A Practical Guide to 9 CPQ Pricing Models for Sales Success

What motivates shoppers to hit the ‘buy’ button?

Is it the brand, product quality, design, or price?

For 60% of global online shoppers, pricing stands out as the top factor influencing their purchasing decisions⁽ⁱ⁾.

It’s clear that price has a significant impact on consumer choices and drives profitability.

In fact, 54% of shoppers will go back and purchase products left in their carts if those products are offered at a lower price⁽ⁱⁱ⁾.

For businesses with diverse product offerings, determining the right price is often challenging. With only a brief window, sometimes just 1 to 3 seconds⁽ⁱⁱⁱ⁾, to capture a customer’s attention, dynamic pricing can be complex. Add to that the demand for personalized products, and real-time price adjustments become even more complicated.

This is where CPQ (Configure, Price, Quote) software comes into play.

Designed to automate and streamline the pricing process, CPQ tools empower sales teams to quickly generate accurate quotes while ensuring competitive pricing, profitability, and consistency across the board. Beyond just automating quotes, CPQ systems can also accommodate different pricing structures, whether it’s volume-based, subscription-based, or dynamic pricing.

In this article, we’ll explore various CPQ pricing models and how they can help you streamline your sales process, optimize pricing strategies, and boost your business growth.

9 CPQ Pricing Models Every Business Should Know

By utilizing the right pricing strategies, businesses can offer tailored quotes that meet customer needs while maintaining profitability.

Here are the top 9 types of CPQ pricing models that every business should know about.

1. List Price Pricing

List price pricing is a traditional approach where a fixed, publicly available price is assigned to products or services. It’s a simple method where the buyer pays the catalog price unless a discount is offered. This approach is commonly used for standard, off-the-shelf goods or services.

Benefits:

• Easy to implement and manage.
• Ideal for straightforward products or services.
• Provides transparency for customers.

Things to Remember:

• Limited flexibility in adjusting prices.
• May not reflect changes in customer preferences or market conditions.

2. Discounted Pricing

Discounted pricing is a widely-used strategy in CPQ, where the list price is adjusted with discounts based on factors like promotions, bulk purchases, or customer loyalty. Discounts can be applied in different ways, such as a flat amount or a percentage.

Benefits:

• Effective for motivating customers to buy.
• Sales teams can adapt pricing easily.
• Promotes higher sales volumes.

Things to Remember:

• Over-reliance on discounts may impact profit margins.
• Requires careful monitoring to maintain profitability.

3. Tiered Pricing

Tiered pricing is a strategy where the cost per unit decreases as the quantity purchased increases. This approach is widely used in industries like bulk product sales and software licensing, offering a structured pricing model that incentivizes larger purchases. The more units a customer buys, the lower the price per unit becomes, making it appealing for customers looking to save on higher volume orders.

For instance:

• 1-100 units: $500 each
• 101-500 units: $1,500 each
• 501+ units: $4,000 each

Benefits:

• Motivates customers to make larger purchases by offering reduced prices at higher volumes.
• Easy to configure in CPQ systems using volume-based rules.
• Helps boost overall sales and revenue.

Things to Remember:

• May not be appropriate for all types of products.
• If the tiering structure is unclear, it can be confusing for customers.

4. Dynamic Pricing

Dynamic pricing refers to adjusting prices based on factors like competitor pricing, customer behavior, or market demand. This strategy is widely used in industries such as e-commerce, travel, and hospitality. With the help of CPQ systems integrated with real-time data sources, businesses can automatically adjust prices to stay competitive and respond to market changes.

Benefits:

• Provides flexibility in pricing, allowing businesses to stay competitive in fluctuating markets.
• Helps maintain competitive pricing while increasing profit margins.

Things to Remember:

• Requires continuous monitoring and integration with real-time data.
• Customers may perceive frequent price changes as unfair if not communicated effectively.

5. Cost-Plus Pricing

Cost-Plus Pricing involves setting the price of a product or service by adding a fixed percentage or amount (markup) to its production cost. This method is widely used in industries like manufacturing and construction, where production or operational costs are high. It offers a straightforward way to ensure profitability by covering costs and adding a profit margin.

For instance: If it costs $100 to produce a product and the markup is set at 30%, the selling price would be $130.

Benefits:

• Easy to calculate, ensuring businesses cover their costs and make a profit.
• Provides transparency for customers, as they can see how the price is determined.

Things to Remember:

• It doesn’t always account for market conditions or customer demand.
• May not be adaptable for highly competitive markets, where pricing needs more flexibility.

