In B2B sales, pricing solutions aren’t always straightforward. Partnership deals, bulk sales, loyalty programs, and a variety of other factors can influence the final price that customers will ultimately pay.

But that’s only part of the problem.

In many cases, complex sales opportunities force prices to evolve through multiple adjustments as deals progress. When this happens, it’s easy for teams to lose track of which discounts have been applied and how they should be deducted from the base price.

Without a structured approach to solve these problems, companies risk margin leakage, inconsistent discounts, buyer confusion, and lost revenue opportunities.

A price waterfall provides a clear, step-by-step view of pricing changes so that companies can better control discounts, enforce pricing rules, and maximize revenue.

When paired with the rules-based automation provided by a CPQ (Configure, Price, Quote) solution, waterfalls can help to streamline workflows and help companies build smarter sales strategies.

Let’s take a look at how it works.

Key takeaways

• The price waterfall is a framework that tracks price adjustments from list price to net revenue.
  
• CPQ software automates pricing processes, approval workflows, and discount strategies to ensure quote consistency.
  
• When combined, waterfalls and CPQ solutions help companies streamline pricing processes, apply discounts consistently, and reduce revenue leakage.

What is a price waterfall?

A pricing waterfall is a structured framework that breaks down how a product’s price changes from its initial list price to the final amount that a customer ultimately pays.

At its core, this approach helps companies do the following:

• Visualize the impact of discounts and adjustments on overall profitability.
  
• Ensure that discounts are applied strategically and in a pre-set order.
  
• Standardize pricing structures across different products, regions, and customer types — with exceptions, where applicable.

Without a solution in place, companies can struggle with profit loss due to inconsistent pricing and uncontrolled discounts.

For example, if a vendor offers volume-based pricing and the customer receives a discount, precisely where in the sales process that deduction is applied has a huge difference on the net price. If the same order of operations isn’t followed every time, every order calculation will return a different price.

In addition to showing companies where profits are going, waterfalls can also help your organization create a structured discount schedule if a system isn’t already in place.

Common pricing levels in a price waterfall

Every level of a pricing waterfall represents an adjustment from the originalorigins list price to the final, net revenue that a company collects.

By tracking each step, businesses can gain better visibility into their deductions and ensure that pricing decisions follow the appropriate process.

Here’s a breakdown of the levels seen in most price waterfalls:

Stage	Description
1. List price (top)	The standard/regularstandard / regular price before any adjustments.
2. Base adjustments	Changes based on volume pricing, regional pricing, or market-based adjustment.
3. Customer-specific pricing	Pre-negotiated contract pricing tailored to specific customer accounts.
4. Discounts and bundling	Price reductions for bulk purchases, promotional offers, seasonal deals, etc.
5. Partner discounts	Special pricing structures for distributors, resellers, or channel partners.
6. Negotiated pricing	Custom price adjustments and manual discounts granted during the sales process.
7. Final price	The total price that the customer agrees to pay after all included adjustments.
8. Net revenue (bottom)	The final revenue after deducting additional costs like taxes, shipping, or service fees.

Every step in the pricing waterfall represents a potential revenue leak if discounts aren’t managed properly.

By creating this structure — and, in conjunction, a standardized order of operations for how discounts are calculated — teams can better understand where excessive deals and discounting causecauses profits to erode.

However, while the above model captures the most common types of discounts, it’s possible to structure pricing waterfalls that more closely align with your sales workflow and deal strategy.

Customizations and extra steps

The categories in the table above are just one example of a pricing waterfall. Other solutions, including custom waterfall structures, also exist.

Depending on the nature of your business and/or the software solution you use to generate quotes, you may need to skip certain steps altogether.

For example, if you’re a SaaS or subscription-based business, you can probably eliminate reseller or distributor discounts entirely, since SaaS business models often have brands selling since SaaS business models have brands sell directly to customers. However, you might need to include steps for tiered or prorated pricing or factor in renewal discounts as part of your price waterfall model.

Other industries will have similar caveats. Manufacturing and distribution companies might need to include cost of goods sold (COGS), as well as costs surrounding freight and logistics, — assuming they take on those costs, — to ensure that deals remain profitable.

With that in mind, don’t be afraid to customize your waterfall to fit your specific pricing model or workflow.

