Renewing vs. Restructuring Salesforce License Agreements
- Renewing: Extends the existing agreement without significant changes
- Restructuring: Involves modifying terms to suit new needs better
- Renewal Frequency: Regular intervals, like yearly or multi-year options
- Restructuring Timing: Often during substantial operational changes or growth
- Focus: Renewal maintains status quo; restructuring adjusts terms
What is Renewing a Salesforce License Agreement?
Renewing a Salesforce license agreement means extending the current terms with Salesforce for another period, typically a year or more. This approach keeps things stable and predictable, often maintaining the same product mix, features, and pricing tiers. Essentially, renewal keeps the relationship going without major alterations.
Pros of Renewing a License Agreement
- Consistency: If the original terms meet business needs, renewal maintains consistency. You know what to expect.
- Lower Complexity: Renewing is generally less complex. As the terms remain similar, extensive negotiations are not needed.
- Savings on Legal Costs: Renewing the same agreement often requires less legal support, reducing costs compared to significant restructuring efforts.
- Simple Budgeting: Costs are predictable, making financial planning straightforward.
Cons of Renewing a License Agreement
- Lack of Flexibility: Businesses grow, scale, or change their processes over time. A renewal might keep you stuck with outdated terms that no longer fit your business.
- Missed Opportunities for Discounts: Salesforce is more likely to offer discounts when new features are bundled or during renegotiation. Renewing at the same rate might mean missing potential cost reductions.
Example Scenario: A mid-sized company that has steadily grown over the past three years finds its current Salesforce licenses are still effective. It decided to renew since the features meet its CRM needs without needing upgrades or alterations.
What is Restructuring a License Agreement?
Restructuring means altering the existing terms or creating a new license agreement that better fits the business’s evolving needs.
This can include changing user types, upgrading products, renegotiating pricing, or adding new Salesforce solutions to better align with growth or changes in strategy.
Pros of Restructuring a License Agreement
- Greater Flexibility: Restructuring allows a business to adapt the agreement to its current needs. This might mean downgrading or upgrading licenses, adding new features, or changing pricing models.
- Opportunity for Cost Savings: Negotiations during restructuring often lead to potential savings or discounts, especially when Salesforce wants to lock you into a longer-term deal.
- Aligning with Business Strategy: As companies evolve, their software requirements change. Restructuring allows you to incorporate more automation, analytics, or specialized Salesforce products that meet new strategic goals.
- Potential Access to Incentives: Salesforce often provides incentives, like feature upgrades or bundles, to businesses that renegotiate and commit for a longer term.
Cons of Restructuring a License Agreement
- Higher Complexity: Restructuring takes more time and effort, requiring a deeper analysis of your Salesforce needs and possible solutions.
- Higher Legal and Negotiation Costs: Because restructuring fundamentally alters the agreement, it usually requires more involvement from the legal and procurement teams.
- Uncertain Costs: With restructuring, costs could go up or down depending on the agreed-upon terms. Businesses must be ready for variability in pricing.
Example Scenario: A large enterprise wants to expand into new regions and improve its customer service capabilities. However, its current Salesforce agreement does not include Service Cloud or the new territory management features that would support these goals. Therefore, it has decided to restructure to accommodate these new tools and align them with its growth strategy.
Key Factors to Consider: Renew or Restructure?
The decision between renewing and restructuring is crucial for businesses of all sizes. Here are the key factors to consider:
1. Business Growth and Changes
- Stagnant Growth: If your business is stable and has not experienced significant changes in workforce or operational needs, renewing might be more appropriate.
- Expansion or Shift in Focus: If you’re expanding into new markets, increasing your customer base, or changing your business model, restructuring will help align Salesforce capabilities with these changes.
2. Current and Future Needs
- Features and Tools: Are the current features still relevant, or do you need more advanced tools like AI integration or advanced analytics? Restructuring may provide these upgrades.
- User Types: Perhaps initially, you purchased too many licenses for one type of user and not enough for another. Restructuring allows for better alignment.
