The truth about Salesforce Enterprise License Agreements (SELA)...is it right for you?

We’ve found that the average savings potential for a company switching from a Salesforce Enterprise License Agreement (SELA) to a standard Salesforce Subscription Agreement is 41.3%.

Yet many large enterprises still honor their SELA agreements simply “because we’ve always had one.” Subsequently, these companies have a difficult time benchmarking the value they’re extracting from a SELA vs any other contracting method.

While Salesforce will present these agreements in a way that may seem extremely advantageous to the customer, the truth is they’re rarely a good fit.In this article we are going to explain:

What is a SELA Agreement?
How SELA’s looked in the early days of Salesforce
How present day SELA’s have changed
Why SELA Agreements are a bad idea for most companies
- Problem 1: SELA caps are built off of your current needs
- Problem 2: SELA agreements are manipulated by Salesforce’s changing product line
- Problem 3: You are paying 41.3% more than you should be with a SELA Agreement
When SELA’s work
When SELA’s don’t work
Why “you don’t have to manage it” rarely justifies a SELA
What to do if you have a SELA

What is a SELA Agreement?

A SELA Agreement is a Salesforce Enterprise License Agreement.

What is the difference between a Salesforce Enterprise License Agreement (SELA) and a Salesforce Subscription agreement?

A Salesforce Enterprise License Agreement (SELA) agreement is different from a Salesforce Subscription Agreement in one key way. A SELA is meant to provide “Unlimited Access” to the platform, while a standard Salesforce Subscription Agreement includes set prices for a set number of products.

Yet while SELA began as an “Unlimited Access” promise, that is not quite what SELA agreements look like today.

To understand SELA’s and why your company probably doesn’t need one, it’s helpful to understand the history of SELA’s and how they may have looked when your company originally signed one.

How SELA’s looked in the early days of Salesforce

In the early days of Salesforce, there was a massive focus on market penetration. Like any typical SaaS company, all they cared about was volume.

In the early days of Salesforce, the CRM market was extremely fragmented with small players and disparate homegrown solutions. Arguably, at the beginning, the largest competitor to Salesforce was Microsoft Excel. As a result, Salesforce hit the market precisely at the right time and acquired new customers relatively easily.

But given that Salesforce was in such a high-growth mode, they wanted to leverage their existing client base to grow organically both internally and externally at the client organization. In other words, they wanted to pursue any strategy that enabled new endpoints whenever, and wherever, possible.

Under this premise, they created the first SELA which conceptually provided unlimited access to the platform. This would ensure that Salesforce could land and expand as fast as possible within a new account without any barriers, paperwork, governance, or red tape.

The MO of an early SELA deal summarized would be:

Your contract with Salesforce is $10M per year over a 5 year contract term. It is a $50M relationship, and you can use the entire Salesforce platform however you see fit, no restrictions. Use our support as you need it. Our goal is to help you grow.

This unlimited access approach was the foundation for Salesforce’s growth by 100x in the early years. By signing one of these deals, and then expanding into a large enterprise organization, they were able to show massive growth rates on all of the SaaS growth metrics such as users, retention, growth rate, turnover rate, etc.

Because they were signing customers onto SELA’s, their growth metrics went through the roof which gave all of the signals for additional funding, press, and market share.

The goal of SELA in the early days was simple. Achieve as much penetration as possible into the corporate world.

How present day SELA’s have changed

While SELA’s once provided “Unlimited Access” to the platform, that isn’t always the case today. Present day SELA agreements look quite different.

Today’s SELA Agreements are full of floors and caps on the quantity of specific product sets that you can use. While old agreements were “Unlimited”, the new agreements come with added restrictions, usage ceilings, and massive financial growth commitments.

When your organization grows/declines past the commercially allowed threshold within your specific SELA, there will be significant financial consequences. Subsequently, without the proper legal terms and conditions protecting you from changes within your business, you are setting yourself up for significant financial and legal risk.

Why a SELA is a bad idea for most companies

A floor/cap on your product usage initially may not sound like a large risk for your company, especially if you are comfortably within the allowed threshold at the time of contract execution. That being said, there are 3 major problems that commonly arise from this scenario. Here we are going to dive into the three fundamental problems:

Problem 1: SELA caps are built based on your current needs

A SELA agreement will often be on a 3-5 year term, and the caps are negotiated based on the needs of your organization at the signing of the contract. This may not sound like a major risk, but for high volatility (growth and/or decline) companies, or anyone in an active M&A industry, this can be a major issue.

When you break the caps of your SELA Agreement, it’s not as simple as “buying extra licenses” to make up the gap. Instead, it will trigger an entire sales event with Salesforce that is going to have them coming back to you for more money.

Additionally, you may only trigger your cap in one single product category (Ex. Pardot), but if you break your SELA caps in that space, they can use that as grounds to raise prices across the board.

These caps are dangerous because as soon as you break one, it puts the power of the contract back into Salesforce’s hands.

Problem 2: SELA Agreements are manipulated by Salesforce’s changing product line

The second problem with a modern day SELA is the ever-changing product line from Salesforce.

Salesforce is a master of releasing and repackaging products. They are constantly rolling out new products into the market, as well as repackaging existing products, while retiring old products.

While innovation at Salesforce is great, the new products and services that are organically (or inorganically) created are rarely contemplated as part of your organization’s SELA. If your organization wants to use those new products and/or services, they will likely need to be paid for separately as an additional expense.

Additionally, some products may “retire” or become a “carveout” of an existing product. Continued usage of these products may actually trigger a contractual breach of your SELA.

This sounds ridiculous, but Salesforce does it all of the time, and it’s very expensive for the client. Naturally, most Salesforce clients are not aware of these inherent risks until they’re sent an invoice for this incremental out of compliance usage.

Here is a recent practical example of how they pull this off...

Repackaging Example: Sales & Service Cloud

Up until recently, Sales Cloud & Service Cloud were two separate products from Salesforce.

Sales Cloud was for Sales Reps while Service Cloud was for service department technicians. These two products came at two different price points. Sales Cloud was cheaper, and Service Cloud was more expensive.

