Salesforce offers a host of licenses to suit different businesses. With an extensive product portfolio, and multiple licensing options at varying price points, selecting the best license for your business may be a daunting task.
Salesforce Enterprise License Agreement ( SELA) offers unlimited access to the Salesforce platform.In contrast, a standard Salesforce Subscription Agreement is a-la-carte, with the user paying a set price for the number of products chosen. Users pick and choose different Salesforce products in any combination they like. They pay only for the products or services they select.
Many enterprises opt for the Salesforce Enterprise License Agreement because of the ease, convenience, and flexibility on offer. SELA spares the user from the hassles of managing their account. They do not have to grapple with order forms, compliance reports, or governance requirements either.
Several large enterprises continue with their SELA agreements because they “always had one” and prefer to maintain the status quo. Others simply do not have the time to identify if SELA offers better value compared to the Salesforce subscription agreement. Many managers are caught up with their day-to-day work pressure, and have little time to make a detailed analysis, or convince the top management.
The decision on whether to opt for Salesforce Enterprise License Agreement or the Salesforce Subscription Agreements depends entirely on the enterprise. Here are the key considerations to decide if SELA is worth the higher price compared to Salesforce Subscription Agreement.
Does SELA Indeed Offer Unlimited Access?
Salesforce introduced SELA with the promise of unlimited access to all Salesforce products. But the terms and conditions have changed considerably since then. Today’s SELA agreements are different from what they looked like in 2015.
Salesforce positioned the SELA offering as users being able to use the entire Salesforce platform as they see fit, with no restrictions. Users also had unrestricted access to Salesforce support.
This initial SELA offering of unlimited access was grounded in Salesforce’s strategy of market penetration. At the onset, when the CRM marketplace was extremely fragmented, Salesforce focused on adding volumes. The unlimited access positioning of SELA delivered excellent results. It boosted Salesforce’s growth 100x in the early years.
Fast-forward to 2021, SELA agreements look quite different though. Today’s SELA Agreements come with usage ceilings and other restrictions. It co-opts floors and caps on the quantity of specific product sets that a user may use. The agreement may also bind users to massive financial growth commitments.
Salesforce Enterprise License agreement is not a product with fixed rates. Salesforce negotiates the agreement with each user, and charges custom rates. The terms and conditions of the agreement also vary from customer to customer.
Salesforce aims to offer an agreement that matches the user’s present needs. But the onus is on the user to make sure the agreement fits their requirements. If the user does not perform their due diligence when negotiating the commercial and legal terms and conditions, they could soon end up consuming extra resources than what they signed up for. Conversely, they might end up consuming less than what they agreed to buy. Both scenarios entail financial consequences for the user. If the business grows, and the user consumes Salesforce resources beyond the commercial threshold specified in the SELA, they end up paying more. If they consume less than the commercial threshold specified in the SELA, they still end up paying the full agreed-to amount.
Both the Standard Salesforce Subscription Agreement and the Salesforce Enterprise License Agreements include a standard clause that allows Salesforce to apply charges for any license overage at the current retail price. That means that users will pay for the additional usage at the higher retail price for the product listed on the Salesforce website. Such retail price is often 2 -3x the negotiated SELA rates.
The issue with floor caps is that it is based on current needs, whereas the SELA agreement is on a three to five-year basis. Salesforce negotiates the caps after ascertaining the needs of the enterprise user at the time of signing the contract. Enterprises who face high volatility, either in growth or in decline, might find this an issue soon.
Does SELA Offer Flexibility?
One of the biggest reasons enterprise users opt for the Salesforce Enterprise Licensing Agreement is the perceived flexibility on offer.
SELA user licenses offer full access to the standard CRM and Force.com AppExchange apps.
SELA allows adjusting licenses as needed, making it ideal for companies with seasonal workflow. But adding Seasonal Worker Licenses with the Salesforce Subscription Agreement offers the same flexibility. Enterprises may use such licenses to deploy seasonal workers, interns, and other non-regular employees, often at a far lesser cost compared to SELA.
