How To Manage Framework Agreements In Salesforce
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.
Of course, with framework agreements, usually, no money changes hands when the deal concludes. Instead, companies invoice customers over time. So, you must also forecast the revenue from framework agreements over time.
Unfortunately, businesses often struggle to do this.
That's why I'm covering two critical questions in this blog post:
First, should you use an opportunity to manage when seeking, acquiring, and agreeing on a framework agreement?
And second, what's the best way to track and manage the revenue relating to a framework agreement?
Ready?
Let's begin by confirming what we mean by a framework agreement because people use different phrases to describe the same thing.
The Term "Framework Agreement" Explained
In this guide, I mostly use the term framework agreement. In your business, you might refer to master agreements, umbrella agreements, master services agreements (MSAs), or outline agreements.
I'm assuming they're all broadly the same thing.
Framework agreements are contracts between buyers and sellers that describe the overarching terms of the commercial relationship. They usually include prices, applicable discounts, and related terms and conditions.
Sometimes, they also define what, how, and when the customer receives the products and services; other times, these details are established on a deal-by-deal basis but within the parameters set out in the framework agreement.
People also differentiate between a framework agreement—where the total order value is not precisely defined—and a long-term contract for a specific set of products at an agreed-upon price.
In other words, framework agreements often have a degree of ambiguity over the value of goods that will be provided, in contrast to tightly defined contracts that last several years.
If you are wondering how to manage long-term contracts in Salesforce, I recommend this blog post: When Repeat Opportunities are Right (And When They Are Not).
Managing the Framework Agreement Process in Salesforce
Here's the first question:
Should you use an opportunity in Salesforce to manage the process of acquiring a framework agreement?
In general, I recommend you do so for three reasons.
- Securing a framework agreement is a sales process. It's a particular type of sales process, but you can track the stages like any other opportunity. The opportunity object in Salesforce provides all the features you need to do this, including stages, contact roles, products and much more. You can also consider using record types so that framework agreements have different stages than other Salesforce opportunities.
- Distinguishing framework agreement opportunities from straightforward opportunities (using a record type or other field) allows you to track the framework agreement pipeline using reports and dashboards. The dashboard provides visibility of deal progress, win rates, and other performance metrics.
- You can use the Amount field on the opportunity to track the notional value of individual framework agreements and the overall pipeline of these deals. This approach helps you prioritize and identify the critical framework agreement opportunities you should focus on. Filtering framework agreement opportunities from other sales performance reports avoids double counting.
In short, you want to manage the sales process associated with framework agreements and have visibility of progress and performance. The opportunity object in Salesforce is the straightforward place to do this.
With some framework agreement types, you should also use product schedules to track revenue over time. We'll come to this shortly.
But first, consider whether you use individual opportunities to track revenue after the framework agreement is signed.
The answer is it depends.
Improve forecasting by scheduling opportunity
revenue over time.
Types of Framework Agreements
How you manage your framework agreement once signed and whether you need individual opportunities to track revenue depends on its type.
To describe the different types in your business, you might use terms such as multi-supplier, single-supplier, closed frameworks, call-off contracts, etc.
Nevertheless, I identify four types of framework agreements you can manage in Salesforce:
- Drawdown.
- Regular Order.
- Occasional Order.
- License to Hunt.
Let's start with drawdown arrangements.
1. Drawdown Framework Agreements
With these agreements, customers draw down products monthly or quarterly against an assumed volume.
Usually, the framework agreement defines the total value or quantity of products the customer will purchase throughout the period, sometimes within a minimum and maximum amount.
Price discounts are given based on the total anticipated value or quantity. Within that total, there may be a monthly or quarterly breakdown of the orders you expect to receive from the customer.
Customers place orders that 'draw down' against the total value or quantity defined in the agreement. Often, a salesperson engages with the customer to determine the specific products and agree on other details, such as delivery arrangements.
Sometimes, the customer's total drawdown differs from the overall value or amount specified in the framework agreement, leading to challenging negotiations when the contract is due for renewal.
Example
Based in Greensboro, NC, Gilbarco Veeder Root is one of the world's largest gas (petrol) pump manufacturers.
The company has drawdown framework agreements with many petrol and gas retailers. These documents define the products, pricing, commercial arrangements, marketing arrangements, and legal terms of the contract with each retailer.
Usually, the gas station operator draws down the pumps over the agreement period, often in line with a refit or expansion program. A salesperson handles each order, and the completed details are sent to the manufacturing team.
2. Regular Order Framework Agreements
Many companies that sell large volumes of relatively small-ticket items or consumables often use order framework agreements to manage commercial arrangements.
The customer places regular orders when they need to restock. A critical difference to drawdown arrangements is that with regular order agreements, the customer rarely engages with a salesperson. Instead, customers often place orders via an online portal that integrates with the ERP system. The framework contract covers the pricing and discount arrangements embedded in the ERP system.
Example
Ammex Corporation, based in Kent, WA, sells disposable gloves and other personal protection equipment used in many industries.
Improve forecasting by scheduling opportunity
revenue over time.
The company creates a regular order framework agreement with its main customers. The contract specifies the price for each product based on the anticipated volume and terms and conditions.
Customers place regular orders via an online portal that integrates with the ERP system. The orders are imported into Salesforce weekly, giving account managers a complete view of customer buying patterns.
3. Occasional Order Framework Agreements (MSAs)
With these framework agreements, customers place occasional rather than regular orders.
The framework agreement, often called a master services agreement (MSA), covers the commercial terms and legal arrangements. However, separate specifications define the products and services of each order.
Often, professional services businesses establish an MSA when first engaging with a customer. Both sides recognize the potential for further work, but there is no explicit guarantee of future projects. However, the MSA covers any subsequent assignments.