Eventually, Salesforce decided to roll these into “Sales and Service Cloud” as a single commercial product even though they technically operate as separate infrastructures (clouds). This provided Salesforce a commercial opportunity to financially uplift those existing clients that had both products (Sales and Service Cloud), historically with two different price points, now as a single price point that matched the more expensive line item as part of Customer 360. The logic being that both clouds are integrated harmoniously whereas the entire client organization is able to review all of its omnichannel touchpoints with their customers. This “additional value” was largely the basis for this product and price convergence.

The targeted outcome is typically around a 30% revenue boost within the existing customer base. This revenue boost was predicated by a simple repackaging of services.

Problem 3: You are likely paying 41.3% more than you should be with SELA

We renegotiate a lot of SELA deals at The Negotiator Guru (TNG), and on average, we identify a 41.3% cost reduction opportunity when switching to a standard Salesforce Subscription Agreement.

The reason behind this is that most SELA’s are priced extremely high (on a price per unit, per month basis) and commit the client to much higher usage (products & quantities) than is actually being used, creating conceptual shelfware.

At TNG, we leverage a proprietary Right Size, Right Price approach to drive efficient and long lasting savings for our clients.

We first understand what your organization actually needs and build a roadmap to support you based on your specific global business. Instead of buying everything through a SELA Agreement, we leverage our Right Size framework to ensure you’re leveraging the appropriate products and services at the Right Price.

We are able to easily identify Right Price information based on our industry leading price benchmarking database that is minimally rationalized based on your Annual Contract Value, Industry, and Company Size. We say “minimally” because there are other factors that determine product pricing such as product mix, your roadmap, Salesforce quarterly interests, etc.

Then, we leverage our unmatched expertise negotiating with Salesforce either as a covert silent advisor, or an overt legal agent, to extract maximum value for you at the lowest possible cost.

Those two simple components alone have generated our SELA Agreement customers 41.3% in savings.

We’ve worked with Fortune 100 companies paying $25M+ per year to Salesforce whose actual contract value should have only been $10M.

The savings potential is real and worth the time to renegotiate.

When a SELA is a good idea

Most of this article is spent sharing why SELA’s are a bad idea for most clients. That being said, there are a few select cases where they may be temporarily beneficial to a client.

Every year, we speak with hundreds of Salesforce Customers. Since the inception of TNG in 2015, we have only had one customer where a SELA was actually a good fit for their needs.

While we always keep our clients confidential, this specific company was a high-growth IT firm with rapid-growth aspirations (500x), large amounts of equity funding, minimal IT resources, and a technical architecture that required Salesforce to act as the backbone for their outreach strategy. They were in a very unique situation.

Here are the required conditions to even consider a SELA:

High-Growth Environment of 10x-500x per year;
High-amounts of capital investment;
A large volume of customers with varying interaction levels across multiple channels; or,
A clear architectural roadmap from a digital capability and functionality perspective.

When a SELA is a bad idea

99% of the time, a modern day SELA Agreement is a bad idea. In almost all cases, it just doesn’t make sense.

Here are (only some of) the conditions where a SELA does not work:

You signed a SELA 4+ years ago;
Your company has predictable needs in both products and quantities;
Your company is spending less than $10.75M/year on Salesforce;
You have less than 5,000 API connections per day;
Your IT department’s strategy is to leverage native (vs. custom) functionality wherever possible;
You have less than 3,500 Sales and/or Service Cloud licenses; or,
You’re not sure where your business is going in the next 3-5 years.

Why “you don’t have to manage it” rarely justifies a SELA

Yet, even with everything we shared, many companies still sign up for new, or keep renewing their existing, SELAs. Perhaps that’s because they haven’t read this article!

The most common reason we hear from our clients on why they have a SELA is that “We don’t have to manage it. There are no order forms, compliance, or governance. We just signed the deal and originally, didn’t have to worry about it.”

While that is great in theory, you can achieve nearly the same benefits with a standard Salesforce Subscription Agreement by negotiating specific terms and conditions into your Order Forms. We will share two of these terms below for your awareness and utilization:

M&A Language

Request language be added to your Order Forms that protects you in the event of an extraordinary corporate event like Merger and Acquisition (M&A) Activity. Adding in the appropriate language for M&A activity can provide huge benefits to your organization. Specifically, ensuring that an acquisition or divestiture can be brought in or taken out of your environment without commercial recourse will proactively avoid painful legal headaches and financial synergy slippage.

Product Swap Language

As we discussed, Salesforce likes to change up their product line to create disruption in the marketplace and in your contract. Introducing product swap language that enables you to swap products and services freely as long as you maintain the same annual contract value provides a huge value that is similar to that of a SELA.

FAQ’s

What happens if I exceed the caps on a product in my SELA Agreement?

Salesforce will use this overage as leverage against you in your upcoming negotiation. They will either charge you an overage fee or push a net new product on you in exchange for waving your overage fee. This net new product helps them achieve additional revenue, new products, and a larger footprint inside of your organization.

When you exceed the caps on a product in your SELA Agreement you are naturally placing yourself in a vulnerable position with Salesforce.

Many organizations who have an active SELA Agreement with Salesforce don’t have an internal software asset management (SAM) team. As such, these organizations won’t know they have exceeded their cap limit until Salesforce informs them. Even with an active SAM team inside multinational organizations it can be very easy to exceed your caps.

In general, 6 months prior to your contract renewal, Salesforce will conduct an audit on your account to look for any overages. If your organization is not already aware of these overages you’re naturally going to be on your heels trying to fact check information internally. Either way, Salesforce will use these overages as leverage against you in the upcoming renewal negotiation.

There are two scenarios that commonly play out within this situation:

First, if you notice you have exceeded the cap limit, you can take corrective action to decrease your quantities of specific products so that you are back in compliance. Your organization will technically be obligated to pay overage fees for the time those overages were occurring within your environment. The standard language within Salesforce agreements indicates you will be liable to pay the “published retail rate.” In other words, the rate that Salesforce publicly publishes on their website without your organization’s discount.

