In business, consistent relationships between suppliers and buyers can make operations easier for both parties. Vendors gain a consistent customer and buyers have a trusted source for a specific selection of products or services.

As these relationships deepen, partnering companies will often agree on contracted pricing, a pre-negotiated price structure that applies over a defined period. Contracted deals ensure that pricing is more predictable, consistent, and transparent between buyers and sellers.

However, managing these deals manually can lead to frustration and mishaps while teams work to get the details right.

This is where CPQ (Configure, Price, Quote) software comes into play. CPQ systems help businesses store, manage, and enforce contract pricing, eliminating manual errors and accelerating sales cycles in the process.

In this article, we’ll take a closer look at contracted pricing, why businesses use it, and best practices for managing these pricing rules effectively.

What is contracted pricing?

Contracted pricing is a pre-negotiated price structure between a vendor and a buyer that remains in place for a set period of time.

It’s a useful tool for companies who want to stabilize a vendor relationship because it offers deals and incentives to keep that relationship strong.

Contract pricing agreements can be structured in several ways:

  • Fixed pricing. The price for products and services remains unchanged for the duration of the agreement.
  • Tiered or volume-based pricing. Discounts apply based on purchased quantities and may be restricted to specific products or services.
  • Custom pricing. Pricing may be specialized based on factors like exclusivity, partnership level, or long-term commitment.

With contracted pricing, buyers can lock in specialized, agreed-upon rates for a set period while sellers can expect more consistent business and much shorter sales cycles.

Who determines contracted pricing?

The process of establishing a contracted pricing agreement depends on how the supplier chooses to approach these deals and how much leverage the buyer has in negotiations.

In most cases, the supplier determines how agreements are structured. Since they provide the product or service, they need to balance custom pricing deals with standard market pricing in order to ensure profitability.

To do this, suppliers might set restrictions on agreements through product and service limitations, minimum purchase commitments, or non-exclusivity clauses. These agreements may also be highly standardized, such as with a volume purchasing agreement or a loyalty plan.

Buyers gain negotiating power through volume purchases, long-term commitments, and their strategic value to the supplier. However, this only goes so far. Customers with high-volume needs may request product exclusivity, but a supplier may not agree to it.

These factors create room for negotiation where suppliers can offer discounts to their standard price as a means to guarantee stable, long-term profits.

Main benefits

Contracted pricing is a powerful tool for companies that rely on repeat business and long-term partnerships.

Some key advantages include:

  • Consistent, pre-determined pricing.
  • Long-term customer loyalty.
  • Simplified quoting and ordering.
  • Easier financial planning.

When done correctly, this approach creates a win-win solution for vendors and buyers. Vendors can stabilize a portion of their monthly earnings and gain a loyal customer. Buyers get a discount and gain a reliable supplier for a specific product or service.

Key challenges

Unfortunately, contracted pricing can also create administrative hurdles within the sales and quoting process, especially when handled manually by suppliers.

  • Manual errors and inconsistencies can lead to disputes and lost revenue.
  • Approval bottlenecks slow quoting processes and create unexpected delays.
  • Incorrect pricing overrides may result in larger-than-intended discounts for buyers.
  • Multiple agreements with different terms can confuse and overwhelm team members as the business scales.

This is where CPQ software becomes essential to contracted pricing.

As a company grows and contracted pricing becomes more common, the best way to avoid mistakes is to automate the quoting process. Doing so allows sales reps to generate new quotes more effectively while adhering to special prices created by the contracting process.

How CPQ supports contracted pricing

As businesses scale and contracted pricing agreements become more common and complex, manual processes are no longer sustainable.

Rather than managing one or two specialized contracts, sales reps will need to understand discount schedules, the effective date and expiration date of specific contracts, the pricing concessions made by the supplier, and more.

CPQ solutions eliminate all of these frustrations by using systematic, rules-based automation to keep the terms of the deal consistent from quote to quote.

Here’s a closer look at how it works.

Improved pricing consistency

Without CPQ, sales reps will need to change quote prices manually. That means adjusting the unit price or list price on the quote line to match the price determined by the contract pricing agreement.

This process is prone to errors, as those discounted product prices only apply to specific accounts. If the rep doesn’t apply the discount, buyers will request an amended quote with updated pricing, effectively doubling the work required to issue the quote.

CPQ solves this by automating the entire pricing process. Products within a CPQ system are assigned a list price within the product catalog. This default unit price is automatically added to the pricing table when a CPQ quote is generated.

For accounts with contracted pricing agreements, the negotiated terms are different. CPQ systems account for that with account-based pricing rules that can override or apply discounts to the system-standard pricing.

Essentially, when an account with contracted pricing rules is added to a quote, those specialized rules take hold and adjust the prices automatically. Sales reps follow the standard sales process, but the CPQ will generate contracted prices as part of the quote.

