Salesforce Business Model

Salesforce Business Model Canvas - Salesforce Business Model

The Salesforce business model is based on a pay-as-you-go subscription for sales, marketing, and customer relationship packages for big and small businesses. Customer experience is the heart of any business, and maintaining a good customer relationship is essential. However, since the world has transitioned into a digital economy, customer relationships must be automated and digitalized to meet the customer’s needs in real time. And this is why Parker Harris, Frank Dominguez, Dave Moellenhoff, and Marc Benioff founded Salesforce in 1999, with the company listed on the New York Stock Exchange (NYSE) in June 2004. 

Since then, Salesforce has grown to become one of the leading customer relationship management in the industry, with over 100,000 active subscribers. 

A brief history of Salesforce

Salesforce was founded in a one-bedroom apartment on top of Telegraph Hill in San Francisco by four people: Parker Harris, Frank Dominguez, Dave Moellenhoff, and Marc Benioff, in 1999. The founders’ vision was to build a Software-as-a-Service (SaaS) application that enabled business owners to create software applications to scale their businesses and better manage customer relationships. It is headquartered in San Francisco, California.

In 2000, the company was launched in the Regency Theatre in New York, where it got its nickname, “No Software”. After this, Salesforce kept organizing Dreamforce events across the country to increase awareness of the product and get people talking about it. The company kept adding more innovations to the product, such as AppExchange, which helped users develop their applications, and VisualForce, which allowed users to customize their user interface. 

Soon enough, Salesforce acquired three companies — Buddy Media, ExactTarget, and Radian 6 — for $3.6 billion, which formed the basis for the Salesforce marketing cloud. In 2013, the company worked on improving its mobile app, launching Trailhead — a digital platform for learning about Salesforce technology — in 2014, and Einstein — an advanced AI technology that provided the latest insights about customers — in 2016. In that same year, Salesforce acquired ten more companies, with the acquisition of MuleSoft and Tableau in 2018 and 2019, respectively. 

From a one-bedroom apartment, Salesforce has become the leading CRM (Customer Relationship Management) company globally. 

Who Owns Salesforce

Marc Benioff is the Chairman and CEO of Salesforce, with 4% ownership of the company. Other institutional investors in Salesforce are BlackRock Fund Advisors, SSgA Funds Management, The Vanguard Group, Fidelity Management, Research, etc.  

Salesforce Mission Statement

Salesforce’s mission statement is, “To empower companies to connect with their customers in a whole new way”. 

How Salesforce works

Salesforce is a cloud-based company that allows businesses to build better customer relationships. The software application helps businesses to interpret customer data correctly; with a collaborative feature that connects different teams on the same project. As such, the IT team can access the same data as the marketing team and work together to achieve the business goals, thereby building a seamless digital workflow. 

This helps businesses save the unnecessary time and money that would otherwise have been spent on resolving data issues, as each department is integrated into a single platform and can easily access real-time communication.

How Salesforce makes money

Recent statistics on the Salesforce website show that the company has over 150,000 subscribers, from small business owners to CEOs of Fortune 500 companies. It was listed as the third most innovative company worldwide. The company makes money mainly through three ways, which is also its revenue by segment: subscription, support, and professional services.

Subscription revenue

Salesforce is a SaaS company where users have to pay to access its services. This provides recurring revenue for the company. Some popular services people subscribe to on Salesforce include sales cloud, service cloud, platform, and marketing and commerce services. In 2021, the company made $19.98 billion from its subscription revenue, especially with the rise of remote work during the pandemic. Salesforce keeps making more money from its pool of over 150 000 active subscribers, including big businesses such as Amazon Web Services and Adidas. The cost of subscribing ranges from $25 to $1250 monthly. 

Support revenue

Salesforce offers support services for different businesses as their second income source. There are three plans for their support services – Standard, Premier, and Signature. The Standard plan comes with all subscription packages; the Premier plan costs 30% of a business’s net income, while the Signature plan is calculated based on how scalable and complex business operations are. 

Professional services and other services

The third way Salesforce makes money is by offering professional services such as training on contracts or on a performance basis. The company has generated over $1.28 billion from professional services and other revenues. 

Salesforce Revenue by Product

Salesforce has four product types within its subscription services that account for its revenue.

Sales Cloud

This is a service that helps companies to manage their sales processes. Sales Cloud accounts for 25.97% of the subscription revenue and 24.42% of the company’s total revenue. However, it came behind Platform and Service Cloud products.

Service Cloud

Service Cloud helps companies to customer their customer service. In 2021, the product generated $5.38 billion and now accounts for 26.93% of the subscription revenue.

Platform 

Platform helps companies to use drag-and-drop tools to build apps. The company has generated  $6.27 billion annually from Platform and other smaller products, making up about 30% of the total revenue.

Commerce Cloud

The last product type is Commerce Cloud, which enables companies to build customized commerce and marketing campaigns. 