Second, if Salesforce notices that you have exceeded the cap limit, then you will be hit with a heavy overage fee in a similar manner as discussed above. However, Salesforce will likely use this opportunity to push new products within your environment in exchange for some of the overage fee. The net outcome, if not properly negotiated, will be a higher total cost of ownership over the term of your new contract than paying the overage fee by itself.

It’s important we state this again: Standard Salesforce MSA and SELA Agreements (aka all agreements) include a standard clause that any license overage will be charged at the then current retail price. That means instead of paying for additional seats at your discounted rate, they will charge you the retail price for the product that is currently listed on their website.

This is a very dangerous situation as the retail price can often be 2 -3x your standard rate.

We recommend negotiating specific contractual language that limits your financial liability to that of your organization’s reduced rate vs. retail.

How do you approach negotiating an existing SELA Agreement?

When renegotiating a SELA Agreement, we leverage our best-in-class and proprietary approach that we always use when Negotiating with Salesforce.

Mastering Your Salesforce Spend: Why Ditching the SELA Can Save You Millions

Create a Salesforce Roadmap

The first step in controlling your Salesforce spend is to build a roadmap of specific products and services you will need from Salesforce over the next 5 years. Create a list of both your needs and your wants.

With a Salesforce Enterprise License Agreement (SELA), it is very important that you build a 5-year game plan instead of a 1-3 year plan. The reason is that the 5-year roadmap will help you decide if a SELA agreement is right for you. If you are forecasting rapid growth or large M&A activity, then a SELA may make sense, assuming the proper legal terms and conditions are in place. But without either of those two components, a SELA rarely provides the differentiated and intrinsic value one would expect from its large price tag.

In most situations, a SELA Agreement will not make sense for most organizations. Putting together a Salesforce Roadmap will help you see this clearly. When you have a clear roadmap of what products you need, in what quantities, then you can use that as a benchmark on price.

Benchmark Your SELA Spend with Right Price Data

Once you have your roadmap, the next step is to gather Right Price Data for what rates you should be paying for each product on your roadmap.

At The Negotiator Guru, we have the largest database of Salesforce rates as a result of reviewing hundreds of Salesforce contracts for organizations that span literally every industry. We can tell you what you should be paying for each product or service.

While firms out there like Gartner can provide directionally correct information, they are not able to provide prescriptive insights for your specific situation. To access our Right Price Data for your account, contact us at info@thenegotiator.guru.

When you take this Right Price Data and line it up against your roadmap, you can see an estimation of what your Salesforce spend should be in a total cost of ownership view. Now simply take that total number and compare it to the annual spend of your SELA Agreement to see just how much of a savings potential is available for your organization.

Based on our real client data, we find there is typically a 41.3% opportunity available when switching from a SELA to a standard MSA & Order Form contract and pricing structure.

Examples of SELA Negotiation Success

Through our work at The Negotiator Guru, we have helped hundreds of organizations reduce their Salesforce expenses. Our firm is the industry-leading expert in negotiating with Salesforce.

Here are two recent examples of SELA negotiations we have completed with, and for, our clients. All company information has been redacted for client confidentiality.

Negotiating a $75M SELA Agreement down to $32M (57% savings)

One of our clients came to us with a 3-year term on a SELA Agreement valued at $25M per year. This was a total contract value of $75M over a 3-year period.

We worked with the client to create a Salesforce Roadmap and shift the organization over to an MSA & Order form contract and pricing structure. This simple shift produced a material reduction of their annual spend down to $10.7M per year for a 3-year term.

That is over 57% in savings and $43M in cost savings over a 3-year period. This example shows just how much SELA Agreements can be overpriced.

$30.5M in savings by negotiating a SELA Agreement that no longer made sense post-M&A

This particular organization was on a 5-year SELA Agreement. The SELA was designed based on the company footprint at the execution of the SELA Agreement.

There was one major problem—this specific organization was in the telecommunication industry which was experiencing heavy disruption. As a result of this disruption, the company divested several business units for financial and regulatory reasons. When these business units were divested, everyone assumed that their Salesforce contract would adjust accordingly… but that was not the case.

The response that came back from Salesforce was essentially, “It won’t be possible to reduce your spend because you have committed to this agreement for a total of 5 years.”

This meant that the telecom organization was now paying for products and services that were used by companies they divested, and they were committed to continuing to pay for those products for an additional 3.5 years. In total, this would be $36M in wasted expense over a 3.5-year period.

Through negotiations with Salesforce, we were able to reduce that down to a $5.5M breakup fee for a total savings of $30.5M over a 3-year period. This example shows just how important it is to structure in proper M&A language into your SELA and all Salesforce Agreements.

SELA Agreement Logistics and Strategy

What is the typical SELA annual spend?

The typical customer on a SELA agreement is a multinational organization doing over $10B in annual revenue with a total spend of $15M+ per year with Salesforce.

How long does the process take to renegotiate a SELA Agreement?

The process to renegotiate a SELA Agreement typically takes 2.5 months. That being said, to properly prepare for the negotiation, we engage our clients a minimum of 6 months prior to your natural renewal date. Remember, 80% of negotiation is done through thoughtful and intentional planning. In a best-case scenario, you want to plan for your SELA renewal 1 year in advance.

Who is involved in a SELA Agreement negotiation?

On your organization’s side, the following individuals should be involved in your core negotiation team:

Head of IT Sourcing
IT Leadership in charge of the Salesforce Platform
IT Finance Representative
CIO (Optional)

From The Negotiator Guru, the following individuals are involved:

Lead Negotiator
IT Architect
Legal Representative

Do I need to switch off a SELA or just negotiate a lower price?

In most cases, it will make sense for you to switch from a SELA Agreement to a standard MSA & Order form agreement with Salesforce. While you do not have to switch, it is often the most advantageous for you as a customer of Salesforce.

There are several material reasons for this, however, the most prominent being that it’s very difficult to proactively measure the value you’re receiving from Salesforce when everything is bundled into an annual fee. This lack of transparency is by design from Salesforce, allowing your account team to do some creative accounting.

When you convert to an MSA & Order Form contract structure, you can compare your specific needs with Salesforce directly with our Right Price Data to understand exactly what you should be paying.

