Calculation Sequence of Salesforce CPQ Price Waterfall
The standard calculation sequence of Salesforce CPQ Price Waterfall is as follows:
List Price->Regular Price->Customer Price->Partner Price-> Distributor Price->Net Price
Partner price is calculated fourth in the sequence and is derived by deducting Partner discount from the Customer price. Distributor Price is calculated 4th in the sequence and is derived by deducting Distributor discount from the Partner Price. This also becomes the Net Price. If you want to know more about the basics of Salesforce CPQ Price Waterfall then please visit my blog here.
What are Channel Discounts?
Channel discounts are special discounted prices for channel partners and distributors. They are used mostly in B2B scenarios where the goods pass through many middlemen before reaching the end customer. These discounts push the goods in the sales value vale chain.
What is the case of Channel Discounts Off List Price?
In B2B scenarios where a partner must be given more importance and heavier discounts use Channel Discounts off List Price. This pricing can also be used by businesses when they are starting out and when at times it is required to push stock through the sales value chain. This pricing can activate and acquire partners for businesses.
Impact of calculating Channel Discounts off List in Salesforce CPQ Pricing Waterfall.
Let’s understand the impact through an example and also see how renewal pricing gets affected with the calculation of Channel Discount off List.
Example – Tango Foods offers Lunchbox at a List Price of $15. Kitchen Foods has been a major buyer of ‘Lunchboxes’. Kitchen foods gets into a 12 Months contract with Tango Foods wherein the subscription term is monthly and Renewal term is also Monthly. There is a system discount of 20% for quantities between 30 and 40. There is an additional 10% discount. KitchenFoods gets a partner discount of 10 % and distributor discount of 5%.
a) List Price –> List price per unit is $15. For 35 units list price will be 35 * 15 = $525
b) Regular Price –> Let us first calculate the Regular Price per unit. Regular price per unitwill be List Unit Price minus system discount = $15 minus (20% of 15) = $12. Regular price for 35 Lunchboxes will be 35*12= $420
c) Customer Price –> Since, customer price is calculated next, Customer Priceper unit will be Regular Price per unit minus Additional discount = $12 minus (10% of 12) = $10.80.Customer Price per unit is $10.80. Total customer price is $10.80 * 35 = $378
d) Partner Price –> Since, Partner price has to be calculated next, Partner Priceper unit will be Customer price per unit minus Partner discount = $10.8 minus (10% of 10.80) = $9.72.Partner Price per unit is $9.72. Total partner price is $9.72 * 35 = $340.20. Please note that the Partner Discount in this case is $37.80 from the customer price and $184.80 from the list price
d) Distributor Price –> Since, Distributor price has to be calculated next, Distributor Priceper unit will be Partner price per unit minus Distributor discount = $9.72 minus (5% of 9.72) = $9.23 (approximately). Distributor Price per unit is $9.23. Total Distributor price is $9.23 * 35 = $323.05. Please note that the Distributor Discount in this case is $17.15 from the customer price and $201.95 from the list price.
e) Net Price- The net price here is $323.05
Now, Let’s calculate Channel Discounts off List price and see the impact on Net Price.
List, Regular and Customer price remain the same as above example:
a) Partner Price –> Since, Partner price has to be calculated, Partner Priceper unit will be Customer price per unit minus Partner discount (off List) = $10.8 minus (10% of 15) = $9.30.Partner Price per unit is $9.30. Total partner price is $9.30 * 35 = $325.50. Please note that the Partner Discount in this case is $52.50 from the customer price and $199.50 from the List price (Much larger discount) and lower total price. Compared to the normal scenario there is difference of the Partner discount of about $15.
b) Distributor Price –> Since, Distributor price has to be calculated next, Distributor Priceper unit will be Partner price per unit minus Distributor discount = $9.30 minus (5% of 15) = $8.55.Distributor Price per unit is $8.55. Total Distributor price is $8.55 * 35 = $299.25. Please note that the Distributor Discount in this case is $26.25 from the Partner price and about $225.75 from the list price. In this also much bigger then how it was calculated in the standard scenario.
e) Net Price –> The net price here is $299.25. Lower than the standard scenario due to higher channel discounts.
Summary– Tango Foods is able to achieve an increase in the channel discounts and effectively lowering the Net price for them.
Impact of calculating Channel Discounts Off List on Renewal Pricing.
If you want to know more about how renewal pricing works in the context of CPQ Price Waterfall then you can refer my blog here.
Renewal Pricing Method – Same – Here the Channel discounts will have to be applied manually or through price action. Only the Prices upto Customer will be pulled over to Renewal quote.
Renewal Pricing Method – List – This will only get List Price at the time of Renewal and the system discounts to the Renewal quote. All other prices will have to be applied manually or via Price Action
Renewal Pricing Method – Uplift – Here it will work like ‘Same’ renewal pricing method. The only change will be that Uplift if applicable will be applied to the Customer Price.
I hope that I have been able to make these exceptions clear to understand for all of you. Your likes, shares and comments will motivate me to keep writing.