3. Cost Implications
- Predictable Costs: Renewal will help you maintain cost predictability.
- Negotiating Opportunities: Restructuring gives you leverage to negotiate discounts or value-added services. Salesforce often provides incentives for long-term restructuring commitments.
4. Time and Effort
- Short Timeframe: If you need to finalize the agreement quickly, renewal is often easier.
- Willingness to Invest Time: If your organization invests time into a strategic review, restructuring will yield long-term benefits.
When to Choose Renewal Over Restructuring
There are situations when renewal makes more sense. Below are examples of when renewing is the better route:
- Stable CRM Needs: If your organization’s Salesforce use has remained steady, with no added demands or usage challenges.
- Limited Budget: Renewal requires fewer legal or consultancy costs, which may be critical if the budget is limited.
- Positive Vendor Relationship: If your relationship with Salesforce is good and the current pricing seems fair, renewal can help maintain stability.
When to Opt for Restructuring
Restructuring can be valuable in several different contexts. It would be best if you opted for restructuring when:
- Rapid Growth or Business Evolution: Your company is growing fast or pivoting to a new strategy that requires expanded Salesforce capabilities.
- Underutilized Licenses: If licenses are barely used, restructuring can help right-size the commitment and save costs.
- New Feature Needs: Salesforce releases frequent product upgrades. If the new features could greatly benefit your organization’s productivity or growth, it’s time to restructure.
- Negotiation Leverage: Restructuring allows you to leverage negotiations, especially when committing to a longer term.
Additional Considerations When Renewing or Restructuring
1. Evaluating the Business Value of Salesforce
Evaluating how Salesforce contributes to your overall business value is crucial to determining whether to renew or restructure. Assess how the CRM system impacts your sales process, customer engagement, and productivity. If Salesforce delivers high value, renewal may be the right choice. Restructuring becomes essential if you identify gaps or realize better features are available.
- Customer Impact: Is Salesforce helping you deliver better customer service? Are your customers benefiting from the tools in place? These questions can help you determine whether the current version of Salesforce is meeting its potential.
- Scalability: Businesses that anticipate significant growth should focus on scalability. Does the current licensing model allow for easy scaling, or is it too restrictive? The answer may lead you towards restructuring to adopt a more scalable solution.
2. Involving Key Departments in Decision Making
When considering restructuring early in the decision-making process, key departments, like sales, marketing, and IT, must be involved. Each department has its own needs and challenges, and their input can ensure the restructured Salesforce agreement meets the overall objectives of the entire organization.
- Sales Team: They may require more features related to pipeline tracking, lead scoring, or custom dashboards.
- Marketing Team: Marketing may need integration with new tools or more automation features.
- IT Department: IT will have insights on system integration and any technical aspects that could affect restructuring.
3. Salesforce Add-Ons and Ecosystem
Another aspect to consider is the ecosystem around Salesforce. The company provides several additional tools like Pardot, Tableau, and MuleSoft. When restructuring, you could explore adding some of these products into your licensing mix, which could provide significant value.
- Pardot for Marketing Automation: This could be added if your organization wants to improve its B2B marketing automation.
- Tableau for Analytics: Useful if your organization wants better data visualization capabilities.
- MuleSoft for Integration: This could help integrate your company’s other platforms, creating a more seamless IT ecosystem.
Read how to negotiate Salesforce Sandbox environments.
Negotiation Strategies Specific to Restructuring
When restructuring, negotiation takes on greater importance because of the multiple moving parts involved.
Here are some strategies that can help:
1. Consider Phased Rollouts
If restructuring to include new Salesforce products, consider a phased rollout rather than a big-bang implementation. Salesforce is more likely to agree to discounts if they see a commitment to adopting products gradually, as it shows a long-term investment in the Salesforce ecosystem.
- Example: Rather than restructuring to include both Sales Cloud and Service Cloud at once, opt to add Sales Cloud immediately, with Service Cloud slated for the next fiscal year. This can sometimes lead to incremental discounts.