My company’s workflow is seasonal, and a SELA allows us to adjust licenses as needed. How do we accomplish this with a Salesforce Subscription Agreement?

You can achieve the same flexibility of a SELA by adding in Seasonal Worker Licenses within your subscription agreement. These licenses largely produce the same flexibility as they are intended to be used for seasonal contingent workers that increase and decrease throughout the year. Another common use for these licenses would be for college interns or factory workers.

In some cases, Salesforce will tell their customers that this product option does not exist. This is simply not the truth.

Recently, one of our customers did not believe that a “seasonal worker license” actually existed. Through multiple conversations with Salesforce, he was told this simply was not an option. We pulled up a screenshot of another client’s invoice, redacted all of the confidential information, and shared the invoice with “Seasonal Worker License” as a line item. The client was blown away. You can achieve a Seasonal Worker License... you just have to ask... perhaps more than once.

More resources

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

The Difference Between Gartner & The Negotiator Guru

Gartner, at its core, is a market intelligence firm. It uses a wide-angle lens to give you a big-picture view of market and industry trends. You can use their data as general negotiation guidance and add their toolkits to your own.

There is absolutely value in this broad-stroke model but it can be limiting when it comes to looking for data and resources that more specifically mirror the size and needs of your organization.

In this article, I want to outline the similarities and differences between a simple market intelligence firm approach and a niche service provider approach. There are many reasons you might want to research best practices from a 30,000-foot view as well as dive deeper at a 5,000-foot view.

Many of my clients will use both Gartner’s and The Negotiator Guru’s (TNG) services to achieve the best results for their companies.

The graphic below gives a basic overview of the similarities and differences between our companies and we’ll break each one down in this article.

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There Are Some Similarities Between Gartner & The Negotiator Guru

Both Gartner and TNG provide information on market and industry trends as well as general guidance on IT Cost Optimization. We have each developed our own toolkits to strategically approach each client’s needs. We overlap when it comes to providing general guidance to CIO’s.

Our companies also both provide rate benchmark data although, as you’ll read below, we go about this in different ways. Gartner has quite a bit of data they provide in aggregated terms which is useful but, without isolating the information by industry or annual spend or similar categories, it can be difficult for CIOs and their supporting functions to narrow down actionable intelligence that is defensible and realistic.

There Are Many Differences Between Gartner & The Negotiator Guru

The keyword I would use to describe the services Gartner and TNG have in common is ‘general.’ Gartner is a great resource for general information across a wide array of topics but rarely provides niche depth that our customers are longing to consume.

In contrast, TNG has a deep and disciplined focus within the IT Software vertical which enables our team to share actionable insights that are localized, specific, and highly relevant to our clients. In fact, it was our early clients that helped shaped this disciplined focus as they made their niche needs clearly known to our team. Due to our outstanding client family, TNG has been on a journey to fill our clients’ market intelligence needs for specific supplier relationships. This has organically driven our firm to be the worldwide leader in Salesforce Contract Negotiation Advisory Services which typically is 80% of our work portfolio at any given time.

With the average cost of a Gartner subscription being $30,000 per seat, plus additional consulting costs in order to receive personalized advisory services, it’s worth your while to be informed on what they can and cannot help you achieve.

Because we provide specialized data and consulting services, we’re able to dig deeper into our clients’ businesses and tailor our process to better achieve the results they’re looking for.

The following are a few of the specific areas The Negotiator Guru differs from Gartner in terms of what services and results we can offer our clients.

Right Size

While Gartner has a wealth of industry data and information, it can be nearly impossible for a client to look at the data and isolate a specific instance to best compare themselves to their peers. This leaves clients feeling informed but uncomfortable about how this information is applicable, and more importantly defensible, within their environment.

In certain circumstances, Gartner will provide “best in class” rates for a specific digital capability or service portfolio. One would argue that this provides directionally correct price targets to use as a market intelligence within their supplier negotiation. We generally agree, however, it’s important to note that your software sales executive (or worse yet your internal colleagues) will very quickly share with you that you don’t fit the profile of those rates for XYZ reason. We know this because we’ve been in these conversations on countless occasions.

In the rare case that you obtain “best in class” rate information for your specific topic of interest, you are still missing a critical piece of knowledge which we call our “Right Size” guidance. Using conservative figures, there is a 15-20% value-capture opportunity just by applying Right Size practices to your research and internal analysis before entering into any IT contract negotiation

Our supplier-specific expertise is one of the biggest contributors to this Right Sizing approach.

Within our Discovery Phase, we take an inventory of your current products and licenses and match them against your actual business needs. Almost always, we find that our clients are over licensed and have shelfware within their environment. This is an example of Right Sizing.

From a Right Pricing standpoint, not only do we understand “best in class” rates, we localize price targets based on industry, client size, and contract value. This enables our clients to feel 100% confident about the market intelligence as we’re benchmarking their rates against that of their likesize industry peers.

To expand upon this difference, we’ll use our expertise in Salesforce as an example.

As raised and validated by leading consulting and intelligence firms, TNG has the most comprehensive database of Salesforce rates in the world. This capability allows our team to quickly and easily perform a price benchmarking exercise for our clients. In many instances, we’ll inform prospective clients that their rates are within an acceptable margin of their “Right Price” benchmark and that the only real opportunity (if any) is to pursue “Right Sizing” inside of their environment. At TNG, our culture and client centric values direct our work and guide us to only accept prospective clients where we know with certainty there is a strong potential to drive huge impact.

Being able to combine Right Price and Right Size analysis will have a significant impact on the effectiveness of your supplier negotiation strategies.

Contract Language Risks

As a result of our deep supplier-specific expertise, our team on average analyzes 5 - 15 software contracts per day. As a result, we know what’s “normal” with all of the large enterprise software platforms and any common risks that are inserted unbeknownst to our clients. By doing this every single day, our team is easily able to identify commonly-used, ambiguous language that always favors the supplier.

Large software companies know their customers rarely spend time analyzing terms and conditions within their contracts. Furthermore, the widely accepted principle of Software-as-a-Service (SaaS) leads clients to believe the terms are standard and unchangeable.

