Top 5 Discount Types in CPQ Software to Optimize Sales & Boost Margins

Offering discounts is a powerful way to attract customers, close deals, and foster lasting relationships.

However, striking the right balance between profitability and fair pricing involves more than just slashing prices. It’s about offering the right discount at the right time, in the right way.

This is where CPQ software steps in, enabling sales teams to automatically customize discounts based on customer needs, purchase size, and company pricing strategies.

In fact, businesses using CPQ software see a 17% higher lead conversion rate⁽ⁱ⁾.

However, many businesses struggle with balancing customized discounts while avoiding pricing errors and approval delays that can slow down the sales cycle or erode margins.

Salesforce CPQ solves this by streamlining quote generation and automating discount approvals, ensuring every deal is optimized and compliant with company policies. From volume-based discounts to bundling incentives, Salesforce CPQ’s discounting tools reduce manual intervention and enhance precision.

In this article, we’ll explore the various types of discounts available in CPQ systems and how Salesforce CPQ can help you optimize pricing and drive sales.

Top 5 Types of Discounts Available in CPQ Software

CPQ software makes managing discounts easier, ensuring accurate pricing and consistent deals. It lets businesses offer tailored discounts based on customer needs or order size, boosting sales efficiency. Knowing how CPQ handles discounts helps protect profit margins while staying competitive and satisfying customers.

Here are the top 5 types of discounts available in CPQ software.

1. Percentage-Based Discounts

Percentage-based discounts simplify the pricing structure by offering a fixed percentage off the list price, making them easy to calculate and apply. Widely understood, they help sales teams and customers quickly grasp the savings, promoting smoother transactions and better pricing transparency. For example, a 10% discount on a $100 product brings the price down to just $90.

Here’s why you should use it.

• Easy to calculate and understand, making it a go-to for sales teams.
• Works across a wide range of products and industries.
• Can be applied in various scenarios for maximum impact.

Things to consider when using this.

• While percentage-based discounts can be effective, overusing them may result in a noticeable reduction in revenue. It’s important to balance savings with profitability.
• To avoid margin erosion, it’s crucial to carefully manage the frequency and scope of these discounts, ensuring they align with business goals and don’t undermine long-term profitability.

Use Case: A sales team can offer a 10% discount to attract new customers in response to competitive pricing or as part of a limited-time promotion, balancing customer acquisition with profitability.

2. Volume Discounts

Volume discounts incentivize customers to purchase in larger quantities by offering progressively higher savings with increased purchases. This pricing strategy is highly effective in industries such as manufacturing and wholesale, where bulk buying is common, helping to strengthen customer loyalty and boost order sizes.

For instance:

• 1-10 units: 5% discount
• 11-50 units: 10% discount
• 51+ units: 15% discount

Here’s why you should use it.

• Boosts sales by incentivizing larger purchases.
• Strengthens customer loyalty and fosters long-term relationships.
• Helps move higher-margin products or clear out excess inventory.

Things to consider when using this.

• Volume discounts work best when customers are making larger purchases. They might not be as effective for smaller transactions.
• It’s important to set discounts in a way that doesn’t impact your profit margins too much.

Use Case: A customer purchasing more than fifty software licenses could unlock a 15% discount.

3. Tiered Discounts

Tiered discounts enhance pricing flexibility by rewarding customers based on their total spending or order volume. As customers progress through different spending thresholds, they unlock greater discounts, motivating them to purchase more while feeling valued for their loyalty.

For example:

• $0 – $500: 5% discount
• $500 – $1,000: 10% discount
• $1,000+: 15% discount

Here’s why you should use it.

• Motivates customers to make larger purchases to unlock bigger savings.
• Allows for tailored pricing strategies that suit different customer needs.
• Helps businesses offer targeted discounts while safeguarding profit margins.

Things to consider when using this.

• Clear communication is crucial, customers may find the structure confusing without proper explanation.
• Requires careful monitoring to ensure profitability is maintained as discounts increase.

Use Case: A B2B SaaS provider can leverage tiered discounts to encourage customers to increase contract value, offering greater savings as the purchase grows.

4. Bundle Discounts

Bundle discounts create value by encouraging customers to buy multiple related products together at a discounted rate. Bundle discounts increase order value and enhance perceived savings. This strategy is a powerful way to drive cross-selling and upselling.

Here’s why you should use it.

• Drives higher sales by encouraging customers to add more products to their orders.
• Increases the average order value (AOV).
• Helps move slow-moving inventory by pairing them with high-demand items.

Things to consider when using this.

• Customers may feel pressured to purchase more than they need, leading to dissatisfaction.
• Reduces profit margins on bundled items, potentially affecting profitability.

Use Case: An electronics retailer could offer a bundle deal, like a laptop with a laptop bag, to increase total sales while providing value to the customer.

5. Customer-Specific Discounts

Customer-specific discounts are personalized savings designed for individual clients based on their unique relationship with the business. These discounts are often negotiated and tailored to suit the customer’s needs, providing a more customized and flexible approach to pricing that strengthens business-client relationships.

For example:

• A 15% discount for a repeat customer placing large, regular orders.
• A 20% discount for a new customer on their first purchase.

Here’s why you should use it.

• Builds stronger customer relationships through personalized offers.
• Helps close deals with key clients or new customers.
• Offers flexibility to meet individual customer needs and expectations.

Things to consider when using this.

• Managing these discounts can be tricky, leading to inconsistencies if not handled well.
• There’s a risk of alienating other customers who may perceive the discounts as favoritism.

Use Case: A custom software provider might offer a discount to a customer committing to a long-term contract or placing a large order, ensuring mutual benefits.

