Understanding the Salesforce CPQ Price Waterfall: A Comprehensive Guide
Salesforce CPQ Price Waterfall plays a crucial role in determining the final price charged to the customer. Salesforce CPQ (Configure, Price, Quote) utilizes a price waterfall calculation sequence to determine the net price for the customer. This sequence incorporates various prices and discounts available in Salesforce CPQ, ultimately arriving at the net price charged to the customer.
Key Components of a Salesforce CPQ Price Waterfall
Starting Price
The initial step in pricing is establishing the original price of a product or service, which is the baseline price before any discounts or adjustments are applied.
Discount Schedules
These establish predefined discount structures based on various factors, including purchase volume, strategic partnerships, or limited-time promotions. Discount schedules play a crucial role in adjusting the initial price according to established guidelines.
Price Rules
These guidelines are conditional, determining how to adjust pricing based on specific circumstances. Criteria can include customer type, product combinations, or specific conditions that trigger price adjustments.
Prorate Multiplier
Commonly used in subscription-based models, this adjusts the price based on the start and end dates of a contract, ensuring customers are charged fairly if they do not subscribe for the entire billing period.
Significance of a Salesforce CPQ Price Waterfall
Revenue Optimization
Pricing waterfalls enable businesses to apply discounts strategically at various stages of the pricing process. By categorizing and sequencing discounts, companies can maximize overall revenue and maintain healthy profit margins.
Strategic Discount Application
Pricing waterfalls offer structured discounting, enabling businesses to apply discounts based on criteria like volume, partners, and contracts, ensuring a consistent pricing strategy.
Revenue Visibility and Transparency
Salesforce CPQ Price Waterfall provides clear insights into how pricing adjustments affect overall revenue. This transparency helps businesses analyze the effectiveness of their pricing strategies and make data-driven decisions.
Efficient Handling of Complex Pricing Scenarios
The CPQ pricing waterfall structure reduces errors and revenue leakage, ensuring efficient handling of intricate pricing landscapes involving multiple discount layers.
Adaptation to Market Changes
Pricing waterfalls offer flexibility in adjusting pricing strategies based on market conditions. This adaptability allows businesses to respond quickly to shifts in demand, competition, or economic factors.
Improved Profit Margins
Balancing competitiveness and profitability is crucial. Pricing waterfalls protect profit margins by providing a systematic approach to discounting, ensuring businesses remain competitive while safeguarding profitability.
Types of Pricing and Calculation Sequence in Salesforce CPQ Price Waterfall
Before diving into scenarios, let’s quickly understand the types of pricing and their calculation sequence.
1. List Price
This is the initial price from the price book. For example, ‘Lunchbox’ has a list price of $15. Note that the list price can be replaced with:
- Block Prices
- Percent of Total prices
- Cost-plus Markup prices
2. Regular Price
After the list price, the regular price is calculated. It can be:
- List Price minus Discount Schedules
- Contracted Price
- Special Price
Discount schedules can be based on quantity, term, or slab-based discounts.
3. Customer Price
The customer price is the regular price minus additional discounts. These can be applied:
- Manually on a quote-by-quote basis
- Conditionally through price rules
4. Partner Price
In B2B scenarios, the partner price is:
- Customer Price minus Partner Discount
5. Distributor Price
The distributor price is:
- Customer Price minus Distributor Discount
6. Net Price
The net price is the final amount:
- It equals the distributor price (if applicable)
- If no distributor price, it equals the partner or customer price
Practical Scenario: Satvik Foods Offering Salad Box
Let’s explore a real-world example without a distributor price to understand the Salesforce CPQ Price Waterfall.
Scenario Details
Satvik Foods offers a Salad Box at a list price of $15.
- Quantity-based discounts: 20% for 100–200 units, 30% for 201–300 units
- COVID discount: Additional 10%
- Partner discount: 15% for Kitchen Foods
Example Calculation
- List Price
- Set in the price book: $15
- Regular Price
- Quantity Discount: $15 × 20% = $3
- Regular Price = $15 – $3 = $12
- Customer Price
- COVID Discount: $12 × 10% = $1.2
- Customer Price = $12 – $1.2 = $10.8
- Partner Price
- Partner Discount: $10.8 × 15% = $1.62
- Partner Price = $10.8 – $1.62 = $9.18
- Net Price
- No distributor discount, so Net Price = $9.18
- Total Price
- $9.18 × 120 = $1101.6
Note: If an additional distributor discount of 5% were applied, the calculations would be:
Distributor Price
- Distributor Discount: $9.18 × 5% = $0.46
- Distributor Price = $9.18 – $0.46 = $8.72
Final Net Price
- $8.72 × 120 = $1046.4
Conclusion
In conclusion, implementing a Salesforce CPQ Price Waterfall improves pricing transparency, ensures consistency across sales channels, enhances sales efficiency through process automation, and enables dynamic pricing adjustments.
To understand the use of CPQ Price Waterfall in-depth within Salesforce, get in touch with Blueflame Labs to discuss the implementation with our Salesforce experts.
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