Unfortunately, this simply isn’t true. As part of our Contract Execution Phase, we conduct a deep dive assessment of our client’s supplier contract as part of our standard service (another major difference from Gartner). To put the impact of this added service into context, our team identifies a unique contractual risk within SaaS contracts alone 33% of the time. If the contract we are analyzing is not a SaaS contract, contractual risks are identified, on average, 85% of the time. Knowing what to look for in each supplier’s contract language helps our clients avoid common pitfalls and supplier-centric renegotiation strategies.

Sales Playbook Coaching

Another key difference between taking a general approach on market intelligence (Gartner) vs. a software specific deep niche (TNG) is the ability to learn and leverage the sales playbook(s) for these large enterprise suppliers. It may not surprise you that within the most successful software sales organizations are repeatable and prescriptive sales playbooks that guide the near robotic actions of their sales representatives.

As a result of learning these sales playbooks we are literally able to tell our clients the moves their suppliers are going to take next. This intelligence allows us to be one step ahead within the negotiation process while leveraging the interests of both parties.

While the art of negotiation is an art and not a science, arming yourself with this intelligence allows you to deploy counterintelligence strategies inside of your organization (to counteract common supplier tactics such as divide and conquer) while also proactively preparing counterpoints to their foreseeable arguments. As a result, our clients commonly tell us that they were the most prepared they have ever been before, during, and after a negotiation.

Advisory and Execution Services

We don’t just tell you what is possible. We help you achieve it.

The biggest criticism most companies have of typical market intelligence and/or management consulting firms is that they’ll tell you what “best in class” looks like but will leave you to figure out how to achieve it within your organization. If they do offer advisory services that help you implement their “best in class” then it will be for additional fees that eat away at the cost savings potential, etc.

We’re a full, beginning-to-end provider who will help you all the way through to the execution of the contract..

At TNG, we not only share a “best in class” picture but also create a realistic future state localized for your business. We help you implement that future state while also limiting risks to your organization long after our engagement ends. This is all part of our standard duty of care for our clients.

4-Step Negotiation Process

Our proprietary 4-step negotiation process allows us to deliver a clear and consistent service to our clients. In the interest of brevity we won’t go into detail of what each step entails, however, please know that within the Discovery and Strategy steps you will walk away with a forward looking roadmap as part of the overall engagement. If even offered, this would be an extra advisory fee from Gartner and/or any other market intelligence and/or management consulting firm.

The graphic below quickly outlines our negotiation process:

Compensation & Fees

Our compensation for these services is also entirely different from Gartner’s method.

As mentioned above, Gartner’s average subscription rate is $30,000 per person plus any additional consulting fees.

With this package, you have access to their standard publications, toolkits, and potentially a limited number of “analyst calls” which are quick conversations with the author of the publications. Any additional advisory assistance, if even possible, comes as an upcharge. Even with this additional cost, you will be on your own from an execution standpoint.

We charge either an Advisory Fee based on annual contract value or we offer a Pay Per Performance option with a simple baseline calculation.

We don’t charge based on a subscription service to our articles, we provide all this information for free.

Our rates contain no hidden charges or surprise upsells. On top of that, we’ll help you execute the strategies we develop with you.

We’re incredibly transparent with how we price our services and our clients never question the value they achieved from engaging with TNG.

Combining a Broad Overview Approach with a Specialized, Niche Consulting Firm is a Winning Equation

One of the questions we hear frequently is whether someone can/should work with both Gartner AND The Negotiator Guru.

The answer is yes!

Gartner provides a lot of good, general information. TNG helps you zoom in on the information that is most relevant to your organization so you can determine which key findings are critical for driving cost savings/avoidance while lowering your contractual risk.

Gartner is a market intelligence research firm that has a very limited advisory component separate from their articles. They do not generally provide execution services.

TNG provides information without a subscription fee and our advisory and execution services are provided in the same package.

Bringing in TNG to help you pinpoint your specific needs, value capture opportunities, and execution strategies will provide immediate and long-term intrinsic value for your organization. Remember, TNG will only accept you as a client if there is clear and distinct net positive impact potential… well, we can’t speak for the other guys.

Quid Pro Quo: Salesforce & Salesforce Consulting Partners

We commonly get asked the following questions in varying forms:

Is The Negotiator Guru (TNG) a Salesforce Partner? Are you on the AppExchange?
What are the differences between TNG and a Salesforce Partner?
Why can’t my Salesforce Partner advise me on the best possible rates/products for my Salesforce environment?

Before we get into the specific answers to the above questions, let us share a brilliant unsolicited quote from one of our recent multinational clients regarding the motivational differences between TNG and a Salesforce Partner:

Expecting a registered Salesforce Partner listed on the AppExchange to give you completely impartial advice on Salesforce pricing is like expecting a court room prosecutor to share their notes with the defense before every trial.

Why, you might ask?

The answer is simple: All Salesforce Consulting Partners have an unavoidable conflict of interest with their clients. Why? Because of the inherent need for these “Partners” to make both their client and Salesforce happy.

In this article we’re going to cover this conflict of interest and why TNG is different.

Salesforce Partners Always Have Two Clients (and one isn’t you)

Salesforce Partners have two customers:

You the client; and,
Your Salesforce account management team (hereby collectively referred to as “Salesforce”)

The fact of the matter is that your Salesforce Partner is, by design, incentivized to keep both its client and Salesforce happy. The difficult truth is that you, the customer, are the least important of the two clients. Yes indeed, more often than not, your Salesforce Partner has a greater long-term interest in keeping Salesforce happy. Yes, we know this sounds horrible, but we hope you appreciate our directness here.

Let’s dig into two key, but interrelated, reasons:

‍1. Business Relationships

Your Salesforce Partner focuses heavily on keeping a strong business relationship with Salesforce. Why? Because Salesforce is their single most effective sales channel to acquire new business. When Salesforce identifies a new or existing client that needs custom development work, they have the entire Salesforce Partner community to consider when providing a recommendation to their customer. Naturally, those Salesforce Partners that are “supportive” to their sales process will be referred more and more business.

‍2. Money

‍More referrals = more business = more money.

