Salesforce Business Model

Salesforce follows a SaaS business model, offering four main categories of cloud CRM (Customer Relationship Management) services spanning the sales cloud to the marketing cloud. Where subscriptions drive the primary revenue model. However, the company leverages professional assistance to push the adoption of the software and retention of paying subscribers. Indeed, by 2024, Salesforce generated over $32 billion from subscriptions and $2.32 billion from professional services.

The salesforce business model explained

Salesforce is a leading provider of enterprise software delivered through the cloud, focusing on customer relationship management, or CRM.

Salesforce introduced the first CRM solution in 2000.

The key to Salesforce value added is based on the fact that service offerings can be deployed rapidly, configured easily, and integrated with other platforms and enterprise applications or apps.

While this might seem trivial today, it wasn’t back in the 2000s.

CRM services often require high upfront costs and expensive services that are hard to run and maintain. Salesforce changed all that.

Those services are delivered in two ways:

• Via significant internet browsers and on leading mobile devices.
• Direct sales efforts and also indirectly through partners.

The revenue model Salesforce uses is the subscription-based business model.

Salesforce cloud sales offering explained

The strength of the company derives from its sales cloud offerings, based on subscription services. 

Those services can be broken down into:

• Sales Cloud: it was Salesforce’s first offering and continues to be the largest contributor to total subscription and support revenues. This service enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around any sale on desktop and mobile devices.
• Service Cloud is the second largest contributor to total subscription and support revenues. It enables companies to deliver more innovative, faster, and more personalized customer service and support.
• Marketing Cloud: This service lets companies plan, personalize and optimize one-to-one customer interactions across email, mobile, social, web, and connected products.
• Commerce Cloud empowers brands to deliver a comprehensive digital commerce experience across the web, mobile, social, and store.
• Community Cloud: It enables companies to quickly create and manage trusted, branded digital destinations for customers, partners, and employees.
• IoT Cloud enables companies to harness the power behind billions of connected devices, products, sensors, and apps to derive entirely new levels of customer insights.
• Analytics Cloud: it enables any employee across an organization to quickly and easily explore business data, uncover new insights, make smarter decisions and take action from any device
• Salesforce Quip: it is a next-generation productivity solution designed for teams with a mobile-first strategy, empowering everyone to collaborate more effectively, work smarter and supercharge their productivity, all without email.
• Salesforce Platform: (formerly App Cloud) for building enterprise apps— powering Salesforce’s CRM apps, with thousands of partner-built apps and millions of custom apps built by customers.

Salesforce operating structure

All of the cloud offerings that Salesforce offers to customers are grouped into four major core cloud service offerings:

• Sales Cloud
• Service Cloud
• Salesforce Platform and Other
• and Marketing Cloud

Those represented the majority of the company’s revenues. 

What distribution strategy does Salesforce tap into?

Salesforce taps mainly into four sales and distribution strategies:

• Direct sales
• Referral and indirect sales
• Strategic investments
• Marketing

Direct Sales

Salesforce sells its services primarily through their direct sales force, which is comprised of:

• telephone sales personnel based in regional hubs,
• and field sales personnel based in territories close to their customers.

Both telephone sales and field sales personnel are supported by sales representatives primarily responsible for generating qualified sales leads.

Referral and Indirect Sales

Salesforce has a network of partners who refer sales leads and who then assist in selling to these prospects.

This network includes:

• Global consulting firms,
• Systems integrators
• And other partners.

In return, Salesforce typically pays these partners a fee based on the first-year subscription revenue generated by the customers to whom they refer.

Strategic Investments

Since 2009, Salesforce has been investing in early-to-late-stage technology and professional cloud service companies across the globe to support key business initiatives to extend the capabilities of its platform and CRM offerings.

The primary objective is to increase the ecosystem of enterprise cloud companies and partners, accelerating the adoption of cloud technologies and creating the next generation of mobile applications and connected products.

Marketing

Salesforce’s marketing strategy is to promote its brand and generate demand for its offerings.

With a variety of marketing programs across traditional and social channels to target its prospective and current customers, partners, and developers. 

Multi-channel marketing campaigns span email, social, and web.

Other marketing activities refer to proprietary events of all sizes, ranging from Dreamforce to salon dinners and participation in trade shows and industry events.

Press and industry analyst relations to garner third-party validation and generate positive coverage for Salesforce.

Some of the marketing activities comprise:

• Content marketing and engagement on all of the major social channels;
• Search engine marketing and advertising to drive traffic to Salesforce Web properties;
• Partner co-marketing activities with global and regional implementation partners;
• Website development to engage and educate prospects and generate interest through product information and demonstrations, case studies, white papers, and marketing collateral;
• Customer testimonials;
• Tools that enable the sales organization to more effectively convert leads to customers;
• Event sponsorships and primary real estate signage.

While primary revenues are generated via cloud services, the largest market for Salesforce is America, followed by Europe and the Asia Pacific.

Professional services and other revenues represent the remaining of its revenues. Those consist of fees associated with consulting and implementation services and training.

Salesforce also offers some training classes on implementing, using and administering service that is billed on a per person, per class basis.

Summarizing Salesforce’s business model and strategy

While Salesforce generates most of its revenue from subscriptions.

The company leverages professional services to build, maintain, and grow its subscriber base.

Indeed, the professional service business unit is primarily run at a very tight or negative margin as its primary purpose is to help the subscription-based business, which is the actual cash cow for the company.

Thus, from there the professional service unit is used to grow the subscription business.

Salesforce’s leverages on marketing and sales to create a flywheel to grow its subscription business and therefore enable its business model.

Key Highlights

• SaaS Business Model:
  • Salesforce follows a Software-as-a-Service (SaaS) business model, offering cloud-based Customer Relationship Management (CRM) services.
• Revenue Sources:
  • The primary revenue model is based on subscriptions for its cloud CRM services.
  • In addition to subscriptions, Salesforce generates revenue from professional services.
• Adoption Strategy:
  • Salesforce leverages professional assistance to drive the adoption of its software and retain paying subscribers.
  • Professional services are used to enhance the use and retention of the software.
• Subscription Revenue:
  • In 2023, Salesforce generated $29 billion from subscriptions.
• Professional Services Revenue:
  • In 2023, Salesforce generated $2.33 billion from professional services.
• Service Offerings:
  • Salesforce offers various cloud-based services, including Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, Community Cloud, IoT Cloud, Analytics Cloud, and more.
• Sales and Distribution Strategies:
  • Salesforce employs direct sales, referral and indirect sales through partners, strategic investments in technology companies, and marketing to promote its offerings.
• Global Presence:
  • The largest market for Salesforce is in America, followed by Europe and the Asia Pacific.
• Leveraging Professional Services:
  • Salesforce runs professional services at a negative gross margin, using it to enhance the use and retention of the software, thus boosting subscription revenue over time.
• Subscription Revenue Structure:
  • In 2022, Salesforce reported $5.82 billion in cost of revenue on $29 billion in subscription revenue, resulting in a gross profit of $23.2 billion.
• Marketing and Sales Flywheel:
  • Salesforce uses marketing and sales efforts to create a flywheel effect, driving the growth of its subscription business

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