of the year that matters, as management and reps are often encouraged through bonus payments to close deals at the end of a quarter.

Customers can take advantage of this quarter and year-end effect by asking for and often getting discounts that would otherwise not be available.

4. Discount authority is distributed

There are many articles in the public realm indicating that the rep has no power, and all of the decision-making lies with a special team that has the authority. This is not quite correct. Your rep has access to a discount/approval matrix indicating what level of discount is available, by license and quantity, and what organizational level is needed to approve it. They know how much of a discount they can get approval for, and whom they need to get that approval from.

In general, each level of management has a specific level of discount they can approve. So for example, for a given size deal, your rep may be able to offer you a 10% discount without additional approval. His manager may be able to approve an additional 5%, and each level of management above can offer some additional discounting. The special approvals team is involved only when a deal requires additional discounting, beyond what a given size of deal and management level can approve. A good rep knows how to work this structure, and will do so to get you the best deal they believe they need to have to get your signature.

So while the rep doesn't necessarily have the authority to grant you the discount you might want, they are your advocate and absolutely control the path to get you a better deal. So keep pushing and asking for more - as you get closer to year-end or quarter-end, more of the management will be interested in helping your rep get you a bigger discount. And it is highly likely that your rep’s manager (Salesforce calls the first-line sales manager a “Regional Vice President”, or “RVP”) is fully knowledgeable about every deal, so going above the rep does not necessarily get you better discounts.

5. Discounts depend on both deal size and customer size

Larger deals and larger customers generally get larger discounts. The combination of order size and customer spend leads to the discount they might offer you for a particular purchase. For example, a $100k purchase from a customer spending $2M annually will likely get a larger discount than that same $100k purchase from a customer spending $500k annually.

Conversely, a $2M customer making a $10k purchase may get a larger discount than a $100K purchase made by a new customer.

While deal size determines the discount level, customer size determines where the discount level for the deal starts.

6. Consolidating purchases increase your discount

Salesforce loves it when you make lots of little purchases. Each one is considered as if it were the only purchase you are making, and thus separate individual purchases lead to higher overall spend (see #5). When you are about to make a purchase, be sure to consider if any other groups in your organization are doing the same, as well as purchases you might be making in the short term future. If you can consolidate the orders into a single request, your deal size goes up, and your discount level will likely improve.

7. Consider near term future demand in your current purchase

As an extension to the previous point to consolidate your purchases, this can be extended to include purchases that will likely be made in the next few months or even the next year. Providing this to the account team will allow them to provide several options to you, and you will be able to see larger discount levels that might be available to you. This will likely include making the full year’s purchase upfront, which will lower your cost per license, but potentially increase your short-term spend.

The downside of advancing purchases before you need them is that there will be licenses that are unused for part of the contract term. You can then compare which is better for you, both in the short term and the long term, since your renewals will start from a lower price per user. You may find that even though some licenses are unused for a time, your overall cost is lower, especially when you consider the cost of several years in the future. Most good account teams will be able to provide you sufficiently better deals to make this worthwhile for you to make the purchase up front. And since you have already paid for the licenses, the faster you can deploy them, the more you will benefit, without incurring additional costs.

Bonus - Not all licenses need to be activated concurrently

Let's say you are planning on deploying 900 licenses in the next 12 months, with a schedule of 300 in month 1, 300 in month 4, and 300 in month 7.

You will almost always get a better price if you purchase all 900 at once, rather than 3 purchases of 300, but you will end up with licenses that you are paying for and not using for some of this time. Conversely, if you make three purchases, you are not paying for anything prior to actually deploying them, but the cost per license will be higher.

A better option is often available that combines the best of both. You can agree to purchase the 900 licenses in a single order but delay the activation dates for the licenses you will not be activating in the next few months. Your order form will have three line items, one for each activation date. But since your discount will be based on the full 900 license purchase, they will all be less expensive, and you are not paying prior to when you need them! Salesforce calls this a “staggered deal” structure.

