July 27, 2022

How is this different from Salesforce CPQ?

How is this different from Salesforce CPQ?

Both CPQ and Deal Desk handle the workflow involved in getting a quote to a customer. But they deal with different aspects of the workflow and can be used as complementary tools. 

They are both necessary to successfully deliver an efficient quote with optimized pricing out to a customer. 

What CPQ does

CPQ deals with accurately computing the price for a quote.

Given the product requirements, the number of units, etc., a CPQ system serves as a type of pricing calculator to replace the bespoke pricing spreadsheets reps use to compute the correct number for a quote. 

What CPQ can’t do 

A CPQ system can't tell you the appropriate level of discounting that should be used to win a deal or whether discounting should be applied at all. 

It can't tell you the optimum price a customer should be quoted or any of the data necessary to determine what that price should be. 

CPQ systems are basically calculators. They can accurately compute the correct price for a quote, but can't handle any of the workflow involved with discount management or the approval process itself. 

How Deal Desk fills that gap

The DIY on top of your CRM option is certainly possible, and some companies have chosen to go that path. 

But if you decide to go that path, it's important to understand what you're actually signing up for. There is no off-the-shelf, plug-and-play Salesforce solution for something like this. 

This is equivalent to building an entirely new software application for your business. And this is the classic build-versus-buy debate that faces most businesses once they've recognized a need for a tool. 

The second option is to use a tool like Deal Desk that accomplishes everything I've described previously without any of the headache, frustration, time suck, or annoyances that come with trying to build your own internal tool. 

Regardless of whether you decide to go with Deal Desk, DIY, or some other option, I want to provide you with an outline of what needs to be implemented for a successful deal desk execution. 

Step 1 - Define your discount policy — but also how to enforce it with sales! 

The first phase is to define your discount management and deal exception policy, and also a way to enforce it.

You could define the most sophisticated, elaborate, robust discount policy and deal exception system, but without a clear way of enforcing and governing that system, it is toothless. 

A lot of teams start with the first step, defining a policy and discount management process, but they don't design clear guardrails and workflows to actually enforce whatever they've developed. 

So something is better than nothing, but it's important, once you've designed your system for managing discounts and deal exceptions, to make sure your sales team actually adheres to it.

Let's start with the first step. How do you define a discount and deal exception policy? 

Deal exception policies have been covered briefly previously, but this must include things like exceptions to standard billing or payment terms, or any changes to the standard contract language.

The same principles apply for discount management. But this article will focus on the discount approval process and workflow. 

Whatever you decide, it's the same set of steps. You define your policy, engage relevant stakeholders, and develop a system for implementing and executing it. 

On the discount management side, here's how I would approach the challenge. 

First, you have to define your discount policy: Who gets to approve what discount and what amounts? 

For many teams, this might be as simple as saying, for this role, this is what they're allowed to discount. 

So a pretty standard table might look something like this: An account executive can discount up to 10% at their discretion, a sales manager can discount up to 20% at their discretion, and anything 20% or more goes to a deal desk manager or finance for approval.

It might be as simple as that, but there are some really important additional considerations in defining a discount management policy. 

You might define a more stringent set of policies for reps who are currently ramping up, those most likely to discount excessively to win deals. 

They haven't built a lot of internal confidence in their ability to negotiate and the product is still relatively new for them. 

So discounting policies might be altered for those currently in their first two quarters of ramping up. 

For example, you might say a ramped rep can discount up to 10%, but if you're currently ramping up, either every discount has to be sent to your manager, or you're only able to discount up to 5%. 

Similarly, if reps have missed quota a couple of quarters in a row, you might want to define a more stringent discount policy for them. You want to keep a closer eye on how they're managing deals and provide more opportunities for coaching and sales enablement, as they haven't yet demonstrated an ability to consistently hit quota. 

So you might create deal policies specifically for where those sales reps are in their journey.

Another example might be your all-star reps who consistently meet or exceed quota. Those you want to give more leeway and lead to. These may be reps who strategically use discounting to win deals or who don't frequently use discounting. 

In general, they're your most tenured reps and highest quota achievers. You want to allow them more flexibility because they've earned your trust in their ability to manage negotiations. 

So you might actually extend to these AEs a more flexible discount policy, a higher discount threshold up to 15%, for example, or they're permitted to approve more discounts on their own without external approval. 

You certainly can create one global policy for your entire sales team, but creating one that is more bespoke to the strengths and weaknesses of each member of your sales team is going to be easier to implement, easier to explain, and give you better governance over your sales team.

When defining discount policy for sales managers, again, you might default to one discount approval threshold for every sales manager. 

But you also might create different levels of authority, for example, giving each sales manager discretion on discounting policy for their individual team. 

Or given the tenure or seniority level of a sales leader, you might give them more or less governance and control over discounting for their team or organization. 

There's obviously a tradeoff in the amount of autonomy and flexibility you give. In other words, I'll decentralize your decision-making around discounting. 

As an executive, you're likely only brought in on high-profile deals, either large deals or large discount deals, and don't have the bandwidth to evaluate every single discount or every single deal individually. 

