9 steps for negotiating deals with Salesforce

Understanding the Salesforce fiscal calendar, motivations of sales agents and what your businesses needs from a deal are key steps in negotiating contracts with the CRM giant.

Negotiating with Salesforce can be a time-consuming and tricky task, but a little planning can go a long way to achieve an optimal deal with the CRM giant.

ClearEdge Partners, a consulting company based in Needham, Mass., uses a leverage management maturity model to help businesses create better outcomes in deals with Salesforce and other IT vendors.

Here are the nine steps in that process, which can happen at different times or simultaneously, according to Mark McKenna, managing director of the Salesforce team at ClearEdge, in the webinar "Managing Leverage in a Salesforce Deal."

1. Early warning on getting started

Businesses need an organized approach to starting deals on time so they can complete all the necessary steps -- and the negotiations with Salesforce -- before their current contract expires or they need to start a new deployment. If a business plans to increase its Salesforce usage as part of a renewal, starting early may also help it get a better deal.

"One of the main drivers for Salesforce is net new revenue," said Rachel Annello, senior analyst at ClearEdge Partners. "Because of this, they respond really well to early renewals."

Large new projects are an opportunity to open an existing deal for changes when negotiating with Salesforce. If there is no obvious project to add, organizations should begin renewals at least six months before expiration. But, if there is, they might need more time.

"You can actually target a reprice on the existing environment -- if there's enough new spend -- and you can renegotiate any terms and conditions," Annello said.

Companies need to understand how supplier sales systems and motivations might affect a deal.

2. Contract risk assessment and inspection

Organizations need to understand all the contractual and business risks. Some of the biggest risks to look for are the following:

  • Ability to decommission or downturn licenses. Often, Salesforce builds language into its contracts that states that, if a business decommissions licenses, it is no longer protected by prenegotiated renewal caps, Annello said.

    "It's really important to understand this because, if you try to take products out, you're not actually going to reduce the cost of your current environment," she said.
  • Renewal caps. The typical renewal cap for Salesforce is in the range of 3% to 7%, with the latter listed as the standard cap. But an updated master subscription agreement released in September 2019 no longer includes that language, Annello said. Now, ClearEdge increasingly sees order forms that mention one-time pricing.

    "What Salesforce is doing here is reserving the right to increase your pricing significantly at the time of renewal," Annello said.
  • Restricted-use licenses. These can reduce costs but generally come with bad audit language that's unfavorable, Annello said. Essentially, what it does is state that all licenses out of compliance mean that the business has to pay the difference between list price for the full-use license cost and its current rate for the restricted-use license, which can add up to a hefty fee.
  • Swap and transfer rights. Swaps are the ability for businesses to trade out products that they are not using for those they need. Transfers are the ability to transfer products from one part of an organization -- or a customer's version of Salesforce and data within that instance -- to another. Salesforce often looks to limit swap and transfer rights in contracts, Annello said. So, businesses must be sure these restrictions work for them.

3. Forecasting and demand modeling

This step takes the longest amount of time in the preparation process. Before negotiating with Salesforce, businesses should understand how much products or services they need and when they need them, Annello said.

First, businesses must collect data from within their organizations. For a renewal, questions to ask include the following:

  • What are you entitled to from Salesforce?
  • What products are already deployed?
  • Is there demand for new projects and organic license growth?

It is also important that businesses identify must-have products and license quantities to keep organizations functioning, along with nice-to-have items, or a wish list. Both sets of items are incorporated into a demand model that quantifies projected software needs and details a planned rollout schedule, which should extend at least three years.

ClearEdge also recommended applying a confidence scale to each line item in the demand model.

"It could be a level of confidence in the quantity included or maybe in the deployment schedule," Annello said.

Even low-confidence items may become more feasible if the promise of increased deployments prompts Salesforce to lower its unit-rate pricing during the negotiations, she said.

How to build a Salesforce demand model in your business

4. Deal timeline development

When negotiating with Salesforce, businesses should have a documented calendar of deal-making activities, including things like when they first approach Salesforce and when they request a proposal. Salesforce often tries to drive the timeline, but organizations should flip this and take control of the situation. Both Annello and McKenna emphasized the need to build in enough time for multiple rounds of negotiations.

"Oftentimes, you're not going to get exactly what you want from Salesforce in the first round, especially with terms and conditions," Annello said. "They're always just going to say, 'That's our standard. We don't change that.' You're going to have to plan for time to push them on it."

5. Supplier knowledge

Companies need to understand how supplier sales systems and motivations might affect a deal when negotiating with Salesforce.

"This is so important because, when the sales team feels incentivized to get a deal done, they're more willing to make concessions on both the pricing and the terms and conditions," Annello said.