2. Customization Negotiations
Salesforce is known for its customizability, but significant customization can be costly. During restructuring, you can negotiate a limited customization at no cost. Be sure to clearly outline what customizations are critical and use that as a point in the negotiation.
3. Use Third-Party Licensing Experts
Salesforce licensing is complex. Engaging with a third-party consultant who specializes in Salesforce negotiations can lead to considerable savings. These experts often know the internal pricing models and discount structures that Salesforce uses, and they can help you negotiate more favorable terms.
4. Timing Your Negotiation
Timing is everything when negotiating a Salesforce license agreement. Typically, Salesforce is more willing to provide concessions at the end of a financial quarter or year. Aligning your negotiation efforts to these periods can result in better deals.
- Fiscal Year-End Discounts: Salesforce’s fiscal year ends in January. At this time, sales teams are eager to hit quotas and might be more inclined to provide favorable terms for restructuring.
Long-Term Considerations for Renewing vs. Restructuring
1. Future-Proofing Your CRM Investment
When deciding against renewing or restructuring, it’s important to consider future-proofing. What will your organization look like in 2-3 years? What will your CRM needs be? Consider upcoming business priorities, whether that’s automation, regional expansion, or changes in customer experience management. This forward-thinking approach will guide whether restructuring is the better choice.
- AI and Automation: Salesforce Einstein Analytics and AI tools are becoming increasingly essential. Will these be beneficial to your company in the future?
- Mobility: Are you moving towards a mobile-first sales approach? Do you need better mobile integration and functionality?
2. Vendor Lock-in and Flexibility
Another long-term consideration is vendor lock-in. Salesforce provides a lot of functionality, but it can be hard to move away from once you’re heavily invested. If flexibility is essential to your organization, consider negotiating terms that allow for some adaptation without heavy penalties. This could involve shorter terms or opt-out clauses.
3. Measuring Success Post-Renewal or Restructuring
Finally, whichever decision you make, it’s crucial to measure success. Have clear KPIs to determine if the Salesforce licensing delivers the expected value. If you choose to restructure, success metrics could include increased sales productivity, better customer service efficiency, or reduced total licensing costs.
- Metrics for Renewal: User adoption rate, satisfaction score among departments, and consistent performance metrics.
- Metrics for Restructuring: ROI on new features, reduced unused licenses, and efficiency gains.
FAQ: Renewing vs. Restructuring License Agreements
What’s the main difference between renewing and restructuring a license?
Renewing keeps the same terms but extends the duration. Restructuring changes terms to meet updated needs.
When should a license be renewed?
Usually at regular intervals, like yearly, or when terms meet business needs.
Why would someone restructure a license instead of renewing it?
Restructuring is helpful if business needs or operations change significantly.
Is restructuring more costly than renewing?
Restructuring may cost more initially, as it involves revising terms.
Does restructuring affect the existing terms of the agreement?
Yes, restructuring involves modifying specific clauses or conditions.
What are the benefits of license renewal?
Renewal is more straightforward, keeps existing terms, and extends use without new negotiations.
Are there risks in renewing a license?
If terms are outdated, renewing may restrict business growth or flexibility.
How often can licenses be restructured?
Restructuring can happen anytime, usually during contract renewal or significant changes.
Can I negotiate terms during a renewal?
Yes, some terms might be renegotiated, though it’s usually more flexible in restructuring.
Is restructuring necessary if both parties are satisfied?
If terms are still beneficial, renewal might be more straightforward and quicker.
What happens if a license is not renewed or restructured?
The license typically expires, ending the agreed use of rights or services.
Does restructuring impact license duration?
Yes, restructuring often involves renegotiating the length and other key terms.
Are renewal and restructuring processes time-consuming?
Renewing is generally faster; restructuring may take longer due to changes.
Can I renew a license multiple times?
Yes, licenses can usually be renewed as long as both parties agree.
What should be considered when deciding between renewing and restructuring?
Consider operational needs, new regulations, and whether current terms still serve both parties.
