Salesforce CPQ provides the functionality to apply different types of pricing discounts on products. These pricing discounts give more flexibility to business units to define their pricing and discounting of products. Pricing waterfall is a multi-step pricing process that derives the final net price of a product from its List Price. List Price of a product is a price defined on the quote’s associated Price Book. 

In short, the main purpose of pricing waterfall is to extract the net price of a product.

To elaborate this let’s take an example: Kevin is a sales representative at XYZTech. He deals with different types of customers every day, Pricing and the discounting of products vary from customer to customer. To make tasks easier, Kevin’s CPQ configurations follow the basic structure of pricing waterfall as shown below:

Before we move to the discount Part, There are some significant topics we need to understand.

 List Price: List price is the price of a product defined in the price book. Assume that the List Price of XYZTech’s particular product is $160. The same price is defined in the price book.

Contracted Price: Contracted Price is useful when the sales rep has negotiated a price of the product and wants to continue using that price after making a contract. For example, Kevin made a contract of a 5% discount on the list price of a product. So for Kevin, the Contracted price will get applied. Which is $152.

Special Price: Special price is calculated by Contracted Price( If Provided ). Otherwise takes its value from the list price. In the case of XYZTech, the special price is going to be the same as the contract price.

Prorated price: Once we get a Special Price from the Pricing Waterfall model, This Special price gets multiplied by a Prorate Multiplier and provides the value of prorated price.

Regular Price: Regular price of a product is inherited by prorated price (if provided). Otherwise, this price is taken from the List Price of the Product.

Discounting in Salesforce CPQ:

Discount plays a vital role in pricing waterfall. Prices get modified after applying a discount on products. Now the question arises, what kind of discount is going to be applied to a specific product. Here comes the concept of discount schedules and their types.

Discount Schedules:

Salesforce CPQ provides several ways to discount prices for customers. The Discount Schedule provides discounts  based on Tiers, for instance : 

John is a customer of XYZTech and he wants to purchase a subscription product. So he asks Kevin for a discount as it is his first time. Kevin checks for all the discounts available for subscription products and according to the discount schedule 

• 10% Discount will be provided to John, if he purchases (takes subscription)  product for a period of time like 3-6 months.
• 20% Discount will be provided to John, if he purchases (takes subscription) product for a period of time like 7-12 months.

The lower bound(in months)	Upper bound(in months)	Discount Percentage
3	6	10%
7	12	20%

Here, the Time period(tier) is used to determine the discount given for the product. This kind of discount schedule where discounts are based on subscription product terms is known as Term Discount Schedules.

Volume Discount Schedules:

Volume Discount Schedules are measured based on the number of products. For instance: XYZTech provides discounts every year on Christmas. According to this year’s discount policy.

• 20% Discount will be provided to customers  on the purchase of 1-3 products.
• 40% Discount will be provided to customers on purchase of 4-6 products.

Min Quantity	Max Quantity	Discount Percent
1	3	20%
4	6	40%

• After applying any of these discounts explained above, The resultant price will be known as Customer Price.

Partner and Distributor Discount: 

Another type of discount, given to the partners and distributor separate from the discount given to the customers. This discount field can be edited manually as per the business requirements. 

To have a better understanding, picture this scenario: XYZTech is a firm running in a partnership, Josh is one of the partners who help the company to sell the products. Moreover, he is really interested in buying a product for himself. So he demands a discount as he is the partner of XYZTech. In such a case XYZTech provides a 20% discount to Josh on the purchase of a particular product.

This Discount is known as Partner Discount. And the price after applying a partner discount on the customer price is known as Partner Price.

Similarly, the Discount provided to the Distributor is Known as the Distributor Discount Which is different from the discount provided to the customers.

Segments Discount : 

In Salesforce CPQ, Segments can be defined as the unit of time (quarter, month, year ). These segments have quantity and pricing independent of other segments. If a fixed-price subscription product (like amazon or Netflix) wants to provide a discount for a year and not for the following years, can apply a segment discount for 1st year.

For more clarity let’s take another example: XYZTech provides a 10% discount to customers in the first year of their purchase. After a year the price will not include segment discount.

Price Name	Year 1	Year 2	Year 3
Quantity	1.0	1.0	1.0
Price	5000	5000	5000
Discount%	10%	0.0%	0.0%
Total Price	4500	5000	5000

Discretionary Discount :

In salesforce CPQ Discretionary Discount can be created manually on any product. 

For instance, In XYZTech sales reps Kevin has the authority to provide less than and equal to a 10%  discount on any product. If a customer named Rose is interested in buying a product and wants to invest the total amount of $2000 in that particular product. This is a great deal and Kevin wants to grab it. So first, he needs to Check for the Discretionary Discount available on that product. He enters  $2000(Customer Amount) into the Target Customer Amount field and checks for the Discretionary Discount. There is a Discretionary Discount of 40%. Now Kevin needs to ask for approval from the higher authorities (In this case Kevin can provide a 0-10% discount on any product).