Faster sales cycles

Manually applying contracted pricing slows down the quoting process by requiring reps to double-check agreements and seek approvals. Lengthy processes can make quoting processes take days or longer.

Mistakes in the process create an unnecessary back-and-forth between parties, and force teams to create amended quotes, slowing progress to correct problems. Teams may try to solve this with an additional approval process, but slow turnarounds during this stage can cause additional frustrations.

With CPQ, sales cycles and approvals become much faster.

Because account-based pricing is applied automatically for qualifying items, quotes are accurate by default. Approvals are only needed when quote pricing falls out of standardized parameters, such as when prices are manually adjusted by a sales rep.

Because these exceptions can also be systematized, it’s possible to give frontline reps some level of flexibility during the sales process. Using the rules-based framework created within the CPQ, reps can offer global or line item discounts as a way to close the deal — up to a certain limit — without the need for a complex approval process.

For example, CPQ rules could be set up to allow a five per cent discount on any item in the product catalog. Reps have the authority to offer that discount, if they believe it will help them close the deal.

Quotes offering this standard discount won’t trigger a review process. However, if a rep offers more than the maximum threshold, the quote is automatically flagged for a secondary approval process before being sent to a customer.

Overall, this approach accelerates sales cycles by automating the pricing process and setting up guardrails for the sales team.

Global visibility for renewals and mid-contract changes

Managing contracted pricing for multiple agreements can become overwhelming for any sales team.

Essentially, every new agreement creates a different set of rules and exceptions that sales reps need to follow when specific customers request a quote. Often, the rules are different. Some accounts may get a specific price for particular items while other deals might follow a block pricing or bulk discount options.

Every contracted agreement has its own rules, and each agreement deviates from the “standard” rules of engagement that reps might use when quoting for regular customers.

This becomes even more confusing when contracts change before completion — such as when a company advances to a new discount tier — or when standing deals lapse and need to be renewed.

Tracking these changes is confusing, messy, and prone to errors.

A strong CPQ solution solves this with tools like contract price records and/or specific product rules.

To do this, administrators will need to tell the CPQ that future quotes from specific customers should follow a different set of rules.

Based on the particulars of the pricing agreement, product records might need to change to reflect a new contracted price for specific items, or discounts might be applied when certain sales thresholds are reached. This approach eliminates the need for reps to make direct adjustments in the price field, offloading that responsibility to the system instead.

In the event of a renewal or a mid-contract change, administrators can update the contracted price record with the new information, and future quotes from that account will reflect those new pricing guidelines.

Compliance and profitability

Without safeguards in place, reps may unintentionally create larger-than-intended discounts and reduced margins.

This is most likely to happen when a rep needs to manually adjust a quote line object to align with the pricing methods applied to a particular account. If the rep inputs the wrong price, contracted customers may end up with unintended discounts that ultimately cut into supplier profitability.

CPQ automatically enforces contract terms and automatically flags proposals that aren’t compliant.

By aligning sales, finance, and legal teams with pre-determined contract pricing rules, a CPQ system ensures that quotes conform to company policy.

Prices are set at the administrative level and applied based on the rules attached to the customer’s account. Reps don’t need to conduct extensive price lookups or compare original quote records with an in-house pricebook. It’s all built into the CPQ, and pricing is applied automatically.

Taking this approach helps suppliers maintain profitability by ensuring that discounts stay within agreed-upon limits. When pricing falls outside of the expected parameters, rules-based triggers can initiate an approval workflow to flag incorrect quotes and prevent them from ever reaching a customer.

Best practices for managing contracted pricing with CPQ

CPQ solves most problems related to contracted pricing through systemization.

Rather than forcing reps to learn the ins and outs of multiple, contracted accounts, the CPQ becomes a repository where all of that information is managed and stored.

However, this can also introduce errors into the sales process. To get the most out of a CPQ solution, companies should follow best practices to keep the CPQ accurate, efficient, and aligned with company initiatives.

1. Keep contracted pricing up to date

Pricing agreements evolve over time as contracts renew and terms are updated.

Many companies account for this through the use of loyalty programs and discount tiers, but specialized and contracted deals also play a major role.

As these deals evolve, the CPQ needs to be updated to reflect those changes. Without those updates, sales teams will apply outdated prices as a default, leading to confusion, billing errors, and eventual disputes.

To prevent this, teams using CPQ need to integrate fully with the company’s contract management lifecycle. When deals are first negotiated, system administrators need to modify the contracted price record on all customer accounts (including parent accounts and any child accounts associated with it).

Internally, admins need to be notified when contracts are about to expire and when changes or renewals take place so that the CPQ can be updated to reflect accurate information.

Using a unified platform like PandaDoc, or combining PandaDoc with an integrated tool like Salesforce CPQ, can help teams stay connected across a shared workspace. As contracts are created, negotiated, and signed, CPQ admins can stay in the loop and make appropriate adjustments where necessary. That way, adjusted pricing goes live as intended, and special rules are always up to date.

