Yesterday Salesforce announced a broad price increase for Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau of on average 9%, starting Aug 1st, 2023. This is the first broad price increase since 2016, although a lot has changed over that 7 years; particularly in the addition of several high profile acquisitions to the product portfolio, and in product packaging, which has changed fairly often over that time period. So far Salesforce has posted these price updates:

• Salesforce Professional Edition from US$ 75 to US$ 80 (up $5)

• Salesforce Enterprise Edition from US$ 150 to US$ 165 (up $15)

• Salesforce Unlimited Edition from US$ 300 to $330 (up $30)

New prices for Industries, Marketing Cloud Engagement and Account Engagement, CRM Analytics and Tableau will be announced soon. The increases will apply to all new customers (which might accelerate some deals for Salesforce this month), and also on new clouds added to existing customers’.

This is a tough time to increase prices from a broader economic perspective, and will likely get some pushback from customers. Salesforce revenue got a significant boost during the pandemic as did many other cloud providers. The past year though, has been challenging for those providers as deal cycle times increased and prospects put off decisions as a reaction to the slowing economy and inflation (and subsequent interest rate hikes). In the previous quarter (FY Q1, 2024), for example, Salesforce reported only 11% year over year growth, which is its lowest growth rate in thirteen years.

Is the price increase easy to justify? I’ve certainly seen analysis posted online that claims it is not. I’m of a somewhat different opinion though. Now I can’t say if 9% is the “right” number, but there are several factors that could support raising prices. The current market competitive narrative has shifted over the past year or so, particularly around interest (and hype) for artificial intelligence (AI), generative AI like ChatGPT and other automation in customer experience (CX) / CRM systems. The investment to develop, launch and continue to evolve capabilities of these systems is not free. From a customer perspective though, the new products rolling out including AI Cloud, Einstein GPT, Sales GPT, Service GPT, Marketing GPT, Commerce GPT, Slack GPT, and a bunch of other Industry solution addons provide a great deal of new value. Is it enough…I’m not sure, I guess time will tell.

The immediate reaction from the investment markets was positive with the stock up ~4% yesterday and continuing to increase today. I suspect that the announcement will have some positive impact on this quarter’s results as well, with the potential for in progress deals to accelerate as prospects move to avoid the new prices coming in August. Into next quarter though, the impact could potentially be negative, particularly if the economy continues to be somewhat unpredictable. The push for businesses to add AI and generative AI capabilities to their CX strategy and tech might just be enough to increase momentum though, which could offset any backlash from the higher prices.