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Ready to deep dive into Salesforce CPQ pricing methods, Price Waterfall Model, CPQ Discounting? We will understand Salesforce CPQ Pricing tackle interview questions with the help of mouthwatering Dominoโs offerings. ๐คค๐๐
What are the pricing methods in Salesforce CPQ?
What is the list price in Salesforce CPQ?
List price is the price that is retrieved from the price book entry. A major part of the list price is price book entry as the prices are invoked from the price book. Each product must have a price book entry or else the product will not get listed on the selection page of the quote line editor.
For example, Domino’s has their new “AI Extravaganza” pizza, priced at $24 in their CPQ price book. That’s our list price. Now, on “Techie Night,” they offer a 20% discount for all tech enthusiasts. Salesforce CPQ takes the $24 list price, calculates the 20% discount, and the customer is offered the pizza at $19.20. But without the list price book entry establishing the list price.
What is the Cost Price?
Cost price is used when a product costs a specific amount to obtain, then you can add cost price and add markup price on the product. Markup can be negotiated between the sales reps and the customer. Cost price is the price which is filled in special price. field.
Imagine Domino’s new “AI Extravaganza” pizza. The ingredients, labor, and overhead costs total up to $15 per pizza โ that’s our Cost Price. Now, Domino’s wants a slice of profit, so they add a markup. Let’s say they mark it up by $9, making the List Price $24 (the price you see on the menu).
What is Block pricing?
Block pricing is the pricings that are updated based on the quantities of the product purchased. For e.g., a pack of 1-10 units will cost 10$, 10-20 units will cost 18$ and so on.
To set up the block pricing we need to update the 4 pieces of information.
Name:ย Set the name to block the pricing method.
Lower bound:ย The lowest quantity for the quantity range.
Upper bound:ย The highest quantity for the quantity range.
Price:ย Price to be set up for the given quantity range.
Note:ย A block priceโs upper bound and the next block priceโs lower bound must be the same.
Letโs understand with help of Dominos scenario, imagine block pricing as Domino’s special offer on their pizzas, but instead of “Buy 1, Get 1 Free,” it’s more like “Buy More, Save More!” This approach is used in Salesforce CPQ to encourage customers to purchase in higher volumes by reducing the unit price as the quantity increases.
Let’s say Domino’s is selling their “AI Extravaganza” pizza, and they introduce a block pricing strategy to boost sales:
– **Name**: “AI Extravaganza Block Deal”
– **Lower Bound**: 1 (minimum number of pizzas)
– **Upper Bound**: 10 (maximum number of pizzas before the next block)
– **Price**: $24 per pizza
So, if you order between 1 and 10 “AI Extravaganza” pizzas, each cost $24. But Domino’s wants to incentivize you to order more for your tech meetups or gaming nights, so they introduce the following:
– **Next Block’s Lower Bound**: 11
– **Next Block’s Upper Bound**: 20
– **Next Block’s Price**: $22 per pizza
With this deal, if you order 11 to 20 pizzas, the price drops to $22 each. Your attendees are happy because there’s plenty of pizza, and Domino’s is thrilled with the larger order. It’s a win-win!
So, block pricing is like unlocking volume discounts: the more you order, the cheaper each pizza becomes.
What is Percent of Total?
Percent of the total is calculated based on the percent of the sum of all the other product that is purchased. For example, the tip for a bill at a restaurant would be calculated in this category.
For implementing the percent of the total, we need to update the following fields on products:
Pricing Method:ย Set this to โPercent of Totalโ
Percent of Total Base:ย This field says on which price field should we implement the percent of the total.
Option Pricing Override:ย This pricing will work only on the bundle product. The product options are the option on the bundle. You can override the price of the product if sold standalone and along with the bundle.
Letโs dive into the “Percent of Total” concept with a mouth-watering Domino’s scenario!
Imagine you’re hosting a big game night. So, you order a variety of pizzas, sides, and desserts, enough to satisfy the diverse cravings of your friends. Here’s a breakdown of your order:
| 5 pizzas at $15 each | $75 |
| 4 orders of garlic bread at $5 each | $20 |
| 3 lava cakes at $6 each | $18 |
| Total | $118 |
| Drinks are a separate entity | |
| 6 bottles of soda at $2.50 each | %15 |
Here’s how it’s integrated into Salesforce CPQ:
Pricing Method: They’ve selected “Percent of Total.” It’s dynamic, changing with your food choices and portions.