Salesforce Revenue Based on Region

Salesforce makes money from three regions: America, Europe, and Asia.

Americas

The company gets about 70% of its annual revenue, $14.74 billion, from its American audience, both North and South. 

Europe 

Europe comes second in Salesforce region-based revenue. It accounted for 21.18%, $4.5 billion, of the total revenue in 2021. The region also has the fastest revenue growth rate.

Asia

The Asian market accounts for 9.48%, $2.01 billion, of the company’s yearly revenue.

Salesforce Business Model Canvas

The Salesforce Business Model can be explained in the following business model canvas:

Salesforce Business Model Canvas - Salesforce Business Model

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Salesforce Customer Segments

Salesforce’s customer segments include:

  • Businesses: These are companies that need help with managing their customer service and integrating their operations on one platform. Through the various applications Salesforce offers, these businesses can make their operations more efficient. 

Salesforce Value Propositions

Salesforce’s value propositions are mainly for businesses, and they include:

  • Higher performance rate: Salesforce helps businesses to scale their performance by providing them with the necessary tools and applications. For example, the software application enables businesses to customize their user interfaces, that is, create more features for more efficiency;
  • Risk reduction: Another value proposition for businesses is that Salesforce helps them reduce the risks made. For example, the company provides detailed data, which helps business owners track their growth and make appropriate decisions, thereby reducing errors;
  • Integration of all units: As expected of a CRM software application, Salesforce is a platform that integrates whole business units. Therefore, each department knows what the other is working on and where its input is needed. Additionally, this cuts off the lag in decision-making and speeds execution;
  • Digitization of customer interaction: Customer interaction is at the core of every successful business. A brand that cannot manage its customer relationships properly has started failing. But with Salesforce, businesses have more tools to manage their customer interactions. Since its foundation, the company has been a customer relationship management platform that helps businesses better manage their customer relationships.

Salesforce Channels

Salesforce’s channels include:

  • Website
  • Business software applications
  • Email marketing
  • Online Community 
  • Events
  • Sponsored ads
  • Social networks

Salesforce Customer Relationships

Salesforce’s customer relationships include the following:

  • Sales 
  • Commerce
  • Service
  • IT
  • User community;

Salesforce Revenue Streams

Salesforce’s revenue streams are:

  • Professional services
  • Subscription revenue
  • Support services

Salesforce Key Resources

Salesforce’s key resources consist of the following:

  • Cloud-based services
  • Leading CRM company in the world
  • Third most innovative company across the globe
  • Customers
  • Audience
  • Brand
  • Community
  • Platform
  • Partnerships

Salesforce Key Activities

Salesforce’s key activities comprise:

  • Media channels
  • Marketing activities
  • Partnerships
  • Digitizing customer data
  • Maintaining integrated platforms
  • Maintaining cloud space
  • Providing new cloud-based solutions

Salesforce Key Partners

Salesforce’s key partners are:

  • Endorsements
  • Affiliates
  • Independent software vendors
  • Cloud retailers
  • Consulting & integration partners
  • Implementation & deployment partners

Salesforce Cost Structure

Salesforce’s cost structure includes:

  • Salaries
  • Cloud maintenance
  • Marketing
  • Events
  • Subscriptions
  • Platform

Salesforce Competitors

  • HubSpot CRM: Like Salesforce, HubSpot CRM is a cloud-based solution that provides software, education, marketing, and sales services to businesses worldwide. Dharmesh Shah and Brian Halligan founded the company in 2006 at the Massachusetts Institute of Technology, and it hit the New York Stock Exchange in 2014. The CRM platform helps businesses to integrate all departments and work together. It currently serves over 120,000 customers in 120 countries globally. HubSpot grew from $255,000 a year after it was founded to $15.6 million in 2010. Now, the company has crossed the $1 billion mark;
  • Zoho CRM: Founded by Sridhar Vembu and Tony Thomas founded in 1996 as AdventNet in Chennai, India, AdventNet became Zoho in 2009 when the founder realized the need to add more products to the company’s offerings. Without investor funds, Zoho bootstrapped its way to making $590 million in 2020 with over 10,000 employees and acquired another company, ePoise, in 2019. Over 250,000 businesses in 180 countries use Zoho CRM to handle customer service, sales, and marketing activities on one platform;
  • Agile CRM: Before founding Agile CRM in Hyderabad, India, in 2013, Manohar Chapalamadugu started ClickDesk, a customer chat support software application. Agile’s CRM comes with detailed analytics and marketing automation features that help businesses interpret customer data accurately. However, Agile CRM only works next for nonprofits and small businesses; it cannot provide customizable CRM solutions for large businesses. Currently, about 2692 businesses use Agile CRM;
  • Zendesk Sell: Zendesk Sell was founded by Alexander Aghassipour, Mikkel Svane, and Morten Primdahl in 2007 in Copenhagen, Denmark. However, Zendell is headquartered in San Francisco. This CRM company provides a software application that helps companies to improve their customer service and support and build communities out of their customers. It has over 160,000 users in 160 countries and 5000 employees. Midway into 2022, the company had already made about $407.2 million. 

