Leaked documents lay out Salesforce’s plan to achieve margins in excess of 30%

  • An internal Salesforce business plan describes how the company plans to achieve profit margins in excess of 30%.
  • The plan includes significant cost reductions and new versions for Slack, Mulesoft and Tableau.
  • One obstacle to achieving the margin is “the excuse of culture,” the plan says.

A draft of Salesforce’s annual planning document details how the company plans to exceed 30% profit margins, including significant cost reductions and new releases for Slack, Mulesoft, and Tableau. The new strategy is a key part of embattled CEO Marc Benioff’s effort to fend off activist investors circling the company.

An excerpt of the draft plan previously seen by Insider mentioned the new margin target, which appears to be a response to pressure from Starboard Value, one of the activist investors who built shares in Salesforce. An October presentation by Starboard called for Salesforce to target an adjusted operating margin of 31.7% over the next two years.

Insider received a full draft of Salesforce’s V2MOM document, which stands for Vision, Values, Methods, Obstacles, and Measurements. This is the company’s annual strategic plan, which is usually shared internally with the whole company at the start of the new fiscal year in February.

The draft received by Insider states that Salesforce aims to accelerate its journey to greater than 30% non-GAAP operating margin targets by limiting headcount growth, lowering general and administrative expenses, sales and marketing expenses, and reducing real estate inventory . The document also outlines plans to release new features in chat app Slack, data integration platform Mulesoft, and data visualization tool Tableau.

Wall Street analysts have largely applauded Salesforce’s efforts to respond to pressure from activist investors, particularly its shift from a focus on top-line growth to profitability.

Arjun Bhatia, an analyst at William Blair, recently noted that Salesforce’s current sales and marketing spend is much higher than its competitors. Other software companies with more than $10 billion in revenue spend about 25% of their revenue on sales and marketing, according to Bhatia, compared to Salesforce’s 37%.

To deliver higher profit margins over a reasonable period of time, especially when growth slows significantly, Salesforce “needs to make a lot more cuts or divest parts of the business,” said Mark Moerdler, an analyst at Bernstein. “There is a certain amount of fat that needs to be removed, but beyond that, more fundamental changes are needed.”

In the draft plan obtained by Insider, Salesforce instructs employees to “be lean and mean” and “spend like it’s yours,” and not let considerations like company culture get in the way and denounce obstacles like policies, who prefer culture over efficiency or “use culture as an excuse” to not respond to change.

The company has already taken some cost-cutting steps, including laying off 10% of its workforce. The draft of the planning document has already been revised. For example, Salesforce toned down a suggestion to stack employee ranks.

Salesforce will report results late Wednesday. The company did not respond to a request for comment.

Are you a Salesforce rep or have insights to share? Contact Ashley Stewart via email ([email protected]) or send a secure message from a private device via Signal (+1-425-344-8242).

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