This month, Salesforce’s price hike has come into effect, increasing the costs of its products by an average of nine percent.
When making the announcement in July, Salesforce highlighted that this is the first time it has raised its prices in seven years.
Moreover, the nine percent hike is lower than inflation across that period.
As such, many onlookers may not bat an eyelid. Yet, for end-users, the price increases could become a deal-breaker.
After all, many already have qualms with Salesforce’s pricing model, as recent contract renegotiations have brought to light.
Salesforce Renewal Troubles
Over the past couple of years, many five- or seven-year Salesforce warranty deal contracts have come up for renewal.
According to Liz Miller, VP & Principal Analyst at Constellation Research: “That has been one of the top renegotiations we’ve been doing.”
Indeed, Miller recognizes the frustration many hold about being locked into mandatory increases in end-user numbers, which they’re not hitting. She continued:
Is every vendor going through this? Yes. But, I hadn’t seen how loud it was getting for anyone else, other than Salesforce.
Miller suggests that much of this heat comes from how easy it is to scale on Salesforce. As a result, customers add modules at a whim, and – over time – costs build up.
“All of a sudden, the CFO is in the doorway, asking: “What did we just do on Salesforce?!” Because all the invoices started coming in,” she noted.
Unfortunately, for Salesforce, you had the issue of lots of renegotiations, grousing, and lots of angsty feelings at the same time they’re coming out with new packages.
Indeed, nine percent may not seem like a particularly wild price increase. But, it was an increase enough for people to go back and look back at their contracts.
As that trend takes hold, “Salesforce is going to really have to watch out for in the next six months,” concluded Miller.
Time to Rethink the “Layer Cake” Pricing Model?
Agreeing with Miller, Michael Fauscette, Founder, CEO & Chief Analyst at Arion Research, voiced his long-time concerns with Salesforce’s pricing strategy.
“You add a new module, you may not think about it, but – over time – it has spread across all these parts of your operation, and you think suddenly… I may need a loan,” he noted.
“Each layer of the Salesforce cake is thin, but over time it builds up.”
Take the price tags Salesforce recently announced for Sales GPT and Service GPT as an example.
On face value, each will cost $50 per user per month. Yet, there may be additional costs, as a business’s use will impact its spending.
Shelly Kramer, CEO of V3B, noted this, stating:
There is a credits option for if you exceed the number of queries you get – and they haven’t disclosed pricing on that.
That is something Salesforce customers must consider and discuss with their peers.
Indeed, many will engage in conversations regarding these kinks and the overall pricing model, which may go along the lines of:
“Anyone else feel like their Salesforce bill has gotten out of control over the last couple of years?”
Salesforce – and Its Competitors – Must Help Customers with Their AI Strategy
If conversations like the above start happening while Salesforce rolls out its price hikes, “You’re looking at something that can get out of control quickly,” suggested Miller.
There is this brewing perfect storm for Salesforce that I hope they have their eyes on because it’s going to hit – probably within the next 12-18 months, and it could get ugly.
Yet, Miller also noted that if Salesforce can support its customers in rolling out long-term AI strategies, the vendor could negate much of the prospective damage this storm poses.
That is opposed to letting customers add new use cases off the cuff and allowing their bills to run up.
Unfortunately, Fauscette pinpoints a critical blocker: “It is important to acknowledge that there is a talent shortage. Yes, we need to build a strategy, but we also need the expertise to do it.”
Salesforce recently acknowledged this issue as an exec bemoaned the lack of available developers and AI expertise. That perhaps highlights the vendor’s understanding of just how critical the future of AI strategic consulting will prove.
“Either the vendor has to offer this, or we’ll see this whole realm of consultants pop up because most companies are going to need help thinking about implementing [Salesforce GPT],” added Kramer.
If you don’t [embrace that help], it’ll be very easy to throw a boatload of money at this and not really know where you are, what’s happening, and what kind of ROI are you’re getting for this? It could be an easy way to waste time and money.
Although Salesforce’s pricing model may exasperate this issue, many competitors are in the same boat – and the CRM leader may even have an advantage.
Indeed Rebecca Wetteman, CEO & Principal Analyst at Valoir, highlighted that Salesforce already has “a lot of customers using Einstein AI.”
“It may not be GPT, but there are customers who have already dealt with conversations around confirmation bias and how we deal with data,” she stated.
“There are a lot of customers who are prime targets for this next-gen of AI who can grasp the benefits and understand the risks.”
Final Advice for Salesforce Customers
For those customers concerned by Salesforce’s price hikes, Wetteman has some words of wisdom:
“Whatever they’re saying the pricing is, that’s a negotiation. Every CRM has a target price, but it can come down to what it is in the quarter, who the rep is, and how strategic the account is.
So, when you look at these pricing numbers, always take them with a grain of salt.
“The important thing to consider – from a customer standpoint – is what is the unpredictable part of this pricing piece? Because it’s not the $50 per use every month that I would be concerned about.”
Again, a concrete AI strategy can help customer experience teams embed more predictability into their Salesforce spend.
Yet, it is such a new arena many will not know where to start. Indeed, some have begun to appoint AI strategists left, right, and center – as Kramer has witnessed.
Having done so, she shared one final piece of advice:
“[When we’re] trying to figure out how we’re going to do it, take early adopters within the organization – say we’re going to pay $50 a month – try this, come back, and tell us what you thought.” Such a trail-based strategy will help safeguard the business’s spend.”
Listen to more insights from Fauscette, Kramer, Miller, and Wettemann as they join Martin Schneider, Head of Research at Annuitas Research, and myself on an upcoming episode of our CX BIG News Show to discuss more big topics from the CX space.
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