Also, it is not possible to change course midway through a SELA agreement. For instance, if a company with a one-year agreement to purchase 1,000 Sales Cloud licenses cannot scale down usage a month later when they realize they only needed 500 licenses. It is possible to increase the usage in the middle of the contract year and co-term these added licenses to align with the remaining life of the contract. But such increased usage is costly.
When an enterprise exceeds the caps for any product specified in the SELA Agreement, Salesforce uses the overage as leverage in the next negotiation, at the time of renewing SELA. They charge an overage fee or push a new product in exchange for waving the overage fee. The new product, of course, costs extra.
SELA agreements contain a legal clause allowing Salesforce to perform license verifications and check if usage matches the contractual quantities.
Salesforce’s Changing Product Line
Salesforce started as a cloud-based CRM for Sales organizations. It has now evolved and encompasses several applications cutting across functional areas such as Support, Marketing, and HR. Apart from the quintessential Sales cloud and Service cloud, Salesforce has rolled out several innovative and exciting products over the years. The platform releases new products and repackages products regularly. Such a constant churn of products ensures customers always have access to the latest and best-in-class technologies. Products such as Pardot, Salesforce CPQ, and Force.com have gained huge user acceptance and propelled Salesforce to the top of the best CRM rankings.
But the ever-changing and constantly churning product line is often counter-intuitive for users with Salesforce Enterprise License Agreements.
Enterprises obviously do not factor in new products and services when they enter into SELA. Using such new products and services, launched after the user signs the SELA, would require separate payments.
Apart from introducing new products, Salesforce retries some products and carves out some products from existing products. Continuing to use such retired or carved-out products could trigger a contractual breach of the SELA.
For instance, until recently the Sales Cloud and Service Cloud were two separate products, with different price points. Sales reps used the cheaper sales cloud whereas service department technicians used the more expensive service cloud. Salesforce combined these into “Sales and Service Cloud,” a single commercial product. The merger does offer significant benefits. The harmonious integration of both clouds allows the entire client organization to review all omnichannel customer touchpoints. But this additional value means a higher price point, especially for customers who used only the sales cloud earlier.
When a SELA is a good idea?
Salesforce Enterprise License agreement does not offer unlimited access or absolute flexibility when considering the finer details. However, the SELA is indeed beneficial for some customers, or in some circumstances.
High-growth firms, heavily invested in technology, and looking to grow rapidly, get the best value with SELA. SELA best suits companies operating in a high-growth environment of 10x-500x per year. It suits companies having predictable products and quantities demands, and seeking native functionality over custom functionality.
SELA also suits enterprises with a large customer base. When enterprises have a large volume of customers who interact across multiple channels, SELA offers more advantages. This is more so for enterprises that depend extensively on Salesforce for their outreach.
Specifically, SELA suits enterprises spending less than $10.75M/year on Salesforce. Enterprises with less than 3,500 Sales and/or Service Cloud licenses, or less than 5000 API connections per day are often better off with SELA compared to Salesforce Subscription Agreements.
Negotiating with Salesforce
If your enterprise has decided Salesforce Enterprise Licensing is the way to go, the first step is to negotiate the SELA with Salesforce. SELA pricing is decided during negotiations. The same applies to re-negotiations when renewing SELA.
Do the Groundwork
Understand the needs of the enterprise and build a roadmap to support the specific global business. Co-opt a clear architectural roadmap from a digital capability and functionality perspective. A clear roadmap makes explicit the products needed, with the quantities. This helps to negotiate on an informed basis.
Determine what you need and when you need it. Assess the license types needed, such as Sales Cloud, Service Cloud, PRM, Force.com, and other services. Assess the need and determine a reasonable projected quantity by product type for those licenses. Enterprises that can come up with accurate forecasts can have credibility in their discussions, and get a better deal.
Identify a ballpark price relative to the size of the business from various sources. Use the price as a benchmark to identify company-level differences. Model different scenarios and understand the impact on costs on different possibilities. It is neither necessary nor desirable to buy everything through SELA. Leverage the appropriate products and services at the optimal price.
