Salesforce’s growth strategy relies on maintaining annual spend levels and discouraging the cancellation of licenses. To support their growth strategy, Salesforce uses terms and conditions that make it harder for businesses to change solutions or reduce annual fees. Without competitive language in place, customers will become snared in the SaaS trap, burdened with unforeseen cost increases and license lock-ins.
Top 3 contract ‘Gotchas’ that Salesforce uses to lock in customers
- Renewal caps
- Swap rights
- Restricted use language
1. Renewal caps
Renewal cap language does not appear in most proposed contracts. A standard fallback for renewal caps is a 7% increase at any given renewal. The cap is only applicable if 100% of the license volumes are renewed. Salesforce reserves the right to waive caps with 60 days’ notice. Any “promotional pricing” is considered one-time only, and renews at the list price. Once this language is agreed upon, it’s hard to remove, locking a user into established price increases over time. Salesforce has the right to increase costs by any amount they choose if licenses are decommissioned.
2. Swap rights
The standard language regarding Swap rights will state that Users can swap licenses for other products 1 or 2 times per year. Swaps must hold equal or greater cost value than the previous transaction. Users cannot swap for any products that are deemed “royalty-bearing”. Swap rights were once standard in Salesforce Enterprise License Agreements, but now they are rarely offered without negotiation. Without swap rights in place, a customer will be limited in their ability to remove unused licenses. Salesforce broadly interprets the “royalty-bearing” definition, often restricting products for a swap that otherwise should qualify.
3. Restricted use licenses
Typically the language related to restricted use will state that the customer has the right to buy full-use licenses at a lower cost if they contractually agree to use a restricted amount of functionality. Using unlicensed functionality will result in a true-up at the current list price for all restricted-use licenses purchased, back-dating to the first violation. Restricted-use licenses offer the same functionality as full-use equivalents. It’s up to the user to enforce proper use, as agreed upon in the contract. It becomes increasingly difficult to maintain user restrictions and compliance when multiple license types are deployed. Salesforce has visibility into the customer’s usage at all times since they are hosting the software, posing a high likelihood of being caught for non-compliant behaviour.
Download this white paper by ClearEdge to find out how you should address these contract terms. Salesforce’s sales representatives are skilled at driving up costs and removing the leverage businesses may have for negotiation. By planning ahead and preparing, businesses can get a good deal from Salesforce.