Stages of the price waterfall

To better understand how pricing evolves from initial price to final net revenue, let’s follow the journey of Alex, a procurement manager at DropNet Technologies, who needs to purchase 10 enterprise servers from a vendor.

At each stage, pricing adjustments are made based on volume, customer contracts, partner discounts, and negotiations. By the time Alex receives the final invoice, the final price has changed significantly from the list price.

Note: For this exercise, let’s assume that all discounts in a given category are applied cumulatively, rather than sequentially.

1. List price

The list price is the standard, base price of a product or service before any adjustments have been made.

Often, this price is set by manufacturers or corporate pricing teams and serves as a reference point for all future discounts. As this is the starting point for any deal, companies selling at this price (or as close as possible) stand to turn a greater profit from the deal.

💡In Alex’s case:

• DropNet’s IT team selects 10 enterprise servers with extended warranties as part of a bundle deal for the(a bundle deal) for a new data center.
  
• Each server has a list price of $10,000, totalling out to $100,000 before any adjustments have been made.

📌Current price:

• $100,000

2. Base adjustments

Many companies offer automatic adjustments based on bulk purchases, regional pricing variations, or specific market trends.

When a CPQ system is involved, these types of pricing adjustments are often applied automatically via pre-set rules and don’t require any special approval.

In Alex’s case:

• Because DropNet is buying 10 units, they qualify for a 5% volume-based discount.
  
• DropNet also happens to be in a region with an emerging market where the supplier wants to be competitive with other brands. This triggers an additional 2% discount.

Updated price:

• Previous price: $100,000
• Volume and market adjustments (7%) ➔ $7,000
• New price: $93,000

3. Customer-specific pricing

When companies work with each other on a regular basis, they’ll often use pre-negotiated contract pricing to override standard adjustments.

These adjustments are based on the base price listed in the catalog or price book and are usually discount-based rather than flat-rate reductions.

This is common for repeat customers, enterprise accounts, or strategic partnerships, where vendors offer specialized rates to capture more business.

In Alex’s case:

• DropNet is a repeat customer and their account is recognized when the vendor CRM hands the customer data over to the CPQ.
  
• Because of the supplier agreement DropNet has with this vendor, they’re given a partner price, which provides an additional 3% discount. 

Updated price:

• Previous price: $93,000
• Customer-specific discount (3%) ➔ $2,790
• New price: $90,210

A quick note about layered discounts

Pricing waterfalls deal largely with layered or tiered discounts, meaning that each discount applies to the adjusted total from the previous step, — not the original list price.

In our example, DropNet’s 3% supplier agreement discount is calculated after base adjustments.

Rather than 3% off the original pricing ($100,000), the discount applies to the newly adjusted price from the previous step ($93,000). This results in a discount of $2,790, rather than a flat $3,000 off the original price.

4. Discounts and bundling

Suppliers often apply extra incentives, such as promotional discounts or bundled pricing when multiple, select products are included as part of a purchase.

In most cases, the discounts that apply here aren’t pre-negotiated and are usually either conditional or time-limited.

In Alex’s case:

• The vendor is running a quarterly promotion, which offers a 5% discount off enterprise servers.
  
• DropNet also bundles extended warranty services with their purchase (included in the $100,000 price tag), which earns them an extra 3% discount.

Updated price:

• Previous price: $90,210
• Promotional and bundle discounts (8%) ➔ $7,217
• New price: $82,993

5. Partner/reseller discounts

For businesses that sell products via resellers and select distributors, additional partner-level discounts might also apply.

Often, goods are delivered to strategic channel partners at a prorated price with discounts designed to support reseller margins or incentivize them to promote certain products.

Unlike promotional discounts, partner discounts are often pre-negotiated as part of a reseller agreement and only apply to sales through those specific channels.

In Alex’s case:

• DropNet is working with an authorized reseller, who receives partner pricing from the manufacturer and passes a portion of that discount (7%) onto customers.
  
• Since the discount applies at the channel level, it’s applied after all prior adjustments have been made and takes those price reductions into account first.

Updated price:

• Previous price: $82,993
• Partner discount (7%) ➔ $5,810
• New price: $77,183

6. Negotiated pricing

Most sales reps have the ability to apply additional discounts based on the deal size, its proximity to completion, or its strategic value to the seller.

For high-value deals, a company may offer an extra discount to win against competitors or secure a long-term relationship with a customer.