The more power you give to your troops, the more they're going to feel empowered to make decisions on their own and the closer they are to the customer. On the other hand, the more flexibility and control you delegate, the less your ability to course correct, negotiate, and coach your sales team.

In short, the level of sophistication of your discount policy is really up to you, your comfort level, the skill set of your sales team, the maturity of your sales team, etc. 

If you're tempted to implement a policy using spreadsheets and emails, an obvious deterrent is that the more complicated my discount policy is, the harder it will be to enforce.

With tools like Deal Desk, we can handle all the enforcement and management for you. 

So you shouldn't just think that a more detailed discount policy would be better, but I just don't have the time to define it or implement it. 

So that's phase one, defining your discount policy. 

Phase two is, once you have defined it, how do you implement it? 

There are a few different components here. One is from a tooling and systems standpoint. 

Your sales team is likely creating deals or opportunities in Salesforce or HubSpot. Unless you have a way of forcing a sales rep to submit a ticket for a discount approval from their sales manager or appropriate approver, they're likely not going to self-initiate.

And you don't frankly want to build a system in which you're hoping that sales team members are self-policing. From a tooling standpoint, one option, as previously discussed, is to create an application that sits on top of Salesforce, that automatically detects the level of a discount and who needs to get approved. Which is one option, with its strengths and weaknesses. 

Another option is hoping that your sales team and sales managers are good at self-enforcing or self-policing. 

Deal Desk creates a solution that ingests the exact discount policy parameters you need and automatically enforces it with our integration with Salesforce. 

So the Deal Desk is implemented primarily in Slack, which is where most sales teams live. 

If they try to advance an opportunity or deal that exceeds their ability to discount, the appropriate individual on your sales team gets sent a Slack message and an email. 

The sales rep can't actually advance an opportunity until the appropriate person has reviewed a deal and made a good decision on it.

It's important that you build automated systems and processes for managing this kind of approval. Anything that relies on the good faith of your sales team or any manual efforts is doomed to fail from the start. 

Often, when a deal has reached the stage of price negotiation, a sales rep has invested a lot of time and energy into a given prospect. Discounting seems like a silly final thing that needs to happen in order to get a deal closed. 

But that process needs careful consideration because of how motivated the sales rep is to discount to close out a deal and advance the deal forward. 

So whatever solution you proceed with, you need a solution that automatically routes discount approvals to the appropriate person without human intervention. 

Step 2 — Define your Gross Margin policy. Which discounts should not be approved?

The next stage is how the discounts are approved. Whatever method you develop for routing approvals and managing that workflow, ultimately someone needs to make a decision whether a deal deserves a discount or not. 

Even in the best of organizations where systems have been developed either in Salesforce or offline in spreadsheets and text messages, one glaring question is under what conditions should a deal actually be approved?

Certainly, a sales manager needs to work with a sales rep to ensure that benefits have been properly communicated to a customer, that they're selling to value, that they're not allowing negotiation pressure to influence their decision to discount. 

But at the end of the day, you need to determine what is actually a fair price for what you're selling. 

Another way of asking this question is, what price would be too low, that would force you to walk away from a deal? 

If your goal ultimately is to generate as much ARR as possible, to maximize the quota attainment of your entire sales team, your average sales price is an important component to achieving that. 

It's not to say that discounting is never appropriate or necessary. In fact, there are times when a discount needs to be increased to win a deal, and when that is the right call. 

But it's important to set the actual decision-making criteria for when a discount ought to be approved or not approved.

Most organizations that have gotten even to the stage of implementing the deal desk find that the vast majority of discounts are getting approved anyway. 

If you ask organizations or colleagues at companies who have implemented a deal desk function, what percentage of their deals ultimately were declined or turned down, the answer is almost always that they rarely actually decline a discount from the sales team. 

There's a strong desire, of course, to win as many deals as possible on the belief that, well, if I lose a deal, I make $0, but if I agree to a discount, at least I've made something. 

This is often caused by a lack of belief in the strength of your pipeline. If you have a healthy and robust pipeline, which really should be the job of marketing and your SDR and BDR team, you should never feel pressured to award a discount you think is unfair, motivated only by scarcity. 

Your product delivers tremendous value to your customers, and you need to be compensated for the value you're generating for the people you serve.

If you feel pressured to discount because you believe winning the deal at any cost is better than losing a deal, you need to take a step back and really evaluate the health of your pipeline. 

Are you and your sales team able to consistently produce pipeline? Does every deal feel like a unique delicate flower that you cannot lose, or does it feel like one of many? 

Price has an outsized impact on your ability to hit quota. 

It's not to say that you are always looking to maximize the price you win on a deal. But you do want to maximize the relationship between win rate and sales price. 

As an example, you can imagine quadrupling the price of your products and seeing your win rate plummet to zero. 

Alternatively, you could drop your prices down to 1% of whatever your current price is and win the vast majority of your deals. 

In either extreme, you're not maximizing revenue. 