The first thing businesses need to understand is the Salesforce fiscal calendar. Sales agents have high quotas that divide into quarterly increments, and they get bonuses for staying ahead of their quarterly numbers. Plus, for most Salesforce accounts, the sales representatives change over annually at the start of the company's fiscal year in February. But the previous rep still qualifies for commissions on deals that were already in the works and are signed by April 30, Annello said. Organizations may be able to use that deadline to get pricing concessions.

"This rep has worked extremely hard to put together a deal for you and try to make a commission off that deal, so if they start to hear that's it's going to fall out of their commission structure and fall to another sales rep, they are going to get nervous," Annello said.

It's also important to know the sales representative commission structure. Agents are paid on net new spending in the first year of an agreement, which incents them to try to get customers to buy as much software upfront as they can, Annello said. But they also get bonuses for any additional year added to the deal.

Next, sales agents like to use Salesforce enterprise license agreements because they're often driving the demand going into it, as there's a high potential for businesses to purchase a lot of shelfware.

"Part of the reason that they can do this is because the deals are bundled, and you can't really see each of the line items and the value that's going in there," Annello said. "They put a lot of shelfware in, which means that the deal costs go up and, therefore, they're making more commission."

Lastly, Salesforce responds to competition. The company has been pushing into the CX market, which means the competitive landscape is changing, Annello said. At one time, it would just have to compete against Microsoft on deals, but now, customers can also look at vendors such as Oracle, Adobe and SAP to create this competition.

"You don't have to compete out your entire Salesforce environment," Annello said. "You can just look to do a couple products here and there or a new project that you have coming up."

Demand model for a planned Salesforce software procurement
Example of a demand model for a planned Salesforce procurement

6. Deal option development

Once the demand model and contract risk assessment are complete, organizations should put alternative plans in place for negotiating with Salesforce. For example, they can map out multiple options to expand or decrease the scope of the agreement based on the must-haves versus nice-to-haves and the confidence scale in the demand model, Annello said. Organizations can also adjust the proposed timing of software deployments to try to get a better deal that still meets their business needs.

Every customer also has the option of doing nothing, unless it's a renewal -- and then it could do the bare minimum that its current contract calls for, McKenna said.

"This goes to green when you understand your demand and you can create leverage through contract growth, competition or length of the deal," he said.

7. Information control

Businesses need to decide what information they will share with Salesforce and what information to protect. Organizations should control information about their demand and rollout plans to be sure Salesforce aligns to their business requirements, not vice versa, McKenna said.

For example, don't let Salesforce know an exact project start date. Push it out in the negotiations, and the vendor will be more eager to reel it back in, he said.

"You want to be the iceberg and not the ship in defeating the strategy from Salesforce," McKenna said.

He also recommended sending out "hush letters" internally to tell business executives to point Salesforce contacts to the IT procurement team or another central source.

If executives think they're best suited to talk to Salesforce about its products and their software needs, they could use some coaching on how to do so without harming the contract negotiation process, Annello said.

"You might tell them, 'You can mention products that you're interested in, but you need to tell [Salesforce] that you don't know if there's budget for it,' or whatever aligns with your message," she said.

8. Executive engagement

Organizations should create a plan to engage their business executives. That means ensuring that key executives -- including the CFO and chief customer officer (CCO) -- are informed, aligned and participating in the negotiations with Salesforce.

The CFO should watch the cost of implementation and transition, as well as analyze ROI. The CCO oversees the integration of customer processes, with attention to consolidating customer data and implementing new customer-centric processes that the platform enables, said Scott Robinson, an independent consultant.

9. Messaging development

Salesforce can sniff out misalignment within a business, so it's important that all stakeholders present a unified message to the vendor to shape the conversation, McKenna said. Businesses should avoid discussions about market rates and discounts with Salesforce to steer clear of debates about data, and instead they should have the mindset that the two organizations are having a business discussion.

"They sell for business outcomes," McKenna said. "We want to turn this sales process back on them: 'We engaged you because you said you'd help us increase our lead conversion by 30%.' Have they actually done that? Keep the conversations about value in the deal -- business value."

Relaying a unified message can happen at any stage in the Salesforce negotiation process, including pre-request for proposal, pre-renewal and during the demand projection phase, negotiations, pilot phases and request for proof of concept.

"Message development is a critical aspect in getting a good deal," McKenna said.

About ClearEdge Partners

Founded by senior sales executives from large IT suppliers and informed by current market analytics, ClearEdge enables CIOs and their teams to make more competitive IT investments. By combining rigorous inspection and IT financial expertise, they identify risk and opportunity, align internal teams and maintain leverage throughout the lifecycle of supplier relationships. As a result, their clients maximize the value of their investments by unlocking millions of dollars from legacy spending and redirecting funds toward IT modernization, digital and cloud transformation with confidence and speed.

Dig Deeper on CRM tools and strategy

Content Management
Unified Communications
Data Management
Enterprise AI