Refrain from over-buying beyond the projected expansion over the agreed timeframe. Keep in mind that adoption is often slower than anticipated when installing a new CRM platform.
When going for a new Salesforce implementation, undertake due diligence and assess competing platforms. If the business already has Salesforce installed and is renegotiating to renew the contract or scale-up, the leverage is often limited to existing usage.
Gain clarity on Salesforce’s pricing and what is on offer. Salesforce has a complex pricing system, which depends on the available functions and the number of users accessing the software.
Identify the Negotiation team
Use skilled negotiators, supported by able professionals adept in the technical and legal side of things. Make sure to include the following professionals in the negotiating team:
- The IT sourcing head
- The CIO or in charge of the Salesforce Platform
- A representative from finance
- IT Architect
- Legal Representative
Identify a lead negotiator who is good at negotiating skills, and also has all-around capabilities in the technical and business facets.
Include Relevant Clauses
There is no ideal SELA template. The clauses in the agreement depend on the specific needs and circumstances of the enterprise. But consider the following causes.
- Product swap: A product swap clause enables swapping products and services freely, as long as the same annual contract value is maintained. This safeguards the enterprise when Salesforce rejigs the product portfolio to introduce new products or retire incumbent products.
- Mergers and acquisitions: Several enterprises face heavy disruption in today’s business environment. Many of them divest business units for financial and regulatory reasons. In such a scenario, usages vary in a way no one can predict. But SELA contracts do not cater to such unexpected charges by default. Many enterprises, having committed to an agreement for five years, end up paying for products and services used by companies they divested or no longer need.
- Co-opt contractual provisions to protect the investment in case of significant changes in business conditions. The exact nature of such clauses depends on the business.
Have clarity on per-unit price metrics. Negotiate to guarantee that Salesforce will use the same metrics for future renewals, or at the very least, one renewal term.
Identify the key risk factors or trade-offs. For example, if considering a longer contract term to secure deeper discounts, identify the financial, technical, HR, and other risks associated with the longer duration. If considering to supersize the deal through a bundle, have a plan ready to scale up. As a rule of thumb, the more the business commits upfront and longer the term of the contract, the better the deal.
Do not negotiate on the price point alone. Consider other factors such as the employee productivity on offer by using Salesforce tools. Quantify the invisible benefits on offer, such as increased branding for the enterprise, and better employee morale.
Explore creative ways to add value, when a deadlock persists. For instance, committing to growth over a defined period increases the chances of discount. Have a credible plan for the same though.
As it is with any negotiation, stay flexible.
Dissect the contract with a legal team. Know the terms inside out. Salesforce is usually open to discussing many terms of the contract up front. But having signed a contract, there is very little room to manoeuvre within the agreement. Salesforce does not offer a warranty or breaking the contract without paying out even if there are mistakes in the contract.
Structuring a deal with Salesforce requires strategic thinking, cross-functional collaboration, and loads of creativity.
Best Practices when Having a SELA
Having deployed Salesforce Enterprise Licensing Agreement, follow these best practices to get the most out of the investment.
Deploy an internal software asset management (SAM) team to make sure the enterprise does not exceed the SELA caps. Many organizations who have an active SELA Agreement do not have any form of tracking, and will not know they have exceeded the limit until Salesforce informs them. Salesforce usually conducts an audit to detect overages around six months before the contract renewal.
In case of overage, focus on limiting the financial liability vis-à-vis the reduced rate to retail rate. Both the Salesforce Subscription Agreement and Salesforce Enterprise License Agreement include a standard clause that allows Salesforce to charge license overage at the current retail price. The applicable retail charge, listed on the Salesforce website, will invariably be 2x to 3x the negotiated SELA rates.
There is no binary “yes” or “no” answer to the question if Salesforce Enterprise License Agreement is good (or bad) for businesses. Whether it is good or bad depends on the specific circumstances surrounding the user looking to implement Salesforce CRM. SELA always comes with a huge price tag. The onus is on the enterprise users to make sure they get differentiated and intrinsic value for their investments.