But there is a sweet spot between those two extremes that maximizes the revenue your team is generating. Putting it more simply, there is a correct percentage of deals that you want to win. Not 100%, not 0%, but somewhere in the middle.

If you remember your economics days, this is the principle of price elasticity, which measures the maximum price that any prospect is actually willing to pay. 

In order to really understand the appropriate discount, you have to take a long-term perspective on your sales team. Over the long run, optimizing the discount you generate can give a tremendous lift to your team's ability to generate revenue. 

On any given deal, there is a correct price or set of prices you ought to offer, nothing more and nothing less. 

The fastest way of figuring out what the winning discount percentage or winning prices on a given deal is to look at benchmark data. What have similar deals gone for in the past? 

And by similar, I mean, what have similar customers, similar revenue size, similar industry, similar segment paid for similar products in the past? I'm not talking about external benchmark data, I'm talking about your own customer data.

On any given deal, do you know what comparable customers have paid for comparable things in the past? That creates a benchmark, direct evidence of the willingness of that market to pay for your product. 

An ideal discount policy incorporates this data into the decision-making process. When a sales manager, sales executive, or financing or deal desk is presented with a discount approval, how are they to determine whether a discount ought to be approved or not? 

One important factor is what similar deals have gone for in the past. 

If a rep is requesting a greater discount than other customers have paid for the same product in the past, that discount should be declined. 

And similarly, if a customer is requesting a discount where similar customers have paid significantly less, then that discount should be approved. 

Of course, this is one consideration in deciding whether a discount should be approved or not. Where the rep is on their quota attainment is another factor.

Do they still need to hit quota, or is there plenty of time left in the quarter? 

How often has this rep discounted in the past? 

Does this discounting represent poor sales negotiation, or is it part of the regular strategy? 

How often is this rep discounting relative to their colleagues’ sales? 

Is this on the low end of where most sales reps have to discount or on the high end?

Where is this rep in their own tenure? Are they a new rep that is just ramping up who likely requires additional coaching and training, or is this a wily vet who regularly uses discounting as a strategy but consistently hits or exceeds quota? 

An ideal deal desk solution, pulling this all together, empowers the approver with all relevant data to make an informed decision. 

The decision ultimately always rests with the manager, the director, the VP, finance, or deal desk. But empowering that person with all the appropriate intelligence and data to make an informed decision is critical. 

Likely, that person does not have the time to go into their CRM, build a report, export to sales, export to a spreadsheet, run a bunch of pivot tables and vlookups, generate a recommendation, and return it to the sales rep.

An ideal deal desk solution provides the appropriate approver with all the analytics and data needed for that person to make an informed decision. 

Without all that data and analytics at your fingertips, it's really hard to make an intelligent decision. 

So most sales leaders and approvers tend to rubber stamp this kind of approval with the desire to keep our sales rep moving. 

It's a huge mistake and leads to millions of dollars of excessive discounting per business. 

The reality is that most sales teams never see that lost revenue, the unnecessary discount they awarded. 

When was the last time a customer came to you and said, "Hey, I think you guys actually offered too much of a discount on this deal. I'd like to send you back some money?" It never happens and never will happen. 

The excessive discounting your sales team is accumulating goes unseen because it doesn't show up as a line item anywhere.

Having relevant analytics is critical to a high-functioning, high-performing deal desk that drives front-end performance. 

Step 3 — Create reporting and analytics. You need a way of measuring performance.

The last consideration is to generate reporting. 

As a sales leader, you're likely not in the weeds of every single opportunity and deal that occurs. 

Part of the desire to develop a deal desk is to gain insight into what is occurring with your sales team. 

The first steps are to implement a process, implement the execution of that process, and provide deep analytics to everyone along the discount approval chain. 

But you also need to know what is going on with the sales team. 

How much discounting is occurring on a day-to-day, week-to-week, and quarter-to-quarter basis? 

How is discounting trending by rep or sales manager month to month and quarter to quarter? 

What impact is discounting having on win rate, average deal size, and average sales price? 

Now, certainly, one option is to have your sales ops manager build this report for you.

But this type of analysis is more than just building reports out of Salesforce; it requires a model. You need to be able to pull in all this historical data and run the data analytics and statistical modeling on top of it. 

As an example, in order to understand quarter to quarter trends, you need to build a data model that pulls in data from Salesforce and analyzes and processes this data on whatever level you want. 

A spreadsheet or report that your sales ops person can build will likely not have all the analytics and visibility you need. 

An ideal deal desk solution pulls in all of the relevant analytics and statistical modeling you need to deliver insights. 

This reporting needs to be accessible not only to yourself on the executive level, but to every individual within your organization you need to send this information to, whether your finance team, other sales leaders, the C-suite, etc. 

All the above are components of a successful deal desk implementation. 

Obviously, all of the above requires expertise, experience, and a lot of time. 

Deal Desk offers an out-of-the-box solution for all these considerations. 

A valuable next step in exploring if Deal Desk can actually help solve your problem is for us to build a discount audit report, which is a sample of the type of analytics and reporting we can deliver to you on a continuous basis.