Deal management, or agreement management, is the business process of setting, maintaining and renewing customer-specific pricing agreements. This is done in collaboration between a B2B company’s pricing and sales teams.
What is B2B Deal and Agreement Management?
We define agreements in this article as the specific price list that a customer negotiates that falls outside of the company’s standard price list or matrix. Customer-specific agreements can be long-term contractual agreements. They can also simply be the discount a customer expects to receive for some period of time on a set of products.
Deal management encompasses every aspect of the agreement lifecycle – from negotiation to creation to updates to renewals. Agreements exist in most B2B companies, and can be managed in a variety of ways: everything from manual and ad-hoc to fully automated, centralized cloud-native systems. These processes are sometimes handled within the configure price quote (CPQ) software category or managed directly in an ERP. But agreement management functionality is not a key focus or mature capability within the CPQ software category.
Read more: Deal & Agreement Management
What Agreement Types Exist in B2B?
Broadly speaking, agreements tend to take one of two forms in a B2B environment – customer-specific price exceptions and customer contracts.
Customer-Specific Price Exceptions
Customer price exceptions are designed to win business from a variety of non-strategic customers. Often, little analysis is done when setting exception prices in a high velocity sales environment. These agreements may cover a large or small range of products or product categories and there is rarely a data-driven process for price review.
These are reserved for the larger and most strategic customers, the ones who represent a major share of revenue. Often these customers have signed, physical contracts that are negotiated over a long period of time and closely scrutinized internally.
The breadth of products and services tends to be massive, and the contract undergoes an annual price review in most cases. Pricing issues are thus more easily spotted, but sales teams guard these agreements closely and push back on price increases with these strategic customers.
Watch: Finding & Fixing Margin Leakage in Customer-Specific Pricing
Why are B2B Contracts Hard to Manage?
As mentioned above, most B2B companies have a deal management process of some kind. Most are complicated and woefully inadequate to handle the volume of agreements and speed of cost changes in the market. Here’s a typical scenario:
A large paper products distributor has more than 100 sales reps selling possibly hundreds of thousands of product SKUs to thousands of customer accounts. As they go about their day, reps encounter customers asking for a better price, or the rep intuits that a discount is required to win the business. The seller creates a spreadsheet with special pricing for the customer and a sales manager approves it.
The pricing is often set up as a markup over cost, discount from list or as a net price. In some cases, the pricing does not have an end date. Once the prices are loaded into the distributor’s ERP system, they are rarely revisited.
This process repeats itself across scores of sales reps and hundreds of customers, creating an administrative nightmare. Worse, it is a recipe for margin leakage over time.
Not only were the special prices created without bottom line consideration, but these agreements also set a pricing precedent with customers. They are nearly impossible to govern or mass update inside an ERP system. “Most B2B pricing agreements are older than Noah and expire when the sun burns out," said Zilliant Vice President, Services Brooks Hamilton.
Other time- and resource-wasting issues that exist in most agreement management processes include:
- Significant time spent updating agreements: The pricing team typically emails spreadsheets with recommended price changes to the sales team. The sales team then modifies the numbers and passes the spreadsheet back to the pricing team for approvals. It can be difficult to update prices for cost pass-through, as this often involves multiple rounds of tedious internal negotiation before being presented to the customer.
- Volume commitment compliance challenges: Some customer agreements are tied to volume commitments. When agreements are managed in spreadsheets and ERP systems, companies lack a systematic approach to monitor and enforce volume commitments.
- Sub-par initial price setting: Done in haste when winning the deal is the primary motivating factor, prices tend to be set below the floor and inconsistently across customers. This causes widespread pricing dispersion and misalignment.
- Set-and-forget conundrum: Price exceptions are often created without end dates or set in net price terms at a fixed dollar amount. As costs rise over time, margins are squeezed. This is compounded by a lack of regular review or automated insights into agreement health.
- Administrative issues: These agreements tend to live in a variety of systems, on hard drives, or in email inboxes. There is no easy way to quickly locate and mass update agreements; it’s a customer-by-customer process.
- Strategic misalignment: As B2B companies adopt corporate pricing strategies and invest in better pricing tools, exception prices get in the way. Pricing exceptions fall outside the pricing team’s control and are often misaligned with the go-to-market pricing strategy.
- Difficult to update: Simply knowing how many agreements exist in your business and how profitable they are is nearly impossible. When prices need to move, an agreement-by-agreement, line-by-line change is costly, time-consuming and error-prone.
- Inability to set prices at different thresholds: Your strategy may require a certain product margin at the product category or SKU level. Dispersed agreements and manual processes limit the level of granularity you can achieve.
Read more: Why B2B Manufacturers Need Both Intelligent Pricing and Deal Management