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From Fortune 500 giants to fast-growing innovators, TNG has helped clients save 20% – 40%+ on enterprise software contracts — even when they thought it was impossible

A 3-Step Process to Reduce Your IT Spend 25% Or More

In the latest meeting with your company’s executives, the ultimate goal was the same as ever - increase revenue, decrease spend.

Do more, with less.
‍
Your directive is to find a 10% cost savings in the next year and you are looking for some quick, streamlined ways to achieve that goal.

Have you taken a good look at your current contract situation? Where can you find savings in the software and products you’re already paying for?In this article, I’m going to share how you can create a system to manage and optimize your current (and future) IT contracts. By taking these steps, you'll achieve the best cost savings (often upwards of 25%) for your company.

How do you manage & optimize your current IT contracts?

To optimize your IT spending, you need to get organized. Tons of contracts are flying around and you have to know where you’re starting from today to be able to optimize for the future.

You have multiple contracts with each supplier you work with. Each product you buy from them throughout the year has its own legal commitments: Master Service Agreements (MSA), Statements of Work (SOW), order forms, etc.

Each supplier has a number of IT contracts they use with their clients.

Any of these types of contractual documents probably have different commercial language.

And they all add up to time and money obligations for you.

The worst part? Almost none of these contracts will be co-termed. Regardless of the company they’re with, each contract will have a different term period. Some of them will be for six months, a year, eighteen months, what have you.

This creates mass chaos and it’s all by design.

In order to get out of that chaos, you need to get above it - get a bird’s eye view of the landscape of your IT contracts. This can be a very arduous process but the payoff is huge. Take the time to align each of the contracts so you can properly optimize around them.

Step 1: Create an Asset Inventory List

If you don’t have a contract management system - and most companies don’t, even the biggest ones out there - you need to create an Asset Inventory List.

Basically, list out all your suppliers and all the IT contracts. You need to be clear on what contracts you have with a specific supplier.

You can do this with a fancy Excel spreadsheet like the one I’ve created below. You can download this template for your own use.

Essentially, this list will have the vendor name, contract type, contract term, and price. Consultant groups charge millions for this fancy spreadsheet but you can create one yourself from my free template.

‍Through this process, you’ll identify 2 things:

How much you’re spending every year.
How many IT contracts you have with each supplier.

With this information, you can tackle the next step. You now know what contracts are coming up for renewal and when. You know the negotiation period and can bring in extra help in advance to work through that process. And finally, you can now work on co-terming all the order forms and SOWs.

hese adjustments create more administrative ease versus the chaotic burden they’re designed to be.

Once you’ve got a survey on your IT contract landscape, you can move on to Step 2.

Step 2: Analyze Each Supplier Against a Right Size/Right Price Matrix

Start with the suppliers that are your biggest spend items. These will most likely be your ERP provider, your Microsoft Office contract, and your CRM software. Do an internal assessment of these suppliers and determine:

How much you’re spending;
When you’re going to renew; and,
What you’re planning to do in the future.

This will help you determine that you are, in fact, only paying for the items that you need versus those that you don’t. All too often companies are paying for products that they aren’t even using because they don’t have a handle on their contracts.

The second thing you’ll be able to keep an eye out for is whether you’re paying for the right license types or not. Challenge your company to look at ways you can downgrade your subscriptions.

The third piece of knowledge you’ll gain from this process is figuring out which business capabilities each supplier is supporting. You’ll be able to see which suppliers are overlapping functionalities.

This overlap is common in decentralized organizations. Each business stakeholder wants to use the software they’re familiar with even though three other companies provide the same capabilities. Your corporation is likely spending way too much on overlapping suppliers that provide the same digital capability.

Paying for software you’re not using is called shelfware. Don’t make the mistake of paying for shelfware.

You need to start this internal assessment process six months before your next contract renewal. If you don’t, you’re going to be playing catch up to these large suppliers because they know more about you than you do.