Unlike most of the other discounts in the waterfall, these adjustments are made on a case-by-case basis. Sometimes, a rep has the authority to make these adjustments directly, based on CPQ rules. At other times, discounts may go through an approval process.

In Alex’s case:

• DropNet is considering a competitor’s offer, so the sales rep negotiates an extra 4% discount in order to close the deal.

Updated price:

• Previous price: $77,183
• Partner discount (4%) ➔ $3,087
• New price: $74,096

7. Final price

At this point, we’ve arrived at the final price that DropNet agrees to pay, before taxes, surcharges, and fees (before taxes, surcharges, and fees).

This is reflected on the quote line with all discounts applied. No further price reductions are forthcoming unless a last-minute adjustment is approved.

In Alex’s case:

• DropNet is fine with the offerother and agrees to this price.

Updated price:

• Final quoted price (before surcharges): $74,096

Adding taxes and fees

Any taxes and fees that the vendor needs to collect should be added to the quote as separate line items.

However, because these are necessary charges that the company must collect but can’t optimize, they aren’t always tracked within the pricing waterfall.

In Alex’s case:

• DropNet isn’t a tax-exempttax exempt organization and needs the product shipped to them.

Updated price:

• Final quoted price (before surcharges): $74,096
• Taxes (5%) ➔ $3,705
• Shipping fees ($1,500) ➔ $1,500 
• Final cost (with surcharges): $79,301 

8. Net revenue

Even after the final price is set, additional costs such as shipping, taxes, and transaction fees affect the total revenue collected by the vendor.

These costs are usually applied at the very end of the waterfall and aren’t considered part of the discounting process. However, while many pricing waterfalls won’t include items like taxes, some will track things like payment processing fees to understand how much money is lost to these essential processes.

In Alex’s case:

• DropNet pays $79,301 for the sale, however, the vendor’s system will automatically calculate the net revenue by deducting surcharges and processing fees.

Updated price:

• Final cost (with surcharges): $79,301
• Payment processing fee (2%) ➔ $1,586
• Less shipping fees ➔ $1,500
• Less taxes ➔ $3,705
• Net revenue (what the vendor keeps): $72,510 

A final word about pricing calculations

As we mentioned at the top, this example simplifies the waterfall process by treating the discounts in each category as a cumulative number.

For example, in Step 4, we combined the quarterly promotion and bundled discounts to create a flat 8% discount and deducted that discount from the pricing in the previous tier.

In reality, it’s likely those discounts would be applied separately, based on an order defined by the vendor’s sales flow. We chose not to do it here for the sake of brevity, but keep in mind that each tier within the waterfall system may have “mini-tiers” where pricing is applied in a specific order.

This is done to prevent excessive discounting and create more precise revenue tracking, and it’s largely automated within CPQ systems.

CPQ and price waterfalls

Just using the example above, it’s easy to see how managing a price waterfall manually can quickly become overwhelming.

That’s especially true for companies handling complex sales, multi-tiered discounts, and negotiated pricing. Without an automated system, pricing inconsistencies, errors, and revenue leakage become major risks as final costs deviate from standard prices.

CPQ (Configure, Price, Quote) software like PandaDoc CPQ, Salesforce CPQ, and others are designed to help teams navigate these complicated scenarios.

Main benefits

CPQ platforms transform the pricing waterfall from a manual, error-prone process into a fully automated system, ensuring pricing accuracy, margin protection, and sales efficiency.

Here’s a closer look at where CPQ truly shines:

• Pricing rules and automation features operate within a CPQ using a rules-based system. Companies can configure pre-set discount rules so that tiered and cumulative discounts are applied correctly to ensure accurate pricing.
  
• Guided selling functionality helps sales reps choose the right products based on customer segmentation and/or past order history. Discounts are applied automatically based on predetermined rules.
  
• Real-time margin analysis can show a live breakdown of discounts so that teams can better understand how price reductions impact overall costs. Finance teams can use this information to adjust pricing strategies based on data trends.
  
• Conditional approvalmpliance enforcement features help to keep pricing consistent across all sales teams and regions. Approval workflows can prevent unauthorized discounting and built-in rules will help to ensure that discounts based on pre-negotiated or contracted rates are properly applied.