6. Subscription-Based Pricing

Subscription-based pricing is becoming increasingly popular in industries like software, SaaS (Software as a Service), and digital media. Customers pay a recurring fee for access to a product or service over a set period. In this model, a CPQ (Configure, Price, Quote) system helps manage subscription terms, renewals, and various pricing tiers seamlessly.

Benefits:

• Offers businesses predictable revenue streams.
• Allows flexible pricing options, such as monthly, quarterly, or yearly plans.
• Works well for services that provide continuous updates or customer support.

Things to Remember:

• Requires careful management of renewals and cancellations to avoid revenue loss.

7. Bundled Pricing

Bundled pricing combines multiple products or services into a single offering at a set price, which is usually lower than if the items were bought separately. This approach is commonly used for product kits or service packages, such as “buy one, get one free” deals. It simplifies purchasing decisions and provides more value to customers.

Benefits:

• Helps increase the average order value (AOV) by encouraging customers to buy more.
• Adds value to the customer’s purchase, making it easier for them to decide.

Things to Remember:

• May reduce profit margins on individual items in the bundle.
• Some customers may feel pressured to buy items they don’t necessarily need.

8. Freemium Pricing

The freemium pricing model offers a basic version of a product or service at no cost, but charges users for access to more advanced features or functionalities. This strategy is commonly used by software and apps, enabling users to explore the product for free before prompting them to upgrade for additional capabilities. This allows potential customers to evaluate the value of the offering before committing to a paid plan.

Benefits:

• Draws in a broad audience with the free version.
• Allows users to experience the product’s value before any financial commitment.
• Creates opportunities to convert users into paying customers by offering premium features.

Things to Remember:

• There’s a risk of generating limited revenue from users who stick to the free version.
• It requires a compelling value proposition to convince free users to upgrade to paid features.

9. Geographical Pricing

Geographic pricing involves setting different prices based on a customer’s location. It is widely used by multinational corporations and industries affected by varying regional demands, competition, and shipping costs. This pricing strategy takes into account multiple factors, such as shipping fees, local taxes, and customs duties, to provide a tailored price for each market. CPQ (Configure, Price, Quote) software can help streamline this process by adjusting prices based on these regional considerations.

Benefits:

• Takes into account local market dynamics and cost factors.
• Ensures competitive pricing in different geographic regions.
• Enables businesses to maintain control over profitability across various territories.

Things to Remember:

• Managing and tracking pricing across multiple regions can be complex, especially for global companies.
• Customers in higher-priced areas may perceive the pricing as unfair.

Simplify Complex Pricing Structures Using Salesforce CPQ

Creating quotes for your customers involves more than selecting the right products; it’s equally important to ensure accurate pricing. In cases where you’ve negotiated special pricing for a specific customer, sales reps often have to remember to apply those exceptions manually.

Salesforce CPQ offers administrators a variety of tools to automatically apply correct pricing when products are added to a quote. The outdated practice of relying on printed pricing tables or spreadsheets shared by colleagues is no longer necessary.

With Salesforce CPQ, administrators gain access to tools that ensure products are automatically priced correctly when included in a quote. Advanced pricing adjustments, such as replacing the standard price book price, can be applied to help accelerate deal closures. For example, a product’s price can vary depending on whether it is sold individually or as part of a bundle.

Here are the pricing tools available in Salesforce CPQ:

• Block Pricing: This applies a flat price to a range of quantities rather than calculating based on the unit price. For example, a small box of 10 pens might be priced at $5, while a medium box containing 25 pens is priced at $10.

• Percent of Total (POT) Pricing: This method calculates a product’s price as a percentage of the total price of other products in the quote. For instance, the tip on a restaurant bill can be calculated as a percentage of the total meal cost.

• Option Pricing Override: This allows a product’s price to be changed when sold as part of a bundle. For example, a side dish that costs $5 when purchased with a combo meal might cost $8 if bought separately.

• Cost Plus Markup Pricing: In this approach, a markup is added to the base price from the price book. For example, a pair of sneakers that costs $150 to a distributor may be marked up to $200, allowing the seller to earn a profit.

• Contracted Pricing: This feature allows for specific prices to be set for particular customers. For example, long-term customers might pay $5 for a notepad, while new customers are charged $7 to incentivize loyalty.

Conclusion

CPQ pricing offers tailored solutions for different industries, business models, and customer needs. Whether it’s list pricing, tiered discounts, subscription models, or dynamic pricing, a well-implemented CPQ system empowers businesses to manage these strategies efficiently.

By understanding and leveraging these pricing options, businesses can optimize their pricing strategies, drive sales, and elevate the customer experience. Also, with the right CPQ system in place, sales teams can deliver accurate, competitive quotes, boosting profitability and fostering strong, long-term customer relationships.

Statistics References:

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