Back in the 18th century Edmund Burke once said “…never bite the hands that feed you.”

Presenting this differently, if you were a Salesforce Account Executive and you had a Salesforce Partner repeatedly suggest changes to an account that materially decreased your sales compensation revenue, would you continue using that Partner when you have others options available?

To be clear; we are not saying that all Salesforce Account Executives are unethical in how they conduct business. However, we are stating that there is an inherent fundamental conflict of interest for the Salesforce Partner who commercially needs to appease both parties.

The unfortunate situation is that while a Salesforce Partner may know a customer is being sold more products and/or services than they actually need, they rarely speak up for the reasons above. We’ve even been told there is an informal blacklist inside of Salesforce that keeps track of these Partners that raise cost avoidance opportunities during the sales process.

We don’t like writing about this topic but we know every customer wants the truth.

‍Why TNG is different

Quite simply we are only focused on keeping you, the client, happy. When the firm was founded we only included a “pay for performance” compensation option to ensure our incentives were aligned with the client. Over the years, we added an “advisory fixed fee” option purely based on repeated client requests.

‍TNG’s Right Size & Right Price Process

Part of our secret sauce is a deep focus and understanding on 1) how Salesforce works, 2) you as a customer, and 3) best practices on how to quickly drive savings in your environment. While strategic negotiation is an art, our Right Size & Right Price process is more of a science based on its repeatability across all industries.

The Right Size process

‍ focuses on identifying consumption based savings opportunities within your organization.

Our three most commonly identified opportunities within this process are:

“shelfware” elimination
license optimization
governance enhancement. On average, we identify 24% savings opportunity within this process alone.

The Right Price process purely focuses on your product and service price points within your specific Salesforce contract. The vast majority of our clients reach out to us for this service alone. Specifically, they want to know how their prices compare to their peers and if they’re getting a “good deal.”

We have the largest database of Salesforce rates in the world and can quite easily identify if there is a price optimization opportunity within your various SKUs. Unlike other large market intelligence firms, we are able to isolate your realistic “should cost” price points based on your industry, annual revenue, and annual contract value. The others simply will share a “best in class” rate which is ambiguous and often self-serving.

On average, we identify a 22% savings opportunity here but your specific opportunity could be as high as 305% (yes, this was a real client).

Fit-for-Purpose Engagement Style

The Founder of TNG, Dan Kelly, feels strongly about providing our clients options on how they engage our firm depending on each individual client’s needs. Some clients want a “negotiation-as-a-service” approach while others simply want the output of our Right Price process to identify target price benchmarks to use within their own negotiations. We welcome you to start a conversation with our firm to determine how we can most effectively and efficiently support you.

‍Summary

To recap, here are the basic points of what we’ve covered in this article:

Your Salesforce Partner has motivation to keep both you and Salesforce happy;
They aren’t able to easily share cost savings opportunities with you in fear of losing future opportunities with other Salesforce customers;

The Negotiator Guru is only focused on driving cost savings for you by negotiating with Salesforce, the client;
We have a proprietary negotiation process that includes both the art of negotiation and the science of opportunity creation inside of your Salesforce organization,
On average, we save clients 20-50% on their Salesforce annual expenses through our Right Size and Right Price process; and,
On SELA Agreements (Salesforce Enterprise License Agreement), we typically generate a 41.3% savings for our clients.
We only accept clients within our full negotiation service where we know we can make a huge impact.

What to Look Out for When Negotiating with ERP Providers like Oracle & SAP

Do you know how to protect yourself and stay in the driver’s seat during contract negotiations so that you won’t be held ransom by your ERP provider?

In this article, we’re going to outline the top things you need to take into consideration when negotiating contracts with Oracle, SAP, and any other ERP system.

We’re going to share with you the key terms to clarify in your contracts to avoid extra costs and substantial frustrations down the road.

What to Look for in an ERP

While no company has a crystal ball to know exactly what the future will look like, you do need to identify how you’d like your business to function over the next 10 years.

Why 10 years?

Typical business roadmaps project as far as 3-5 years in the future. Most ERP systems relationships last a minimum of 10 years. You need to know how your business will function in order to know what you’d even need an ERP for and what it would need to do.

You need to be risk-averse in your contract negotiation in order to cover your bases for what could happen.

Once you have your future vision in place, you’ll look at the supplier landscape. Compare what each of the top ERP systems providers offers and how it’ll meet your needs outlined above. Create a Supplier Decision Matrix and stack each contender against it to determine which is the best for your corporation.

Once you know which ERP software is right for your corporation, you’ll need to dig deep to really figure out the total ownership cost. This is the tricky part and is best handled through careful contract negotiation, financial analysis, and service management.

Key Things to Consider When Negotiating an ERP Software Contract

The contract is the most important factor when determining the total cost of ownership of the ERP and there are generally only two triggers for renegotiation once a contract is in place.

These triggers are: mergers & acquisition activity and contract renewals.

Providers know that you don’t read ERP contracts every day. They design contracts in complex and ambiguous ways, which leads to more revenue for them - and more fees for you.

Each of the following points needs to be specifically addressed and outlined in your contract to prevent your ERP from holding you ransom at various times over the course of your relationship.

Pay Attention to Intellectual Property Ownership

Many ERP contracts will state that any systems or processes developed while using the ERP are now Intellectual Property (IP) owned by the ERP provider.

We worked with a customer recently in the manufacturing industry. They had developed a process for creating their materials more efficiently going through the production line. According to their contract with their ERP provider, it shows that any process that you develop using the ERP software can be considered ERP owned IP. As such, we needed to carefully negotiate the situation with the ERP provider so as to not cannibalize the newly found process improvement which led to millions in positive P&L impact (new revenue and cost savings).

In a contract, you need to be very clear who owns the rights of process improvements as far as when it may directly or indirectly utilize an ERP system.

Your ERP is the backbone of your business. As such, if properly set-up and integrated throughout your organization, it touches most if not all aspects of your business. Naturally, this complicates any opportunity to disentangle from that ERP.

If Oracle, SAP or any other provider wanted to play hardball, they could say any process improvement that utilizes an ERP system could be co-owned or sole-owned by that ERP. If this is the case, the provider could take that process and then go sell it.