Percent of Total Base: It’s defined as the “Total Food Bill,” which is your cost for pizzas, sides, and desserts, totaling $113. Your sodas are out of this.
Option Pricing Override: Normally, a bottle of Domino’s cola is $2.50 but you ordered the โCombo!” This combo privilege drops your soda cost to $1.80 per bottle, saving you $4.20 on drinks!
Total
“Party Tax” is 10% of $113, so that’s $11.30. Your total food cost was $113, drinks were $15, and with your drink discount due to “Combo” offer, you subtract $4.20, then add your “Party Tax” of $11.30. So, your grand total for the night is $135.10!
Explain the concept of “Option Pricingโ?
Imagine you’re throwing a pizza party and Domino’s has this deal called the “Pizza Party Pack.”- which includes pizzas, sides, and drinks.
Here’s how it works:
Option Pricing: In the “Pizza Party Pack,” garlic bread doesn’t cost $5; it’s just $3.75! It gets a price cut because it’s in a bundle.
Steps:
1. First, you add garlic bread to your cart – it’s still $5.
2. Then, you choose the “Pizza Party Pack” and the garlic bread in your bundle is now priced at $3.75.
What’s happening here, due to the concept of Option Pricing, is that the system checks if garlic bread is part of the “Pizza Party Pack.” the discounted price of $3.75, as specified in the bundle option, kicks in.
Explain Limitations in Option pricing?
Option pricing does not support multicurrency, so itโs only possible to define the override price in a single currency.
Explain Contracted Pricing in Salesforce CPQ?
Imagine Domino’s has a loyal customer company, “Pizza Lovers Texas Inc.,” a local business that orders pizzas for its staff every Friday. Since they order so frequently and in bulk, Domino’s wants to offer them a special deal.
Here’s how it works:
1. Normally, a large veggie pizza costs $15. But for Pizza Lovers Texas, Domino’s sets a contracted price of $12 per pizza, a loyalty gesture.
- On Domino’s Salesforce CPQ system, they go to Pizza Lovers Texasโs account.
- Navigate to the “Related” tab, and in the “Contracted Prices” section, they click “New.”
- They select the veggie pizza in the “Product” field and enter $12 in the “Price” field- the contracted price is set.
Contracted Pricing pro tips! ๐โจ
1. No Double Deals: if Pizza Lovers Texas Inc. had two different contracted prices for the same Veggie Pizza โ one contract offers it at $12, and an older one at $14. Domino’s Salesforce system would not know which one I should pick. To avoid this, CPQ makes sure they have only ONE contracted price per product for each account.
2. Special Pricing Exceptions: Products that use Pricing Methods Block Pricing or Percent of Total Pricing do not work with Contracted Price.
3 Family Matters: If the Accounts are linked by a parent-child relationship, then by default the Contracted Price created on the Parent Account is inherited by all children.
Say, PizzaLovers Texas Inc. is part of a bigger empire, “PizzaLovers Universe,” with subsidiaries like “PizzaLovers Chicago” and “PizzaLovers Bay” setup in different locations. Domino’s sets up a contracted price with the parent company, “PizzaLovers Universe.” Salesforce CPQ automatically applies this contracted price to all the PizzaLovers’ subsidiaries because, in the pizza world, family sticks together.
Explain the use case for โIgnore Parent Contracted Pricesโ?
What if “PizzaLovers Chicago” negotiates a different, exclusive deal because they order twice as much every Friday? Domino’s simply toggles the “Ignore Parent Contracted Prices” to true on that account, ensuring “PizzaLovers Chicago” gets their unique deal, while the rest still benefit from the parent company’s contracted price.
Explain Price “Manual Override” in Salesforce CPQ Pricing? ๐๐ฅ
1.Create Your Own Pizza:
Dominos knows that sometimes you want to create your own pizza. So, they set the “Price Editable” field to true on the ‘Create Your Own Pizza’ product. You get into the Quote Line Editor, and, you can adjust the List Price based on the number and type of toppings you choose on that pizza!
