We are back again with our Managing Your Subscription Products with Salesforce CPQ series. Previously, we covered the basics of Proration and its settings with some examples. In case you missed it, here is the link to it.
In this blog, we will explore Salesforce CPQ renewals and amendments.
What are Renewals, and how are they created?
Renewals are a configuration option in CPQ that automatically allows you to create renewal opportunities and quotes for an existing CPQ contract.
There are two options.
The first one is the ‘Renewal Forecast’ field, which creates a draft renewal opportunity for forecast purposes when clicked.
The second is the ‘Renewal Quoted’ option on the contract, which then adds a primary quote to the renewal opportunity created in the previous checkbox.
You can specify the renewal uplift percentage if there is a rate of percentage increase in the renewal prices. In addition, you can also specify the renewal term.
The start date of the renewal quote begins one day after the end date of the previous contract, and the end date is dependent on the renewal length specified in the original contract. The renewal subscriptions from the previous contract will automatically show up as quote lines with uplifted prices based on whatever uplift percentage defaulted on the renewed contract.
Once the pricing gets adjusted for the duration of the contract, the products and the total will be reflected in the renewal opportunity field. This occurs as soon as the primary quote is created, with dependencies based on the duration of the total quote start date and end date.
Renewal creation can be scheduled based on various scheduling options or automation options in Salesforce flows or apex patches instead of doing it manually. Once the renewal opportunity and quote is created, your sales reps are free
- To make updates to pricing
- Increase or discount the price
- Add any additional add-on products in case of expansions.
Here is an example of an opportunity created from a contract. This is a renewal opportunity with the start date and end date which is twelve months apart and it reflects the contract that has been renewed. Once this renewal opportunity is closed, it will create a new renewal contract based on the pricing and available products as part of this particular opportunity.
Standard renewal forecast and renewal quoted options are available out-of-the-box.
- Based on existing subscriptions, the price book, the prices specified, the products, the renewal contract term, and the original contract date help you create these renewals, renewal opportunities, and quotes within Salesforce.
- It first creates the renewal opportunity and then the primary quote with the same set of products added to the quote lines, which then synchronize over to the Renewal Opportunity Products.
- Any price rules and customizations that are done in either QCP or any flows, process builders, workflows, or any mandatory rules, and validations at present will also automatically apply to the calculations for renewal opportunities and quotes.
- The ‘Renewal Quoted’ field is recommended if you want to keep the bundle structures intact while building the ‘Renewal Quote’.
Typically, MRR values (Monthly Recurring Revenue) are calculated on renewals. Therefore, only recurring products are renewed. Evergreen or one-time products are not renewed.
In CPQ, there are two renewal models. One is asset-based and the other one is contract-based.
What is an Asset-based product?
Anything which is a one-time sale for a product like a license or a piece of hardware, which has its own registration of serial number – and the customer pays for it one time, generally has to be defined as products like an asset-based product.
This means that if it is on an opportunity line item – when the opportunity is closed, instead of creating a subscription, it will create an asset in Salesforce. This is because the subscription gets tied to the contract, the assets simply stays on the account.
The serial number can then be added to the assets that are created. For any assets that need a renewal, depending on the type of business and the skills they might be selling, one could opt for asset-based renewals in Salesforce.
What is Contract-based product?
Contract-based renewals focus only on the renewal subscriptions added as line items to active contracts.
You can specify a renewal pricing method and have renewals created at the same price at which they were sold at the time of the original sale.
You can also renew them at the current list prices if your prices have gone up. You can also apply an uplift based on the original prices you negotiated with the customer on the previous contract. Uplift them by a certain percentage and the entire pricing for all the products will get uplifted by that percentage and automatically selected on the renewals.
These are options that also order default based on the contract and renewal on how it will behave per customer, which means that you can define this behaviour on the account level.
What are Amendments, and how are they created?
Amendments are created in Salesforce if there is a need to change pricing and quantities on subscriptions for an existing active contract in Salesforce. Once the amendment is created, it determines the date from which the subsequent amendment might be applicable.
For example, your contract started in September 2022 and continues until August 2023. Your first amendment, let us say, is effective from October 22. It means your subsequent amendments can only be after October 1.
You can change pricing, add quantities, reduce them, or add new products on existing contracts by using the amend option. When you choose to amend the contract, it creates an amendment opportunity and an amendment quote based on whatever existing subscriptions are tagged to the contract.
Any changes that have to be done will be done on the amendment quote lines, and they will reflect on the opportunity. Your amended quote lines will have a reference to existing subscription lines from the original contract.
When the amendment opportunity is closed, it will update the contract subscriptions and it will update the contract subscriptions by adding subsequent line items. If the existing subscription has been updated, will create a new line item with a reference to the previous subscription reflecting the change as of the amendment date. Or it will create a new line without any reference, in case a new product is being added.
It is recommended those subscription line items to co-terminate. It makes it easier to create renewals so that all lines renew at the same time. In cases where it is not a use case and the subscriptions do not co-terminate, you can choose to create more than one renewal and divide the lines on subsequent calls based on when they should start getting billed.
For many CPQ organizations, these contracts and subscriptions either didn’t tie to a Salesforce billing solution to generate invoices or can be sent or integrated with another ERP solution.
For amended contracts, the amendment subscription’s final quantity gets stacked based on all the line items referring to the original subscription in case of multiple amendments. It gets reflected on a single combined line item at the time of renewal, and the price is reflected from the latest amendment line item subscription.
Similar to renewals, the behavior of your amendments is defined by their renewal model.
The two renewal models that we have are contract-based and asset-based. If it is contract-based, you already have a contract from the opportunity, and the customer wants to change it.
You can hit ‘Amend’ on the contract or ‘Amend Contract’ on the opportunity. Salesforce CPQ will automatically create the amendment opportunity and have the products from your original quote. You can adjust these quantities; the amendment will reflect the quantity differences between your original and the amended quote.
For an asset-based renewal model, there are assets contracted on your opportunity or order, and the customer wants to change their quote. You will hit ‘Amend Assets’ on the account or opportunity, and Salesforce CPQ automatically creates an amendment opportunity and a quote. It contains products from the original order, and you adjust these product quantities, and the amendment opportunity reflects the differences between your original and amended quotes.
Here is an example where we have added the complete enterprise package. It starts on April 1 and ends on March 2023. On June 1, we added a premium product of 10 quantities, and then we saw another package added from June 1 to the end of March.
In this case, the duration is lesser than the original contract, but an additional quantity ends on March 31, 2023. This means that at the end of March 31, 2023, all the lines for the entire renewal will be renewed.
CPQ simplifies renewals and amendments based on common use cases. For companies selling subscription or SaaS products, it may seem daunting. However, renewals and amendments can become simple and easy to understand once you see options with CPQ.