Using these features, CPQ platforms can turn the pricing waterfall into a structured, data-drivendata driven process. However, these systems take some time to set up, and teams will need time to configure them before they can be deployed.

Setting up your own pricing waterfall

Every CPQ system functions based on a structured set of rules and conditional statements that a company defines to automate pricing logic and eliminate manual inputs.

When applied to a pricing waterfall, these rules help to categorize discounts, enforce structured pricing policies, and align pricing with the company’s sales flow.

Some CPQ platforms, like PandaDoc CPQ, integrate with CRM solutions like HubSpot and Salesforce, making it easier to visualize and track this data.

To do this with PandaDoc CPQ, you’ll need to define the pricing categories using specific rules and custom fields within the product catalog:

1. Set the base price within the price field of the product catalog. This is the standard price that most customers see.

2. Build the stages of your waterfall using the custom fields within the product catalog. To do this, select products and add each tier of your waterfall as a custom field.

3. Use CPQ rules and conditional logic to determine when discounts are applied, the order in which they should be applied, and which custom fields where they should be assigned to.

4. View the reported data by integrating with a CRM solution like Salesforce using PandaDoc’s two-way data sync to import the category data and view the pricing breakdowns based on assigned fields.

The hardest part of this process will be using conditional logic to determine the order in which the discounts should be applied. During this process, administrators will need to create a list of WHEN/THEN statements to tell the CPQ when pricing should be applied within the sales flow.

For example, if base adjustments need to be deducted before partner pricing discounts are applied, the system needs to understand that flow. You’ll also need to create rules that let the system know if no base adjustments are forthcoming so that it knows to apply partner pricing to the list price instead.

By using the custom fields within the pricing catalog, users can add columns to the quote to show how pricing is broken down. If you prefer, these columns can also be hidden from view so that customers only see the final price.

In order to see the reported data, teams will need to use the two-way data sync, — available with both HubSpot and Salesforce, — to parse the discounts based on custom fields. From there, finance teams can analyze waterfall data to ensure that pricing is competitive and prevent unwanted leakage.

Best practices for managing your CPQ price waterfall

Successfully implementing a pricing waterfall within a CPQ system requires more than automation. You’ll also need to have a strong grasp of your product pricing strategy and be prepared to make adjustments on the fly.

As pricing methods change, products fluctuate, and discount strategies evolve, teams will need to keep a close eye on the rules and systems within the CPQ to ensure that waterfalls remain effective and optimized.

• Define clear pricing rules. Using CPQ, administrators can clearly define when and how discounts should be applied. Deductions can be determined by customer or situation and categorized by type (volume, contract, etc.). Onboard logic helps to ensure that discounts are applied correctly to maintain structured pricing.
  
• Implement discount controls. Prevent excessive discounting by establishing pre-set thresholds within the CPQ. Discounts exceeding either specific and cumulative thresholds can trigger an approval workflow for secondary review, protecting margins on high-value deals.
  
• Regularly audit pricing data. Consult existing waterfall data and review discount trends to make sure that certain discounts aren’t being overused. Adjust pricing rules periodically to stay consistent with market trends and company goals.
  
• Keep sales, finance, and pricing teams aligned. Use waterfall data to keep critical teams in the know. Train reps to use guided selling features within CPQ software, and highlight different discounts or promotions, where available. When pricing or product rules change within the CPQ, make sure that teams are notified to avoid later confusion. 

By taking these steps and maintaining the integrity of your CPQ, the price waterfall can prevent revenue leakage and act as an early warning system when discounts cut too deeply into profit margins.

Better document and revenue tracking with PandaDoc

A well-structured pricing waterfall can help teams maintain accuracy as the price of the product changes. However, it’s a difficult process to apply, and taking a manual approach leaves plenty of room for error.

PandaDoc is a great solution for that.

Our CPQ platform can streamline your quoting process while safeguarding profits as discounts are applied to the unit price. By integrating directly with your CRM, you’ll also find it easy to track pricing adjustments, generate accurate quotes, and maintain full visibility into your revenue streams.

Outside of CPQ, PandaDoc also provides end-to-end processes for all of your business documents. You can create automated templates from customized documents, capture legally binding electronic signatures, and use cutting-edge collaboration tools to close deals faster than ever before.

SCome see PandaDoc in action. Sign up for a free, personalized demo and discover how PandaDoc can transform every aspect of your sales and quoting process.