Step 3: Preparing for negotiation

Create your negotiation team

Your negotiation team should consist of 3 different roles: a business stakeholder, an IT stakeholder, and a negotiator. Sometimes this last role is procurement and sometimes it involves an outside advisor.

Gather benchmark data

In addition to your negotiation team, you’ll need some hard-to-find information. One of the biggest pieces of leverage you can get is benchmark data. This data gives you the prices other firms are paying for the same service. There’s no way your company can know what other businesses are paying unless you bring in an external advisor like The Negotiator Guru.

Create an opportunity analysis

You can analyze your rates against the benchmark to find out how competitive your prices are compared to your industry peers. Similarly, you can analyze your supplier performance metrics, Service Level Agreements, governance process (etc.) against benchmark data to find out how well your suppliers are performing.

And finally, you can analyze your Innovation Quadrant against the benchmark.

How is the supplier driving new ideas, new concepts, process improvements, etc? How are they incentivized to drive cost savings for YOUR company through their relationship with you?

For example:

If you’re using a company like Accenture to run your help desk, there should be a clause in the contract for a 10% target cost savings over the contract term for the services they provide. They do this through process improvements and through automation.

This ensures they are actively working toward providing your company with cost savings to make your business more efficient.

Create a Roadmap of Initiatives

This roadmap has the intent of prioritizing your initiatives to ensure you’re targeting the greatest impact that will take you the least amount of time. Of course, not all initiatives will be easy to achieve but taking a systematic approach to what you work on first is paramount to your success.

To assist with this approach, we suggest categorizing your initiatives so that you can easily sort and isolate the opportunities in front of you. Categories you might consider using include “Quick Win, Strategic Sourcing, and Business Transformational.” Naturally, the progression of cost savings usually increases in scope and impact as you move from Quick Win opportunities to that of Business Transformation.

After you perform your opportunity analysis, get your benchmarks, and create your roadmap of initiatives, you can then pull together a Heat Map. This entails creating a visual graph that clearly identifies the sequencing opportunities.

Here is an example of one of these Heat Maps:

Being proactive with IT contracts can save 25% annually

A stellar negotiation team together with your benchmark data and forward-looking road map will give you a clear direction during the renegotiation process.

‍Centralizing, and subsequently renegotiating, your contracts with this approach generates on an average 25% P/L cost savings for your company (industry agnostic).

A decentralized company can cost you extra money

If a company has multiple business units and/or sites that are responsible for their own procurement you will undoubtedly have an unstructured supply base. The downstream effects of this situation is that you will have overlap in your supply base, duplicative digital capabilities, and a rats nest of contracts causing incredible inefficiencies and unleveraged spend.

For example, if one branch is using DocuSign for e-signatures and another is using Panda, this is a digital capability overlap that can easily be eliminated.

After your company streamlines your digital capabilities, your company should be able to easily consolidate spend, processes, and contracts. Once you remove the redundancy and get everyone on the same software, you can also negotiate a single contract for your company that drives immediate cost savings and long-term cost avoidance.

IT Contracts create both opportunity and risk in Merger & Acquisition transactions

When combining companies, it’s important to do both a top-down and bottoms-up approach to identifying synergy opportunities within your IT spend.

Top-down approaches involve a lot of financial synergy assumptions based on similar transactions within your industry. These approaches largely identify duplicative roles, processes, etc. and identify a financial target for savings. This approach naturally takes a high-level approach but doesn’t consider the unique needs of your business. To accurately forecast synergy opportunities it should not be the only synergy view to consider.

Bottoms-up approaches, on the other hand, allow you to co-create opportunities with your l business stakeholders that consider business risk, culture, and ease to achieve.

I’ll provide more insight on how to properly prepare for a merger in a future article.