Other competitors include: Close, Sugar CRM, Pipedrive, Salesloft, Insightly, and Microsoft Dynamics 365.

Salesforce SWOT Analysis

Below, there is a detailed swot analysis of Salesforce:

SWOT Analysis of Salesforce - Salesforce Business Model

Salesforce Strengths

 Below, there are some of Salesforce’s strengths:

  • Diverse products: Salesforce has various products that provide different, necessary services to its subscribers. Even though the company started as a customer relationship management platform, it has increased its portfolio by adding other services such as marketing, sales, and IT;
  • Growing revenue: Not all businesses can increase their revenue by a significant amount yearly, but Salesforce has succeeded. For instance, recent statistics show that the company has grown its income by over 20% annually. As such, it is not surprising that they are the leading CRM and third most innovative company globally;
  • Top CRM company in the world: Salesforce’s reputation as the number 1 CRM service provider is a force to reckon with in the market. Additionally, this reflects the company’s market share and client base compared to competitors such as Zoho and HubSpot;
  • Customer relationships: Another commendable strength of Salesforce is its intentionality in building customer relationships. The company treats every customer as royalty, creating a lock-in system where customers find it difficult to leave. One way it achieves this is through the efforts of the marketing unit, which collects data on what its target customers need;
  • Partnership strategy: In its lifetime, Salesforce has acquired over 12 companies and gotten partners in different sections for more efficiency and productivity. For instance, the company’s consulting partners are different from its implementation & deployment partners;
  • Reputation management: The company has a solid marketing team that connects with its customers worldwide through various marketing channels such as email campaigns and social media ads. 

Salesforce Weaknesses

Here, there are some of Salesforce’s weaknesses:

  • High rate of employee turnovers: Salesforce is known for laying off its employees and going through different recruiting processes to hire new ones. In laying off and recruiting, it spends a lot of money, which reduces its profits;
  • Depending on one market: Although over 150,000 businesses use Salesforce, a large percentage of its revenue comes from the U.S. market. As such, whatever affects the US market will directly influence Salesforce’s operations and growth;
  • Increasing marketing expenses: To retain and acquire new customers, Salesforce spends over $11 billion on marketing. However, this will soon not be enough as marketing expenses rise by the day;
  • Uneasy integration: Integrating Salesforce with other tools and software applications is difficult;
  • Cloud availability: Since Salesforce is a cloud-based company, mobile phone users cannot access it as easily as expected, except if they use a computer.

Salesforce Opportunities

Below, there are some opportunities Salesforce can maximize:

  • Expand to new markets: Salesforce can expand its market to other regions since its services are available in every country. This will help to secure its revenue to some extent. Besides, they can leverage their partnerships with other businesses to do this;
  • Growing internally: Every business that wants to survive the 21st-century race must keep growing internally, or it will fade away. Salesforce can grow internally by acquiring smaller businesses to increase its portfolio, client base, and market percentage;
  • Expand its product range: One of the juiciest opportunities Salesforce can take advantage of is to expand its product portfolio. There will always be new problems, which calls for new solutions. The company should continue to innovate to meet the needs of all kinds of businesses and strengthen its hold over the market;
  • Cloud technology: Cloud technology is here to stay as more business operations, and activities, will be cloud supported. Salesforce can leverage this by providing more essential, cloud-based solutions for different businesses, especially in developing countries.

Salesforce Threats

Below, there are some of the threats Salesforce might face:

  • Data breach: Cloud technology is not without its issues, as it can be hacked or face downtime. Salesforce needs to double up on its cloud protection service to prevent such data breaches from happening, especially considering the sensitive customer and business data stored in the cloud;
  • Competition: Salesforce already has formidable competition in the likes of HubSpot, Zoho, and Zendell. However, new competitors are rising with cheaper business models, making the market tougher to dominate. Salesforce needs to stay on its toes always to keep getting ahead;
  • Unavailability of quality services in developing countries: While Salesforce can expand to international markets, especially in developing countries, it might be unable to provide full support for its customers in those regions digitally, except it opens a branch there. 

Conclusion

Salesforce grew from a vision in a one-bedroom apartment to a leading player in CRM software applications and the third most innovative company in the world, according to Forbes. In its 24 years of existence, the company has managed to keep its innovative edge, as reflected in its diverse product portfolio and acquisition of several other businesses. However, its competitors are putting up a thick struggle in the market. Salesforce needs to add more innovations, plug into untapped markets, and provide more secure cloud-based solutions to maintain its status as the leading CRM company.

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