Example
Based in the UK, Agile Consulting provides high-end IT professional services to companies in financial services, telecoms, and manufacturing.
Agile has master services agreements with many of these businesses. However, each project is a significant undertaking, with the scope defined in a Statement of Work (SoW). The SoW describes the resources that Agile will use on the project, estimated effort, critical milestones, delivery assumptions, and other details. Nevertheless, the MSA contains the resource rates and overarching legal arrangements.
4. License To Hunt Framework Agreements
A license-to-hunt framework agreement allows one party to seek deals in the customer's business or a group of companies.
This type of arrangement is common in financial services, pharmaceuticals, some retail sectors and many other industries.
Example
Toronto-based Quark Expeditions offers polar travel cruises. It sells directly to customers and through various general and specialist travel agents.
Many travel agents belong to a trade organization or buying group. The trade organization negotiates commissions, service levels, and other arrangements with holiday providers. The holiday providers cannot approach individual travel agents within the group unless they have a framework agreement with the main body.
Quark works hard to establish framework agreements with the leading trade organizations. Once those agreements are in place, account managers are licensed to hunt with the agents linked to that organization.
How To Handle Framework Agreement Revenue In Salesforce
Let's see how you can manage the four types of framework agreements in Salesforce.
1. Drawdown Framework Agreements In Salesforce
Most businesses will use an opportunity in Salesforce to manage the individual orders arising from a drawdown framework agreement.
Products are vital to managing these opportunities. In some situations, consider using schedules.
To explain:
Salespeople often engage with the customer on each order within this framework agreement. The products salespeople add to the opportunity represent the goods and services the customer will receive in the context of each specific order.
You can sum the number and value of products added to each opportunity and compare this to the total agreed in the framework agreement.
Incidentally, if you're unsure about using products, this blog post will help:
How Products Bring Salesforce Opportunities to Life.
In some situations, the revenue from each order will accrue over time, and you need to recognize it appropriately.
For more information on how to do this, I recommend this article:
How To Track Revenue Recognition in Salesforce.
However, in summary, salespeople create a revenue schedule at the same time as adding the products.
The schedule describes how you will recognize the income over time.
Our app, Product Schedules by GSP, makes it quick and easy for salespeople to create schedules and delivers outstanding visibility on future revenue.
2. Regular Order Framework Agreements in Salesforce
You need an opportunity to manage each order on drawdown framework agreements, but you likely don't need them to manage revenue on regular order agreements.
The reason is that with regular order arrangements, customers often place comparatively small orders by logging into an ERP portal. The ERP system handles shipment, invoicing, and other fulfilment processes.
It would be time-consuming and onerous for salespeople to create an opportunity for each order. A better approach is for salespeople to develop key account plans that define the objectives necessary to retain and grow the customer.
I recommend this guide:
How To Build Powerful Key Account Plans In Salesforce to learn more about this.
Rather than creating opportunities, it's better to pull the orders handled by the ERP or other systems into Salesforce.
There are two ways you can do this.
- Importing the data on a weekly or monthly basis.
- By building a direct integration between the two systems.
Organizations often start with the first and later transition to the second option.
Either way, importing the order data gives account managers high-quality and easily accessible information on the number and value of orders their customers place.
Use reports and dashboards to track the overall volume by customer, region, product type and other parameters.
That said, you still need an opportunity to manage securing the framework agreement. I recommend you assign the expected products and schedules to this opportunity.
That way, you can compare what you expect to receive with the volume and value of orders the customer places over time.
This insight is essential information for growing accounts, combatting competitor threats and tracking changes in buying patterns.
3. Manage Occasional Order Framework Agreements in Salesforce
With 'occasional orders' or MSAs, you need an opportunity to manage each customer engagement.
That's because each order is comparatively unique. The framework agreement contains agreed rate cards and other terms and conditions, but dialogue with the customer is required to define what you will deliver. There's also no guarantee the project or order will go ahead.
You manage this process through an opportunity in Salesforce.
As such, the approach is similar to the drawdown framework agreement. The difference is that with MSAs, there's often significantly less confidence in future revenue once the agreement is signed, and it may not be necessary to compare actual invoices or revenue with a figure agreed at the outset.
Nevertheless, fulfilling the customer project may still occur over an extended period. That means you should also consider the app Product Schedules by GSP to track revenue over time.
4. Manage License To Hunt Framework Agreements in Salesforce
With 'license to hunt' framework agreements, I recommend you create an account in Salesforce for every business within the group you can work with. Sometimes, the buying group or overarching organization will give you a spreadsheet you can import to simplify the creation process.
Once the framework agreement is signed, you can begin prospecting these accounts and creating opportunities where appropriate.
Again, use products in Salesforce and schedules if you need to track the revenue from each opportunity over time.
With this framework agreement, consider using Salesforce campaigns. A significant part of the prospecting process often involves holding your own events or attending industry forums. Tracking the opportunities that arise from these initiatives is critical for calculating the ROI of the event.
If you are not sure where to start, I recommend this guide:
The Ultimate Guide to Campaigns in Salesforce.
Over to you
If you use framework agreements in your business, here are three steps you can take today.
- Ask for a free consultation. You can Get in Touch to arrange a web meeting. We'll help you decide on the right approach for your business and recommend the steps to get started.
- Review Product Schedules by GSP. Many companies with framework agreements use our app to track revenue over time. Here's the Product Schedules AppExchange Listing for the Product Schedules app; you can find more information and take a trial.
- Review Account Planning by GSP. This app is the optimum way to build executable account plans for strategic customers in Salesforce. Here's the Account Planning AppExchange Listing, where you can learn more and take a trial.
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