Salesforce, the leading cloud-based Customer Relationship Management (CRM) platform, announced on July 11, 2023, that it would be increasing list prices by an average of 9% across its entire product portfolio including Service Cloud, Sales Cloud, Marketing Cloud, Tableau, and Industries. This is the first-ever increase in price for Salesforce after a long hiatus of seven years.
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In this blog, read the details of Salesforce’s price increase and understand its potential impact on customers.
Salesforce’s list price was last updated seven years ago, and ever since, the company has come up with thousands of new features including the innovative generative AI tools, and 22 new releases. Furthermore, Salesforce has invested over $20 billion in its R&D (Research & Development) activities.
The price increase will be effective from August 2023 for new customers and the existing ones who purchase new subscriptions. Those who plan to renew their existing subscriptions will see the price increase reflected in their next renewal term.
Understanding Salesforce’s Decision for Price Hike
Salesforce’s decision to raise the price of its software products in August is due to a combination of several factors including inflation, the need to boost revenue after a pause of price hikes during the pandemic, and the current trend of other major technology suppliers increasing prices.
“We have seen a general rise in software prices coming out of the pandemic as inflation has put pressure on operating costs of technology vendors, and these costs remain high,” observed Liz Herbert, Principal Analyst at Forrester.
According to Herbert, investor pressure to generate more revenue from Salesforce products is cited as the main reason for price hikes. “When considering the general market conditions and the specific profit pressure that Salesforce is under, this price increase should not be too much of a surprise,” Herbert added.
Although Salesforce’s Mulesoft data automation and integration software and Tableau business intelligence created waves among the users and generated a 14% year-over-year increase in revenue for the fourth quarter, the company underwent a turbulent phase during the last months of the previous year. This is due to cutting down 10 % of its workforce, closing down several facilities, and last but not least, stepping down of two key leaders – Slack CEO Stuart Butterfield and co-CEO Bret Taylor.
Impact on Customers
The price increase will have a significant impact on Salesforce customers. The new list prices will be Professional Edition, USD 80 (up by $5), Unlimited Edition USD 330 (up by $30), and Enterprise Edition USD 165 (up by $15). In addition, the price hike would also hold good for Marketing Cloud Engagement and Account Engagement, Industries, Tableau, and CRM Analytics.
The price hike has been met with mixed reactions from customers. Some customers have also questioned whether the price increase can be justified, given that Salesforce has been posting record profits in recent years.
The surge in prices will also have a ripple effect on businesses that rely on Salesforce including:
- Financial considerations – The price hike will have direct financial implications for businesses utilizing Salesforce’s products. Organizations that have been enjoying Salesforce’s CRM, marketing automation, and customer service solutions, will need to account for the increased costs in their budgets. This may require a careful re-evaluation of expenditure across various departments to accommodate the increased costs.
- Scaling challenges – Small and Medium-sized Businesses (SMBs) that heavily rely on Salesforce’s services may face additional challenges. The 9% price increase could strain their resources, potentially hindering their ability to scale and invest in other areas of their operations. SMBs will need to carefully assess the value and benefits derived from Salesforce’s products to justify the higher costs.
- Negotiation and contract renewals – Existing Salesforce customers may find themselves in a position to renegotiate their contracts during this price increase. It presents an opportunity for businesses to reassess their usage, discuss their needs with Salesforce representatives, and potentially negotiate better terms. Being proactive in these discussions can help mitigate the impact of the price increase.
Strategies to Mitigate the Impact
- Evaluate product usage – Conduct an in-depth analysis of your organization’s usage of Salesforce’s products. Identify areas where you may be underutilizing certain features or modules. By optimizing product usage, businesses can maximize their Return on Investment and offset some of the cost increases.
- Engage in contract negotiations – Reach out to Salesforce representatives to discuss the impact of the price increase on your business. Emphasize your organization’s value as a long-standing customer and explore the possibility of adjusting the pricing or contract terms to better align with your needs and budget.
- Consider alternative editions – Salesforce offers various editions of its products, each with different features and pricing levels. Reconsider your business requirements and assess if a lower-tier edition can meet your needs while providing significant cost savings. This approach can help optimize costs without compromising essential functionality.
- Explore integrations and add-ons – Salesforce’s ecosystem includes a wide array of integrations and add-ons developed by third-party providers. Assess whether leveraging these solutions can enhance your Salesforce experience or address specific requirements. These offerings may provide additional value and functionality while minimizing the impact of the price increase.
What Does the Future Hold for Salesforce?
It remains to be seen how the price increase will impact Salesforce’s business. However, the company has a strong track record of innovation and growth. Salesforce is also well-positioned to benefit from the growing demand for cloud-based CRM solutions.
Conclusion:
As businesses adapt to the new pricing structure, it is crucial to evaluate the value Salesforce’s products bring to their organizations. With careful analysis and strategic decision-making, businesses can continue leveraging Salesforce’s offerings while coping with the financial impact of the price increase.
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