Framework agreements exist in virtually every industry.
They are the backbone of many business relationships. So naturally, you want to manage your framework agreements in Salesforce.
Unfortunately, people often struggle to do this. For example, sometimes, they create repeat or recurring opportunities. This approach means you have lots of deals but poor visibility of forecast revenue.
It’s also not popular with the salespeople that have to create all these opportunities!
That’s why in this article, I’m showing you exactly how to manage your framework agreements in Salesforce.
Types of Framework Agreement
Framework agreements are contracts between buyers and sellers that describe the overarching terms of the commercial relationship. Usually, supplementary documents define precisely what, how, and when the customer receives the products and services.
Here are four types of framework agreement you can manage in Salesforce:
- Regular Order.
- Occasional Order.
- License to Hunt.
1. Drawdown Framework Agreements
In this case, customers draw down products each month against an overall assumed volume.
Often, there is an assumed order quantity each month at the start of the agreement. In practice, the actual order quantity usually varies from month to month.
Based in Greensboro, NC, Gilbarco Veeder Root is one of the world’s largest gas (petrol) pumps manufacturers.
The company has drawdown framework agreements with many petrol and gas retailers. These documents define the products, pricing, commercial arrangements, and legal terms of the contract.
However, the petrol retailer does not want to receive all the pumps in one go. That’s because they want delivery in line with a gas station re-fit program.
2. Regular Order Framework Agreements
Many companies that sell large volumes of relatively small-ticket items or consumables use regular order framework agreements.
The customer places regular orders when they need to re-stock. Often, the customer does this directly via an online portal. The framework contract covers the terms and conditions of these orders.
Zimmer Biomet sells consumable products to dental practices in the UK and the US.
The company creates a regular order framework agreement with the dental practice. The contract specifies the price for each product based on the anticipated volume. It also describes the training support, marketing, and other services that Zimmer Biomet will provide.
The practice places orders every few weeks using a portal. There’s a streamlined process for packing, shipping, and invoicing each order to the customer.
A review of each framework agreement compares actual orders with the anticipated volume each year. Sometimes the product pricing changes if there is a significant difference between the expected and actual order volume.
3. Occasional Order Framework Agreements
With these framework agreements, customers place occasional rather than regular orders.
The framework agreement covers commercial terms and general legal terms. However, separate specifications define the products and services of each order. Often, a Statement of Work (SoW) describes these specifications.
For example, Evolve provides services to fit and equip medical labs across Europe.
Designing and equipping each new lab is a significant undertaking. However, often these labs are within large pharma or government bodies with whom Evolve regularly works.
Evolves, therefore sets up a framework agreement with each organization. This agreement defines the labor rates and other terms that apply to the company’s work.
Of course, no two labs are alike.
Each project needs careful collaboration with the customer to define the specific products and services required. An SoW describes these details, drawing on the pricing and rates agreed in the framework agreement.
4. License To Hunt Framework Agreements
A license to hunt framework agreement allows one party to seek-out deals in another business or group of companies.
It’s common in financial services and many other industries.
Based in the UK, Embark provides financial products to brokers, and they secure a license to hunt framework in two ways.
First, they do deals with large multi-branch brokerages.
The head office of the brokerage makes framework agreements with selected providers in each market category. Choosing Embark as one of these providers means the company can visit the branches and persuade individual brokers to use their products.
Second, Embark makes framework agreements with buying groups.
For example, these buying groups arrange purchasing contracts for many small brokers.
The agreements cover products, fees, training, legal services, and commission. The license to hunt allows Embark to visit the buying group members to promote and sell their products.
How To Manage Framework Agreements In Salesforce
With framework agreements, usually, no money changes hands when the deal concludes.
Instead, the revenue accrues over time.
With that in mind, let’s see how you can manage the four types of framework agreement in Salesforce.
1. Drawdown Framework Agreements In Salesforce
Products are schedules are vital to managing drawdown framework agreements in Salesforce.
An Opportunity represents the process you go through to agree on a framework agreement.
As usual, you track the progress using the Opportunity Stage field.
Then, you add Products to the Opportunity. These represent the goods and services the customer will buy over the agreement’s lifetime.
By the way, if you have many products, you can use the GSP Product Selection Wizard. The app makes it much easier for salespeople to add Products to Opportunities in Salesforce than the standard interface.
At the same time as adding the product, you create a revenue schedule. The schedule describes how the customer will draw down the products and services over time.
Here’s an example:
Let’s assume the customer is buying 60 generators over 12 months. To make the math easy, let’s reckon each generator costs $1000.
