Salesforce CEO Marc Benioff explains how giving its salespeople a one-time guaranteed commission and allowing customers 'flexibility' on contracts are 'investments' that will help the company weather the economic crisis (CRM)

May 28, 2020

Salesforce CEO Marc Benioff explains how giving its salespeople a one-time guaranteed commission and allowing customers 'flexibility' on contracts are 'investments' that will help the company weather the economic crisis (CRM)

marc benioff

Based on Salesforce's first quarter results — which were mainly in-line with expectations — the company has been able to escape the worst effects of the coronavirus crisis due to its subscription-based business.
CEO Marc Benioff said that the company had granted temporary "financial flexibility" to some customers affected by the pandemic and guaranteed its sales people a one-time commission.
Benioff said that these investments in employees and customers are already benefiting Salesforce, and will make it stronger in the long run.
Benioff also highlighted that Salesforce is still closing large deals and seeing strong interest from customers.
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Salesforce CEO Marc Benioff said during the company's earnings call that some unusual concessions that it made in the first quarter of 2020 — guaranteeing salespeople their commissions and giving customers "flexibility" on their contracts — were worthy "investments" as it deals with the pandemic and economic downturn.

Overall, the coronavirus crisis didn't have a meaningful impact on Salesforce's first quarter results Thursday, which were in line with expectations. Like its peers in the cloud software industry, Salesforce has been able to escape the worst effects that have hit other industries due to its subscription-based business.

Benioff said that while the company didn't expect any major disruption, it's still being cautious. While several major tech companies like Twitter and Dell declined to offer financial guidance during the coronavirus, Salesforce braved the markets, offering Q2 guidance that was lower than analyst expectations and lowering the full year outlook as well.

Benioff said Salesforce took some strategic steps to help its employees and customers get through the quarter and to set it up for long-term success:

For one, Salesforce provided temporary "financial flexibility" to help customers most affected by the pandemic. That could include discounts or delayed payment plans, though Benioff didn't specify. Analysts have predicted that this would be a necessary step for Salesforce and other cloud software companies as their customers have difficulty paying or renewing subscriptions.

Also, Salesforce gave its sales people a one-time guaranteed commission for the quarter to take the pressure off at a time when closing deals would be difficult. The move gave those employees "tremendous confidence in our ability to take care of them," Benioff said.

Benioff described both these decisions as key to building trust with employees and customers and making sure Salesforce would be better-positioned for the future.

"We have great confidence that our investments — we already see it in our employees, our customers, our communities in the first quarter — well, they're benefiting us," he said. "They're benefiting us now in the short term, [and will in] the long term with tremendous strength and tremendous growth."

CFO Mark Hawkins said that Salesforce's "financial flexibility" for customers did impact cash flow for the quarter, though he didn't say how much and added that the company expects "to collect the majority of the balance this year." Hawkins did say that the guaranteed commission to its sales people cost $140 million in the first quarter.

Looking at future customer demand

Despite many industries facing difficulties at this time, Benioff noted some companies are still able to invest in big "digital transformation" initiatives, and boasted that Salesforce is still closing big deals, like a multi-year agreement with AT&T, which plans to go all-in on Salesforce products.

Salesforce's diverse portfolio of products helps it continue to snag customer interest from those companies able to invest in digitizing, Benioff added.

"My personal belief is always that in a moment of crisis, you need to invest through it," he said. "Maybe not every company can do that but a lot of companies surprisingly can."

He added that he's been on more sales calls with CEOs in the last two months than ever before in his career, and that he's hearing over and over again that digital transformation "isn't a want to have, it's a must have."

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