2. Automate approval workflows

Without automated workflows, sales teams can see delays in final sign offs and miss opportunities to catch bad quotes before they leave the sales desk.

This implementation happens in two parts.

First, teams need to set pre-approved pricing thresholds inside the CPQ to specify what doesn’t require manual approval. For example, if reps have the authority to offer a ten per cent discount on a grand total, a quote that does so won’t need a second look. In PandaDoc CPQ and other tools, you’ll need to set those minimums so that the system knows what to look for.

Second, you’ll need to design an approval process that automatically sends proposals to the appropriate reviewer. This can be different depending on who created the quote, what workspace the quote was created in, the account attached to the quote, and more.

Using these rules-based systems, it’s possible to reduce bottlenecks and keep deals moving with minimal delay. When time is money, nobody wants a slow process to kill the deal.

3. Ensure pricing transparency

When dealing with complex contracts, it can be difficult to keep all portions of the transaction clear.

Discounts can stack with one another and, in the event of volume and bulk discounts or bundle deals, it’s easy for both teams and customers to lose track of how the pricing structure breaks down. On the supply side, this gets even more confusing because the terms and commitments around contracted pricing may only apply to specific accounts. In other words, the standard rules won’t apply.

All of that changes for teams using CPQ, so long as the platform becomes a central repository for all contract pricing details. If the details are up to date, sales reps will be able to see customer-specific pricing at a glance when generating quotes. The same is true for finance, operations, and customer success teams, who can compare quote records against current CPQ pricing to better understand how customer accounts have evolved over time.

For customers, transparency comes in the form of quotes rather than backend databases. Quote templates that break down costs via pricing tables can help customers better understand how pricing is configured, and which discounts were applied against a specific order.

4. Integrate with CRM and billing solutions

When dealing with contracted pricing across multiple systems, it can be difficult to keep all portions of the transaction aligned.

CRM platforms track customer relationships, while CPQ systems handle pricing and quoting, and billing software manages invoices and payment processing. The information is spread across multiple systems, which can create pricing mismatches, invoicing errors, and internal confusion. A discount applied in the CPQ might not carry over to the final invoice, or a renewal agreement in a CRM may still reflect outdated pricing. Without real-time synchronization, sales teams and customers can struggle to understand exactly how pricing is applied.

Integrations can change all of that while adding additional flexibility to the system. For example, as a document platform, PandaDoc integrates with CRM solutions like Salesforce CPQ and billing solutions like Stripe. Data stored within Salesforce CPQ can be pushed to PandaDoc via two-way data sync. After quotes are prepared and sent, customers can pay using Stripe with the understanding that quote details are accurate.

And that’s just one solution. In situations with less-capable CRM tools, PandaDoc might act as a document platform, billing solution, and CPQ system all rolled into one. As before, these systems are intricately connected, allowing teams to generate error-free quotes and finance teams to invoice with confidence.

5. Set rules to prevent price overrides

Unintentional price overrides are one of the biggest risks in contracted pricing.

While the agreement defines specific rates, discounts, and terms, those details become difficult to enforce when sales reps are operating independently and without checkpoints. Without guardrails in place, it’s easy for reps to override a contract price, either by accident or as a means to close deals faster.

Although small, those adjustments add up and can erode profit margins quickly. It also sets the wrong expectations for customers, who can become even more confused because of the discounts they’ve received on top of their contracted terms. This creates conflicts down the road, especially during renewals and future negotiations, because teams need to steer customers back to the originally contracted rate — which is higher than what they’ve already been paying, due to unauthorized discounts.

The good news is that all of these headaches are preventable when using PandaDoc CPQ or a similarly capable CPQ platform. The solution? Set rules to stop pricing overrides. When a rep tries to manually adjust a price from the preset terms within the CPQ, the system should move to prevent it. In PandaDoc, this can be done via rules and automated approvals, but other CPQ platforms might lock prices entirely.

If an exemption is required, approvals built into the workflow can allow for necessary adjustment. However, if the CPQ is kept up to date, then the price it generates should be considered the standard. By taking this approach, companies can protect margins, ensure consistency, and build customer trust without sacrificing flexibility when it’s truly needed.

Build better sales flows with PandaDoc

Contracted pricing should simplify sales, not slow them down.

But, for many businesses, managing contract pricing is a manual endeavor that creates more bottlenecks than benefits. Sales teams struggle to track customer-specific pricing while pricing errors lead to confusion, frustration, and lost revenue opportunities.

PandaDoc CPQ can eliminate these roadblocks and streamline the entire contracting process. Rather than relying on spreadsheets, disconnected systems, and manual approvals, teams can use automation to build fast quotes, negotiate pricing deals, and enforce terms — all in one place.

Want to give it a try? Sign up for a personalized demo and see firsthand how PanadDoc can change your entire sales process.

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