Salesforce.com, Inc. is an American cloud-based software company which provides a comprehensive package of enterprise applications focused on customer services, marketing automation, analytics and application development. It competes with Oracle, Microsoft and SugarCRM. The company derives its revenue serving two segments: subscription and support and professional services. As of Q2 FY20, its revenues from each of the segments came in at. And let’s look into Salesforce Revenue by segment data here.

Salesforce Revenue by Segment

Subscription and Support

This comprises of subscription fees from customers accessing the Cloud Services on the company’s platform, from software licenses and from customers paying for additional support which is not included with the basic subscription fees. It contributed for nearly 94% of the total revenue for the company for the quarter ended July 31,2019. The factors driving this revenue stream are the number of paying subscribers, varying service types, their price and renewal charges.

Subscription and support revenue for the Cloud Services are recognized ratably over the contract terms beginning on the start date of each contract. However, for software licenses, it is recognized upfront when the software is actually made available to the customer. The typical subscription and support service term is ranging from 12 to 36 months, although the terms range from one to sixty months. These contracts are non-cancellable, but the customers have complete right to terminate their contracts if the company fails to perform or deliver the promised services. 

There is a 22% increase in the revenues from subscription and support compared to Q2, FY19. This is primarily caused by volume-driven increases from new business, which includes new customers, upgradation in the system and additional subscriptions from the existing customers. The company’s consistent attrition rate has also played a major role in the ability to maintain growth in revenues from this segment.

Subscription and Support Revenue by Service Offering

Professional Services

These services are related to the other offerings by the company such as process mapping, project management, implementation services and other revenue sources. ‘Other revenue’ primarily consists of training and consultation fees. The company follows a time and materials, fixed fee or subscription basis to bill their consulting and implementation engagements. They are also offering a number of training classes on implementing, using and administering their services which are usually billed on a per person, per class basis. Customers are allowed a credit period of 30 days from the date of invoice for the payment of these professional services.

There is reported 14% increase in the revenues from professional services as compared to Q2, FY19 which can be attributed to an increase in the services like training and implementation availed by the customers.

Company Overview

Salesforce.com, Inc., headquartered in San Francisco, California, was incorporated in 1999 as a company specializing in Software as a Service (SaaS). Today, it is a global leader in Customer Relationship Management (CRM) Technology which enables companies to improve their customer service experience thus, improving their relationships and interactions with them.

Their existing and emerging technologies like cloud, mobile social, artificial intelligence and Internet of Things (IoT) has empowered all companies, irrespective of their scale of operation, to connect with their customers in new ways encouraging them to grow their business and work more productively. They operate based on a set of core values: trust, customer success, innovation and quality.

Related Article: Salesforce: Revenue By Region (2020)