Wrapping It All Up

Follow these steps to properly optimize your current contracts:

Identify your current state situation.
Identify your high-spend suppliers.
Gather benchmark data to see how your contracts stack up.
Run an Opportunity Analysis to determine overlap and shelfware.
Create a negotiation team.
Optimize each contract as its renewal period approaches.

5 Tips for Negotiating a Salesforce Extension

In this article we will discuss how to successfully extend your current Salesforce contract in order to create additional time to successfully prepare and negotiate your renewal agreement. For more detail, read our guide on negotiating with Salesforce.

An extension is commonly needed whenever our clients engage us too late (i.e. too close to their contract renewal) and we need time to successfully complete the Discovery and Strategy Phases of our proprietary 4-Step Negotiation Plan.

Tip #1: Be Confident

We find that most of our clients have either rarely or never requested a contract extension with either Salesforce or any other IT Supplier. As such, this very basic concept becomes daunting for the average IT or Procurement leader as they don’t have either the experience, or past playbook, to execute with natural confidence. This sentiment is augmented by the fact that Salesforce will automatically inform you that they never allow extensions. If you’ve read our previous articles, then you’ll know this is yet another canned answer out of their sales playbook. Please know that extensions are granted all the time as long as you know how to ask for them…as such, they are considered the exception vs. the rule.

Tip #2: Focus on the Facts

Share only what is necessary with Salesforce without going into too much detail. You don’t want to expend all of your negotiation equity during this process or you’ll end up hurting yourself down the road. Keep in mind that Salesforce will try and obtain as much information as possible during this stage so they can decide 1) whether or not to grant the extension and 2) to determine how prepared you are as an organization.

‍Tip #3: Establish the Why

Like any human scenario, it’s always easier to influence people if they understand the intent and context behind any request. This scenario is no different as you’ll want to answer in a way that is authentic to your organization but intentionally vague in material content. Typical responses we find most effective are the following:

Active interest in exploring new digital capabilities and need time to make internal decisions;
Internally restructuring the Salesforce relationship accountability;

Aligning multiple stakeholders within your organization to accurately capture the wants and needs over the next 5 years;
In the process of obtaining end user feedback and need some additional time to finalize, analyze, and make decisions, etc.

Tip #4: Create a Timeline with Milestones

Salesforce will be far more willing to accept an extension request if they understand the timeline in which you plan on making decisions. This in a sense shows a partnership mentality which is both real and healthy. Develop a basic timeline of when you plan on making internal and external decisions that provides a good amount of cushion in favor of your organization.

‍Tip #5: Keep your Promises

Constant and honest communication is key. All too often we find individuals/companies making the mistake of playing the power client position. In other words, the client exemplifies a lack of empathy or care for the sales process and holds all information back thinking that they are protecting their position. After years of research and proven experience we have repeatedly disproven that hypothesis. Instead, we find providing regular milestone updates to Salesforce (or any IT supplier) shows a level of commitment to the relationship and will pay dividends at the final negotiated deal. Summary It’s important to recognize that each client scenario offers its unique challenges and opportunity. That being said, the guiding principles laid out above will prove effective no matter your situation. Be confident in your request, focus on the facts of your specific situation, build credibility with Salesforce by providing context into the request, set expectations via timeline with milestones, and deliver on your promises. We use these same effective tactics every day and hope you find them useful in your future endeavors.

Summary

It’s important to recognize that each client scenario offers its unique challenges and opportunity. That being said, the guiding principles laid out above will prove effective no matter your situation. Be confident in your request, focus on the facts of your specific situation, build credibility with Salesforce by providing context into the request, set expectations via timeline with milestones, and deliver on your promises. We use these same effective tactics every day and hope you find them useful in your future endeavors.

Key Points to Remember When Negotiating Your Salesforce Master Subscription

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:

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,
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 continues to dominate the space. Subsequently, if you are looking at CRM solutions in the marketplace, you’re likely considering Salesforce as an option.

Why is Salesforce (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 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 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
change.

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 negates knowledge continuity, etc.

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