In addition to these discounts, you can also leverage event-based discounts to drive more engagement. These are as follows:

Promotional Discounts

Promotional discounts are targeted, limited-time offers designed to drive sales during specific promotional periods or seasonal events. These discounts are often used to increase brand visibility, clear inventory, or boost customer engagement, creating a sense of urgency that encourages faster purchases.

Here’s why you should use it.

• Drives revenue during high-demand periods or key sales events.
• Creates urgency, motivating customers to act quickly.
• Boosts customer engagement and raises brand visibility.

Things to consider when using this.

• Overuse of promotional discounts may impact the perceived value of your brand.
• These short-term offers might not build long-term customer loyalty on their own.

Use Case: An online retailer could offer a 25% discount sitewide on Black Friday to drive sales and attract both new and returning customers.

Loyalty Discounts

Loyalty discounts foster long-term customer relationships by offering exclusive savings based on the customer’s history and commitment. These discounts often grow in value as the customer continues to make purchases, providing an incentive for ongoing business and strengthening customer retention.

For example:

• 5% off for customers who’ve been loyal for over a year.
• 10% off after 10 purchases.

Here’s why you should use it.

• Strengthens customer loyalty and retention.
• Increases customer lifetime value.
• Sets your brand apart in competitive markets by showing appreciation for long-term customers.

Things to consider when using this.

• Offering discounts too frequently or too heavily can make customers more focused on getting a deal, which might affect their perception of regular pricing.
• Be mindful of how much discounting you’re doing. Offering too many discounts could impact your profit margins, so it’s important to find the right balance.

Use Case: A subscription service offers a special discount for customers renewing their subscription annually, rewarding their continued loyalty.

Seasonal Discounts

Seasonal discounts leverage peak shopping periods or specific times of the year, such as holidays or off-peak seasons, to drive sales. By offering attractive deals, businesses can clear seasonal inventory, capitalize on higher demand, and attract more customers during slow periods.

For example:

• A clothing retailer offers 30% off winter apparel at the season’s end.
• A hotel offers discounted room rates during the off-peak season.

Here’s why you should use it.

• Clears out seasonal inventory before the next cycle.
• Boosts traffic during slower business periods.
• Captures customers looking for seasonal bargains.

Things to consider when using this.

• Be mindful of when you offer seasonal discounts to avoid missing out on peak sales periods.
• Using discounts too often may make them feel like a regular sale, which could affect how customers view your brand.

Use Case: A ski gear store offers 25% off snowboards at the end of winter to clear inventory before the new season’s models arrive.

Early Payment Discounts

Early payment discounts encourage customers to settle invoices sooner by offering savings on early payments. This helps businesses maintain healthy cash flow, reduces the risk of late payments, and can be a win-win for both parties, especially in B2B transactions where timely payments are critical. For example, a 2% discount for payments made within 10 days of the invoice date.

Here’s why you should use it.

• Boosts cash flow by encouraging prompt payments.
• Reduces the likelihood of overdue accounts.
• Strengthens customer loyalty by rewarding timely transactions.

Things to consider when using this.

• This may not be feasible for businesses with large clients or complex payment structures.
• Overusing this discount could impact cash flow, especially if offered too frequently or at high rates.

Use Case: A wholesaler might offer a 3% discount to clients who pay within 15 days, ensuring a steady cash flow and rewarding timely payments.

Streamline Your Discounting Process With Salesforce CPQ

Salesforce CPQ ensures accurate pricing for any product configuration, enabling sales reps to generate quotes quickly and accurately. It factors in optional features, customizations, quantities, and discounts, streamlining the quoting process.

With a user-friendly interface accessible on any device, Salesforce CPQ seamlessly integrates with Sales Cloud, equipping your sales team with real-time insights to make informed decisions.

Next, let’s explore the different discounting tools available within Salesforce CPQ.

• Optional Discounts: These discounts are typically tied to bundles. They allow businesses to offer discounted pricing on specific products when customers purchase them as part of a bundle. This strategy encourages customers to buy more items in a set, increasing overall sales while offering more value on select products.

• Volume-Based Discounts: This discount strategy is based on the quantity purchased. As the customer buys more units of a particular product, they receive an automatic discount. This discount strategy is designed to incentivize larger orders, with the discount increasing as the quantity rises, making it ideal for bulk purchases.

• Manual Discounts: Sales managers may sometimes need to apply discounts manually, and Salesforce CPQ provides a Manual Discount tool to simplify this process. The manual discount is calculated based on the product’s Regular Price, and the discount is reflected as the Customer Price. If you wish to block manual discounts for a particular product, you can select the Non Discountable field on that product. Additionally, Salesforce CPQ allows you to apply extra discounts by entering a percentage or amount in the Additional Discount field in the quote lines, giving you more flexibility in how discounts are applied.

• Partner and Distributor Discount: Leveraging Partner and Distributor Discounts, these incentives apply when external parties are involved in a deal. By offering targeted discounts to channel partners, businesses can incentivize collaboration and expand their reach. The Non-Partner Discountable checkbox ensures that certain products remain ineligible for these discounts, protecting pricing strategies.

Conclusion

Discounts are like the secret sauce in your CPQ recipe – helping you close deals faster and attract new customers.

Whether you’re offering percentage cuts, rewarding loyalty, or bundling products for extra value, CPQ systems make sure those discounts hit the mark every time.

To make them truly work their magic, keep these best practices in mind:

• Offer discounts that drive the right results, without cutting into your profits.
• Keep an eye on your bottom line – discounts should boost, not drain, your profits.
• Let CPQ insights guide you on when and where discounts will make the biggest impact.

When done right, discounts do more than just reduce prices, they drive customer loyalty, boost your competitive edge, and power your growth in the long run.

Statistics References:

⁽ⁱ⁾ CloudSense