In fact, one of our recent clients had this happen to them based on not properly reading the contract years ago. They needed to retain our expertise and a major law firm to seek litigation with that specific provider.

Make it very clear who owns what when negotiating your own contract. It needs to be clear that the client owns all IP that are developed for the benefit of their company.

Be Smart About Your License Cost Model

Everyone knows ERPs cost a lot. New contracts with smaller providers will often undercut themselves for the first year or two but will see a massive uptick in years 3-8 because the ERP knows it’s incredibly difficult to leave an ERP once you’re integrated into it.

The cost models of ERPs vary depending on the makeup of the customer’s business and what will be the most profitable for the provider.

Some of the pricing models include:

Seat-based: Typically the number of humans who log in to the system. These licenses can be either Perpetual or SaaS based.
Site-based: Number of physical locations, etc.
Consumption Based: Number of processes, inputs, etc., into the tool.
Value Based: The newest model within the marketplace and yet the scariest of all. A cost associated with the perceived value of using the platform within your business.

Generally speaking, seat-based pricing is the most cost-effective for companies looking at ERPs, but this depends greatly on what your 5-10 year plan looks like to know which would be the most beneficial to you.

In addition to your unit cost, there could also be annual maintenance expenses. This acts like an annual expense and is generally a percentage of your perpetual license fee/net spend with the ERP.

There are 2 ways to host an ERP system:

On-premise: Software that is loaded on the servers you’re in control of.
Software as a Service (SaaS): Software is hosted in the cloud by the provider.

Either way, you need to be careful how you license a product because if you don’t have control of consumption and volume-based metrics, it can skyrocket your costs.

Know Your Audit Rights

This is one that gets people in trouble a lot. Generally speaking, Oracle and SAP will not proactively limit access or connectivity to your ERP. This almost always is the responsibility of their customer, based on their unique needs.

As such, these providers will contractually allow themselves unfettered access to your ERP environment with the intent of auditing the usage of their software.

The most common areas of audit risk are:

License compliance (Using more seats/volume/etc than you are paying for)
Architecture compliance (Too many API connections, etc.)
M&A compliance (Acquisitions, divestiture, subsidiary utilization)

Depending on your unique situation, you may be subject to all three (or more) risk areas. It’s important to know there is intentional ambiguity by the software providers in how one could interpret contract language related to permissible use.

Furthermore, we find that clients have no intention of noncompliance within any area but find it most difficult to monitor and govern the area of architecture compliance. A common example of routine noncompliance when a client links their ERP system to both development and production environments.

Similarly, if an ERP is connected (in anyway) to a client’s CRM system it may also trigger a non-compliance event for both architecture and license compliance due to the fact that a client almost always has more active users within a CRM environment. Those CRM users may be somehow benefiting from the ERP and well, we’ll leave it to your imagination based on what you’ve already learned from this article.

Over the last 10 years, large ERP providers like Oracle and SAP have been focused on audit rights within a client's environment. Specifically, when an ERP is living within a client’s infrastructure (on-premise) it’s technically infeasible for the provider to proactively monitor license compliance.

As such, these providers are inserting audit right language within to client’s contracts (both new and old) providing the legal authority to conduct random audits of a client’s environment. The providers deploy both human and technical based tools. The technical tools include running scripts that “listen” to your environment.

These scripts are developed by the provider themselves and are programmed in a way to identify every single endpoint. The output of the script’s analysis is a single report that identifies ways in which the client is potentially non-compliant. This automatically places the client in a defensive position leading them to try and disprove any sort of non-compliance allegations.

These guys make huge revenue by running these audits and identifying non-compliance. Architecture based non-compliance is most often the most profitable audit for a provider. In addition to what we’ve already stated, another risk area is when your ERP is connected to other systems outside of your current infrastructure.

In a nutshell, every time you make a connection between your ERP and another outside platform (often done through APIs), the ERP provider may identify this as a missed charge and will charge you retroactively since the connection was initiated. This can easily develop into millions of dollars of new revenue for the ERP providers (with very healthy sales commissions).

Not only with the ERP provider monetize the API connection with an API charge but will also try and push value-based pricing.

For example, a client is connecting different systems together (using APIs) - this is the backbone of how their systems work. It is going to help them go to market faster.

The ERP provider is arguing the fact that “you are going to get an extra 20% increase in value from the system now vs what we quoted you. As a result, we are going to increase your fee by 20%.”

Value-based pricing is risky because these providers can charge for new API connections, new acquisitions, product launches, and/or the output of the tool and how it can help you run your business. It’s based on potential and not necessarily even realized revenue!

Don’t let a provider run a script inside your environment. If they don’t have access to your information, you’re in control of it and you remain in the driver’s seat.

Have Clear Merger & Acquisition Language

Put specific clauses in the contract that make it very clear what happens if you are acquired or if you acquire someone else.

More often, it is the provider who offers this language. These companies will put in very loose language to say ‘if this happens, we will talk about it’ which leaves a lot of area for ambiguity.

To best prepare yourself for any situation, we recommend you place specific and measures or language in your contract that outlines the cause and effect for the most common situations.

Specifically, you’ll want to identify what happens if you are acquired or if you acquire a separate entity. Within any of these situations it’s important to have clear legal language regarding the rights of your company. From a commercial perspective this means having specific pricing thresholds.

Simply put, If you are acquired, you take the better of two prices. You take the best price of both until you, as the newly combined customer, want to renegotiate.

If you are acquiring a company, it’s important to insert legal language allowing you to renegotiate the contract immediately or rather simply adding the newly acquired entity into your existing contract with only a reasonable increase in fees. From a commercial perspective it’s important that you outline what (if any) additionally fees would be subject to the transaction.

You want to eliminate ambiguity. From a pricing standpoint, you want to make this as clear as possible.

Set Expectations About Subsidiaries

You also want to know the specific parties of the agreement. A common hiccup for companies is that they don’t have subsidiary language in their ERP contracts. A company like Coca-Cola, where each product line acts as its own subsidiary, could be in default of the contract by letting that subsidiary use your system without proper language.