The Opportunity has a total value of $60,000, and you can see the figure in the Amount field.
From a gross sales perspective, the deal is worth $60,000.
However, as we know, that’s only half the story.
That’s because the sales revenue will come to us over time; not all at one go.
Revenue Schedules by GSP
Improve forecasting by scheduling opportunity
revenue over time.
How to Forecast Revenue On Drawdown Agreements
We can use revenue schedules in Salesforce to forecast the month-on-month order value.
The schedules spread the income over time.
Using the GSP Product Schedules app, you can create this revenue forecast while adding the Product to the Opportunity.
In this example, we are setting the start date for the revenue and the number of months.
This means we now have a reliable view of the revenue over time.
As you can see, we’ve scheduled $5,000 of monthly revenue over 12 months.
However, you might be wondering:
What if the revenue forecast isn’t a straight line?
The app means you can adjust the revenue schedule month by month.
In summary, Products and Revenue Schedules are an excellent way to manage drawdown framework agreements in Salesforce.
2. Manage Regular Order Framework Agreements in Salesforce
To manage regular order framework agreements in Salesforce, you also need an opportunity.
However, often this opportunity is created at the start of the year. It represents the total value of orders you expect from the customer over the year.
Nevertheless, as with the drawdown framework agreement, we need to schedule that revenue over time. So again, we can use the GSP Product Schedules app to do this.
But this time, let’s go one step further.
We update the revenue schedules based on how the year is panning out.
This information is vital for account managers. It means we can compare the value of the business expected at the start of the year with the latest forecast of actual revenue.
We can sum this by company, territory, and salesperson.
As a result, account managers have high visibility of the order trend for each customer.
For example, the team at Zimmer Biomet uses these reports to segment customers, drive business development activity, and implement marketing campaigns.
The team also measures account manager performance based on the customer’s quantity and value of orders.
Here’s one more thing they do: they track discount approval on the regular order framework agreement.
They store all information about the rationale for any discount in the Chatter feed. In other words, directly on the Opportunity.
As a result, the information is always available quickly. You don’t have to search high and low for the email trail.
One reason for this is that the promise of future orders may justify a discount. However, the customer may fall short.
At the very least, when re-negotiating the framework agreement, you need to know if the customer met their commitments.
Storing the rationale for the discount in the Chatter feed keeps this critical information visible and easy to find.
Here you can find more tips on controlling price discounts using Salesforce.
3. Manage Occasional Order Framework Agreements in Salesforce
With these types of framework agreements, you take a different approach.
There are, however, some similarities with the regular-order method. That’s because you create an opportunity to manage the process of securing the framework agreement.
This opportunity has a notional value only. So make sure you filter it out of the main pipeline reports and dashboard charts.
So far, it’s similar to how you manage regular order framework agreements in Salesforce.
However, there’s no expectation of relatively small orders weekly or monthly. Instead, you need to work with the customer to identify new projects and opportunities.
That’s where opportunities come into it. You manage the sales process for these projects through separate opportunities in Salesforce.
Here’s another thing:
The framework agreement will often define a specific set of product prices that apply to future opportunities. To do this, you create a unique Price Book just for that customer.
For example, Mercatus Solutions in the UK has a small number of strategic customers. These represent 15% of the total customer base. Yet they account for 70% of revenue.
Mercatus has agreed on specific rates and prices with each of these customers.
To ensure each opportunity has the correct price book, they use the GSP Auto Price Book Selector. This app makes sure your team uses the right Price Book in every case.
The GSP Auto Price Book Selector is an effective way to make sure salespeople consistently apply the right Price Book to Opportunities. Check the link for more details.
4. Manage License To Hunt Framework Agreements in Salesforce
This solution is similar to the way you manage occasional order agreements.
You use an opportunity to track the sales process of getting the framework agreement secured. This opportunity has a notional value, which I recommend you based on the 12 month or long-term anticipated value of related deals.
However, be sure to exclude these types of opportunities from your pipeline of ‘paying’ deals.
After the framework agreement is in place, you create a different opportunity for each Account where you are hoping to do business.
In other words, you create a new opportunity for active prospects within the overall organization. You might want to use an Ultimate Parent function to get a complete view of all the Opportunities.
Ideally, use Products and Schedules on these opportunities to define and track revenue over time in Salesforce.
This article has explained the four types of framework agreement you can manage in Salesforce.
Need any help or more advice? Don’t hesitate to get in touch today.
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