2. Flexibility:
Domino’s offers free Wi-Fi in their dine-in locations. The Wi-Fi is typically ‘sold’ using ‘Pricing Method = List,’ but for large party bookings, they offer it as a perk, part of ‘Pricing Method = Percent of Total’ with the total bill. To switch between these methods, they make the ‘Pricing Method’ field editable in the Quote Line Editor by setting ‘Pricing Method Editable’ to true for the product (in this case, Wi-Fi).
3. Custom Deals for Custom Meals:
Sometimes, a customer negotiates a deal that doesn’t fit the usual pricing methods. Domino’s responds by setting ‘Pricing Method = Custom’ in the Quote Line Editor. The staff can then manually set a custom price.
4. The Surprise Side:
Ever had a Domino’s staff recommend cheesy garlic bread to you to order? Sometimes, they add it to your order as an ‘Optional’ item by setting the ‘Optional’ field to true in the Quote Line Editor. It won’t add up to your total but it’s there for you to consider.
Explain Price Waterfall?
Letโs dive into the concept of the pricing waterfall in Salesforce CPQ! ๐ฆ
The CPQ Pricing Waterfall is a multi-step process/sequence that utilizes different prices and discounts to get us to the Net Price (this is the price field for the total of the Quote Line/Quote).
It is described as a waterfall as it works its way from top to bottom through the different prices and discounts/adjustments.
1. List Price:
This is the starting point – the menu price. Let’s say the List Price for Domino’s “ExtravaganZZa” large pizza is $20, as listed in their Price Book.
2. Contracted Price:
Domino’s has loyal customers, like the “Pizza Club,” who dine-in every Tuesday. They’ve negotiated a 5% discount on all pizzas through a loyalty program. So, for them, the Contracted Price for the “ExtravaganZZa” isn’t $20 but drops to $19 ($20 minus 5%).
3. Special Price:
On occasions, Domino’s offers a special one-day promotion, like “Cheesy Thursday,” where all pizzas have an additional 10% off. This promo is applied on the Contracted Price or the List Price. For the loyal “Pizza Club,” this takes their $19 pizza down to $17.10 for that day.
4. Prorated Price:
Suppose one member of the club wants to buy half of an “ExtravaganZZa” and half of a “Veggie Delight” (also priced at $20). Dominos calculates a Prorated Price, where they take the Special Price ($17.10) and multiply it by a factor considering the half-and-half scenario, let’s say 0.5 for each half, equating to $8.55 for each half-pizza portion.
5. Regular Price:
If there’s no special scenario, the Regular Price kicks in. It’s either the Prorated Price or goes back to the original List Price. So $19 per “ExtravaganZZa.”
In the context of Domino’s pizza scenario with Salesforce CPQ, let’s elaborate on the Customer Price, Partner Price, and Net Price.
6. Customer Price:
It is the final price that a direct consumer pays after all applicable discounts and special prices are considered. For the “Pizza Club” members dining on a “Cheesy Thursday,” their Customer Price for an “ExtravaganZZa” would be the special rate of $17.10.
7. Partner Price:
The Partner Price is a special rate offered to business partners, usually lower than the standard rate, to accommodate the partners’ profit margins. For instance, a food delivery app โUberโ might receive the “ExtravaganZZa” at a Partner Price of $16, allowing them to mark it up for their customers.
8. Net Price:
It is the revenue that the seller keeps from the sale after all discounts, allowances, or rebates are deducted. The Net Price reflects the actual revenue the seller makes on the product before their internal costs are subtracted.
In the Domino’s case, the Net Price is the amount Domino’s records as revenue for the “ExtravaganZZa” pizza sold to the club member on “Cheesy Thursday”.
How can Salesforce CPQ help a company manage pricing complexity more efficiently?
With Salesforce CPQ, instead of creating multiple price books, company can have a standard price book and layer on pricing exceptions and adjustments as needed. For example, if there’s a nationwide 20% discount on “Veg Extravaganza” pizza this can be applied on top of the standard price book without creating a new one.
