Salesforce sells some of the most expensive solutions on the market. Customers often believe that in order to use salesforce’s solutions they have to be ready to pay a hefty fee. There is no denying that Salesforce is an expensive solution, however that does not mean that costs cannot be reduced. It is important for business to understand Salesforce’s pricing in order to get the best deal.
What you need to know about Salesforce’s pricing:
- Premium Over Closest Competitor: Microsoft Dynamics is the closest competitor to Salesforce in the CRM space. Salesforce is priced more than double the cost of Microsoft Dynamics on a per license basis when comparing list price.
- Price Variance: For similar volumes levels of the same products, pricing can vary from Salesforce with a multiplier of an 11x difference. The variance disproves the widely accepted notion that discount is dictated by size of deal or the number of licenses purchased.
- Gross Margin Per License Sold: There are minimal costs associated with licensing additional users. As a result, software vendors can achieve very high gross margins on the products sold. The amount of profit that is made on every license sale provides flexibility for software vendors to offer aggressive discounts while still maintaining positive net incomes.
3 sales tactics used by Salesforce
1. Organization based licensing
Salesforce prices their licensing per business unit. There are specific Salesforce products, such as Sandboxes and Premier Support, that are priced as a percentage of the costs associated to one org This tactic is used to create fragmented buying behavior, to encourage each business unit to deal with Salesforce directly. This allows Salesforce to execute multiple deals within your organization and potentially bypass procurement and/or IT. Multiple deal executions call for different term dates, discount rates and contract terms. This makes it harder to strategically plan for renewals, consolidate demand and improve contract terms and discount rates. It is common for customers to make unplanned purchases that compound in costs over time.
Salesforce uses bundling to obscure price transparency. With bundling, unit rates and discounts per product are not provided, this leaves your organization vulnerable at renewal time or in future expansions of specific products. Most businesses continue to expand with Salesforce over time, resulting in the need for additional licensing. Bundling reduces your ability to validate if your price is fair and set pricing precedence for future purchases and renewals. Salesforce has the ability to manipulate price within the bundle to effectively charge as much as possible for additional licenses. Salesforce tempts customers to agree to bundles by promising additional discount or terms concessions.
3. Value vs Volume
In negotiations, Salesforce often claims that discounting is volume-based and in order to achieve better pricing you must buy more. Though higher-quantity Salesforce deals receive better average pricing, aggressive price points can also be achieved on lower volumes. Salesforce reps have the flexibility to offer better discounts to win new business. This is commonly referred to as value-based pricing. Volume is not a limiting factor of achieving better discounts.
ClearEdge provides advice and information on how to counter Salesforce’s tactics and get the best price for your organization. Download this white paper to learn more.