Salesforce (CRM 3.44%), a leader in cloud software, has one of the best track records of growth in recent years. Ever since it went public in 2004, the software company has grown revenue every year, in good times and bad. Over that period, revenue advanced by a compound annual growth rate (CAGR) of over 30%.
While Salesforce has become a giant with $26 billion in annual revenue, I believe it still has room to grow. Let's see how they might accomplish this feat.
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1. Landing new customers
Salesforce was an outlier when it began offering its customer relationship management (CRM) cloud software. Back then, customers mainly used on-premise software from incumbents like SAP or Oracle.
Salesforce made its software offering simple and easy to use, seamless to set up, easy to pay, and available 24/7. Customers loved it, and the company's software-as-a-service (SAAS) solution started growing like a weed.
The tech company's primary growth strategy has always been to land and expand -- to attract new customers ("land") and then add new users or upsell new services ("expand"). In the early days of Salesforce's expansion, landing played an enormous role.
Today, Salesforce has become a giant of its own, rated the world's No. 1 CRM platform by Gartner, Forrester, and others. While it already serves many companies, it still has plenty of opportunities to attract new customers. It can further penetrate large corporations, expand into small and medium-sized companies (via Salesforce Essentials), move horizontally into new industries, and grow into overseas markets.
In short, Salesforce still has plenty of room to acquire new customers. And if that's not enough, the tech company is banking on two more methods to sustain its growth engine.
NYSE: CRM
Key Data Points
2. Adding new users, products, and services
Historically, Salesforce depended on customer acquisitions to grow. While such a strategy remains essential, expanding its relationships with existing customers has become even more critical today in sustaining the tech company's growth.
There are many benefits to deepening relationships with customers. One of the most obvious advantages is the low marginal cost of upselling new services to existing customers, or encouraging them to add new users over time. Generally, these customers are already satisfied with their earlier purchases and looking to add more tools (or introduce new team members) to improve their work outcomes.
While Salesforce started doing business by offering CRM, it has since added new products and services in marketing and commerce, platform solutions, data analytics, and more. With many solutions available, Salesforce makes it easy for customers to adopt new digital tools needed to handle their ever more complex business processes.
The result was predictable. Nearly all (95%) of Salesforce's customers have adopted more than one product, and the number of customers adopting more than four products grew threefold in the last four years. And as long as it continues to introduce new solutions to address the evolving needs of its customers, Salesforce is in an excellent position to deepen its relationships with them -- and expand its wallet share.
3. Growing via mergers and acquisitions
While Salesforce has created some of the best cloud software products internally, it isn't shy about buying up companies to complement its product offerings. Some examples of Salesforce's successful acquisitions include ExactTarget, MuleSoft, and Demandware. Post-acquisition, ExactTarget's revenue grew eightfold since 2013, while MuleSoft revenue surged more than fivefold since 2018.
Via mergers and acquisitions (M&A), Salesforce can improve its existing product offerings and enter new categories. For instance, the acquisition of Tableau complemented Salesforce's existing data offerings. On the other hand, the Slack buyout provided Salesforce a passport into a new area: business communication and networking solutions.
Growing through M&A does pose risks to the company, such as integration issues and cultural fit problems. But such a strategy allows the giant to move faster and probably smarter (removing its best competitors) in addressing customers' needs, while potentially creating new revenue streams.
As Salesforce grows bigger and wealthier, it's more likely to pursue strategic acquisitions as part of its growth strategy.
A quick word on Salesforce's growth target
During its 2021 investor day, Salesforce shared its aim of doubling revenue to $50 billion by fiscal 2026. That's a substantial goal, but based on its track record, I think Salesforce has a decent chance of achieving it.
After all, it has at least three weapons in its arsenal to help it hit the target.