Can sales reps offer product as part of a bundle at a different price with Salesforce CPQ, even though it’s the same product listed in the price book?
Yes! Salesforce CPQ allows for advanced pricing configurations. For instance, a bottle of “Coke” might be priced at $2 when sold individually. Still, when part of the “Family Feast” bundle (which includes pizzas, sides, and a drink), the effective price of the “Coke” within the bundle might be just $1.50. This differential pricing is possible within the same price book due to the flexibility of Salesforce CPQ.
Do sales reps still need price books if they’re using Salesforce CPQ?
Yes, price books remain a foundational element in Salesforce CPQ. They provide the baseline prices from which all adjustments, discounts, or special pricing are derived. If a product doesnโt have a price book entry, it wonโt appear in the product selection page and canโt be added to a quote. Even a $0 entry can be significant, as it may indicate a complimentary item or a product whose final price will be determined through Salesforce CPQ’s pricing methods.
What should sales reps remember when creating new products in their system?
Domino’s should always ensure that any product they introduce has an associated price book entry. This inclusion is crucial because, without it, the product won’t be available for selection when creating quotes, even if it’s meant to be a promotional item at a zero-dollar value.
Let’s break down how Salesforce CPQ’s pricing methods work, particularly focusing on option pricing and its interaction with other methods, using Domino’s as our example scenario.
What is the use of Bundled Checkbox?
If Domino’s decides that the “Party Combo” is a special promotion and the individual items in it (the options) should not be priced as they usually are when sold separately, they will check the “Bundled” checkbox in Salesforce CPQ for this combo.
This means that even if a “Veggie Pizza” usually costs $18 on its own, within the “Party Combo,” it’s priced at $0.00, as are the other items in the combo.
Discounting in Salesforce CPQ
What is optional Discount in CPQ?
Domino’s offer a Product Bundle, similar to a combo deal, called the “Pizza Fiesta.” This bundle includes a large “Veggie Extravaganza” pizza, “Cheesy Bread,” and a soda.
How to set up Optional Discount in CPQ?
- Product Bundle Creation: Domino’s first establishes a Product Bundle called “Pizza Fiesta” which includes three items:
- “Veggie Extravaganza” pizza
- “Cheesy Bread”
- soda
2. Identifying the Discounted Item: Domino’s decides that the “Cheesy Bread” will be 10% cheaper if ordered as part of the “Pizza Fiesta” bundle, compared to its regular ร la carte price.
3. Setting Up the Discount in Salesforce CPQ: Domino’s admin goes into Salesforce CPQ and navigates to the main “Pizza Fiesta” bundle product in the system. Under the Related tab, they would find all the products that are part of this bundle listed as Product Options.
4. Applying the Optional Discount: The admin locates the “Cheesy Bread” within the list of Product Options for the “Pizza Fiesta” bundle. They then set up a specific pricing indicating that when the “Cheesy Bread” is part of the “Pizza Fiesta” bundle, it triggers a 10% discount on this particular item.
Explain Manual Discount feature in Salesforce CPQ?
Imagine a regular customer places a bulk order for an upcoming party. They ordered 20 “Veggie” pizzas, each originally priced at $10. To reward this bulk purchase, the sales manager has decided to offer a special discount. Instead of the regular price, they want the total cost for the 20 pizzas to be $150, instead of $200.
What is a Non-Discountable Field in Salesforce CPQ?
Domino’s is running a special promotion on “Veggie Delight” pizzas, and these are not eligible for further discounts. The ‘Non-Discountable’ field would be checked for this product in Salesforce CPQ, preventing any additional manual discounts on this item, regardless of the order size.
How to add Unit and Total values to picklist?
We go to the Quote Line object and create a new field of picklist type with the name AdditionalDiscountUnit and the values shown below.
Now we can choose additional values.
Explain Partner and Distributor Discount in Salesforce CPQ?
This method is used when we want to give an additional partner discount to the client. The values for these discounts are displayed in the Distributor Discount and Net Unit Price fields on the Quote Line object. They are calculated by the following formulas:
Partner Price = Customer Price – Partner Discount
Net Price = Partner Price – Distributor Discount
Explain Volume Based Discounting?