This is something people don’t think about until your provider comes to you and says, ‘Hey, by the way, your other subsidiaries are using this ERP software. Happy you are doing it, but that is not part of your contract so here is a bill for another million dollars.’

Third parties—suppliers, vendors, non-employees—need to be defined in the contract as well. If third parties are allowed to act on your behalf, there shouldn’t be any additional fees for them to use your system.

Be Sure to Outline Price Protection

Another thing you need to consider when negotiating your contract is price protection. Generally speaking, companies don’t write in any sort of price protection year-over-year.

What that means is that over the contract term, your ERP provider could change the price points of your unit costs at any given time.

It is not just about being clear about locking in your price at contract term, it is also putting a cap on the amount of increase that can happen at the next contract renewal, which needs to be aligned to the Consumer Price Index (CPI).

A general rule of thumb is that the increase shouldn't exceed 3-5% at renewal.

Include Clear Terms Around Your Service Level Agreement (SLA)

An ERP is a critical piece of software for any corporation and yet we often don’t negotiate Service Level Agreements (SLAs). If ERP systems go down, it can shut down governments and grids. It is a critical software within companies for good reason.

Make sure that you have the best service level agreements and governance agreements by specifically outlining them in your contract. Including these will ensure that your provider keeps their service at 99.99% performance.

In addition, there needs to be penalties for an ERP provider not meeting or exceeding their Service Levels that you agreed upon in your contract.

Most contracts will put in language about penalties but most companies don’t catch ERP providers when they are starting to fail. There are hundreds of thousands of dollars left out there because no one said “Hey your service was down over the weekend. That creates a $200k payment because it has been down for X hours.”

If a big company hires an IT governance professional to monitor that, that professional will likely be ROI positive. You pay them $130k salary and then get $250k-400k in fees coming back from the ERP provider.

Along with keeping an eye on the service levels internally, you need to put the ownership on the ERP provider to send you reports of the performance versus making you have to monitor if it was working correctly. You should put the onus on the ERP provider versus on your employees.

The big providers won’t allow this very often but the smaller ones will. Make it the obligation of the ERP provider to know that there has been a breach in the SLA.

The big ones, like SAP and Oracle, will send automated reports and humans have to look into them to see if there is an issue.

Don’t Forget Cybersecurity and Intrusion Detection

You need to be careful that if you get hacked, you don’t owe your ERP provider or are legally obligated in any other way to pay a hacking fee. This is called indemnification.

In matters of cybersecurity and hacking, your contract should stipulate that the ERP provider should be accountable, if possible. There should be financial and legal obligations, and your ERP software provider should be responsible for any sort of intrusion into the system—especially if it’s located in the cloud.

The concept being that if someone hacks your environment, the source code from the ERP could be opened to the black market for rip off and resell.

People don’t look out for this enough and hackers are getting more sophisticated every day.

Know the Rules About Implementation Partners

Implementation partners are third parties that will help develop custom code on top of the ERP system for your business.

Most of the time, your contract states that any implementation partners have to be registered as “Preferred Providers” for your specific ERP software.

You can’t have just anyone build custom code on top of an ERP system, it has to be an approved vendor.

It is a contractual risk to your company if your contractors are not certified by your ERP provider.

Your E-Commerce System Needs to Play Nice

If your company is in eCommerce, you need to make sure that there is an active and working connection between your ERP provider and your eCommerce provider.

Many ERPs will tell you “Don’t worry, we will make a connection.”

What they won’t tell you is that the connection they make will cost YOU more money. Your contract needs to dictate who is accountable for paying for any connections that are required for your eCommerce platform and your ERP system to play nicely together.

We always make the new piece of software that is connected to the ERP system pay for the API. It is the third party’s cost.

We just had a client that we saved about $500k for this very point!

They have an ERP system and they were working on getting set up with an eCommerce platform.

There was one sentence in the contract that made it ambiguous on who pays for the cost of being able to have different systems to talk to one another.

The ERP software provider was planning to charge it back to the client and the client didn’t even assume that would be their cost.

That basic API connection should not be your cost to maintain and pay for - stipulate in the contract who is responsible (ideally the third party) ahead of time so you aren’t stuck with a huge bill.

Make Sure You Have `Coterminous` Contracts

Another big thing to look out for is coterminous contracts. In most large companies, each department will have separate contracts with an ERP provider and these contracts won’t align on the same termination date.

If you have multiple business units in a company, the provider will often split out their budget and license fees per business unit.

This is the biggest trick in the book and the largest companies in the world forget to do this step.

It creates massive chaos because you can’t get everyone on the same page. This situation forces the client to align internally at multiple times throughout the year in the interest of representing the entire company. Clients typically lose 10 - 20% when they are in a non-coterminous environment. .

If you you are subject to an non-coterminous environment, then the ERP provider is in the driver’s seat. They will divide and conquer you. This is called a split requirement and they will negotiate with each department individually.

In other words, the ERP software provider negotiates at a business unit level versus an enterprise level. At enterprise level, you have volume and leverage to get better terms which typically drives an additional 10-20% in value.

In Conclusion

Whether you’re negotiating an initial contract or a renewal, make sure you develop and maintain a total cost of ownership view.

First, make sure you understand how your business will be growing over the next 10 years.

Then, dissect the contract so that you better understand the unit cost and connection fees.

In the contract, layout all potential possibilities early as opposed to being forced to react to them as they come along. The more prepared you are, the better you’ll be able to handle surprises, pivots, and conflicts.

Make sure that in the contract, each of the specific points outlined above are detailed with zero ambiguity. Hit all these points as a minimum.

The truth of the situation is that the sales representatives at these ERP providers know you aren’t negotiating an ERP contract everyday. While we’re not saying that every ERP sales representative leverages this face in a malicious manner, it’s important to understand how to protect your company.

As you can see, there is a lot to take into consideration when negotiating contracts with ERP providers. Keeping these points in mind will help you to protect yourself and your company. If you need help implementing any of the above, we have the experience and know-how to protect you from being held ransom now and 10 years down the line. Reach out to us, we’re here to help you with negotiating contracts with your ERP provider.