Domino’s wants to give an incentive to customers to order more pizzas during a cricket world cup by offering volume-based discounts.
1. Setting up the Discount Schedule:
The Domino’s admin navigates to the “Discount Schedules” tab within Salesforce CPQ and creates a new schedule named “Game Day Special.”
– They then click on “Edit Tiers” and set up the volume tiers as follows:
– 1-10 pizzas: 0% discount
– 11-20 pizzas: 10% discount
– 21-30 pizzas: 15% discount
– 31+ pizzas: 20% discount
– They save this tier structure, which will dictate the discount applied based on the quantity of pizzas ordered.
2. Applying the Discount Schedule to Products:
The admin then goes to the “Products” tab and selects the pizzas eligible for this promotion, like “Cheesy Extravaganza” and “Veggie Feast.”
– In the “Discount Schedule” field on each product, they select the “Game Day Special” schedule they previously created.
3. Placing Orders and Calculating Discounts:
– A customer places an order for 25 “Cheesy Extravaganza” pizzas during the cricket event weekend.
– When the order is entered into the system, the sales rep creates a new quote and adds the 25 pizzas to it.
– Upon clicking “Calculate” in Salesforce CPQ, the system automatically recognizes that the quantity falls into the 21-30 tier, thus applying a 15% discount to the order.
– The sales rep sees the regular price and the discounted price side by side, confirming the volume discount was applied correctly.
4. Checking Discount Details:
Next to the “Cheesy Extravaganza” pizza on the quote, a “$” sign appears to indicate a Discount Schedule is applied.
Clicking on it allows the sales rep (and any other user with the necessary permissions) to view the discount tiers, providing transparency on how the final price was calculated.
What is the structure of Discount Schedule?
The typical structure of a discount schedule involves defining specific tiers. Each tier includes tier name, lower bound, upper bound and Discount (percentage/amount) applicable on that tier.
There are two ways of the Discount Schedule Working: –
- Slab
- Range
1. Slab Discount Schedule:
Domino’s wants to offer a Slab discount during a local festival. They set the following tiers:
– 1-5 pizzas: 0% discount
– 6-10 pizzas: 5% discount
– 11+ pizzas: 10% discount
Using the Slab method, Salesforce CPQ calculates the discount as follows:
The first 5 pizzas get a 0% discount.
The next 5 pizzas (pizzas 6 to 10) receive a 5% discount.
The final 2 pizzas (pizzas 11 and 12) receive a 10% discount.
Each “slab” or tier of pizzas is discounted according to its respective bracket, not the total order quantity.
2. Range Discount Schedule:
Domino’s decides to offer a Range discount during a major sports event. They set the following tiers:
– 1-7 pizzas: 0% discount
– 8-14 pizzas: 7% discount
– 15+ pizzas: 15% discount
Using the Range method, Salesforce CPQ calculates the discount as follows:
– The total 10 pizzas fall within the 8-14 range.
– Therefore, all 10 pizzas receive a 7% discount.
The discount is applied to the total order based on the range in which the total quantity falls.
What are the Steps to Set Up a Discount Schedule?
- Open Salesforce CPQ application from the app launcher.
- Type โDiscount Scheduleโ in the search box of the app launcher.
- Open the Discount Schedule tab and click on โnewโ.
- Set the schedule name,
- Set the type as Range or Slab according to the requirement.
- Select the Discount unit from Percent, Amount and price options as per the requirement.
- For the aggregation scope select Quote or Group as per the requirement.
- Click on โSaveโ.
What are the steps to Create Discount Tiers and Associate the Discount Schedule with Product?
- Open the Discount Schedule in which we want to create Discount Tiers.
- Click on โEdit Tierโ.
- Set the name of first-tier name.
- Set the lower bound limit of the first tier.
- Set the upper bound limit of the first tier.
- Set the discount (percentage/amount).
- Click on + button to add a new tier and repeat the steps from 3 to 6.
- Repeat step 7 as per the requirement of the tiers needed.
9. Click on Save.
10. Open the Product tab from navigation bar and select the product where we want to associate the Discount Schedule.
11. Click on the โEditโ button.
12. For Discount Schedule Field enter the created discount schedule name.
13. Click on โSaveโ button
