What Is CPQ?

Those in the sales world are all too familiar with the process of quoting and just how problematic it can get. This is especially the case for businesses offering a wide variety of product options that can vary in price based on specifications. Traditionally, this would leave these cases to put forth their best effort in administering the quoting process themselves, despite a high potential for problems relating to accuracy and speed. This is where CPQ comes in, having revolutionized this dynamic and changed the way quoting is done.
 

What Does CPQ Stand for?

The acronym CPQ stands for Configure, Price, Quote, and is used in reference to a type of software system that is designed to allow sellers to produce precise quotations for complex configurable items. Overall, the goal of implementing a CPQ software is to improve a sales cycle’s efficiency, productivity, and profitability.

Salespeople use this process to expedite product configuration and proposal, decrease their risk of producing inaccurate quotes, and therefore offer their customers a better buying experience.
 
What Is CPQ
 

How Does CPQ Software Work?

As its name entails, CPQ software works off of a three-phase process that performs the ultimate function of streamlining and accelerating the sales process. To offer better insight into just how these components operate, we’ll detail each through the following.
 
Configure

When it comes to CPQ software, the “C” for configure refers to building and designing products as per specific customer needs and preferences. Many businesses offer these types of items, that when requested, will need to be ordered based on certain customizations. From unique products to experiences, this system can be a massive benefit to buyers, yet at the same time cumbersome for sellers due to its innate complexity.

CPQ software offers an automated way for salespeople to configure products according to customer specifications. This is done with the help of base product models, libraries of approved options and configurations, and guided selling features.

These software tools allow businesses to configure their complex product offerings in ways that will fit exactly what their customers want. It provides them a straightforward way of constructing, visualizing, and specifying what they are selling, thus making the process much easier to control and navigate.

By employing software to do the work of configuration in this way, users can lessen the risk of human errors and allocate more time to focus on connecting with customers.
 
Price

Next up, the “P” in CPQ is used to represent price. This phase works to address the notion that with sophisticated products come increasingly complicated pricing structures. For businesses offering flexible product options, predetermined pricing prior to configuration isn’t a possibility or an accurate practice. It is prone to errors, ineffective and can seriously lag turnaround times.1

The pricing function of CPQ software is made to tackle this issue, leveraging the power of automation efficiency to generate exact, accurate quotes for products based on the rules it is provided.

  • Attribute-based pricing: Attribute-based pricing refers to when the cost of a product is changed based on the value of one or more characteristics of the item, as ordered by the customer. Selling products based on size (small, medium, large) or selling goods with a different price dependent on the customer’s choice of finish (paint or fabric) are just two examples of this. Most of these characteristics are considered part of the product’s configuration and must be specified before the seller can price it correctly.
  • Customer-specific pricing: Customer-specific pricing is a method of providing a pre-negotiated price to a customer. The price is most often set at an agreed-upon amount or as a discount off the product’s regular list price.
  • List pricing: List pricing is the most basic form of price calculation. This is when you get the product cost from a price book or price list. Sales teams may also use several price lists to cover regional pricing variations and other factors.
  • Cost + Markup: The Cost + Markup approach, as is typical for resellers, starts with the product’s cost and adds a markup to determine the list price. This approach is also common among those looking to maintain a particular “standard” margin.
  • Percent of Total: The Percent of Total approach, sometimes known as “dynamic pricing,” is a method of determining the product’s list price by adding a specific proportion to the prices of one or more additional goods. Under certain circumstances, CPQ software may automate the calculation of dynamic pricing. The most frequent use of this pricing strategy is for support and maintenance services.
  • Volume pricing: Volume pricing is used to vary list price based on the quantity of products that a customer wants to purchase. It is most commonly applied as a form of volume discount, rather than a completely different list price.
  • Term pricing: Term pricing is when the list price will vary depending on how long a contract term will last with a customer. For example, the price for particular service may be different for a 24-month term than it would for a 12-month term. This is relevant to recurring revenue products.
  • Block pricing: Block pricing is the practice of selling your items in units of bulk quantities, with a set price for the entire bucket. Most would be familiar with this system in relation to cell phone plans. You buy a block of minutes, a block of bytes, or a block of text messages. It doesn’t matter whether the customer uses all of these minutes, bytes, or text messages, or only a fraction of them; their purchase price remains the same.

Essentially, this part of a CPQ system helps businesses ensure that they are offering a personalized and accurate price to their customers, while maintaining profitability.
 
Quote

The last step of the process is the “Q” for quote. Quoting is used to provide customers with a detailed estimate based on prior specifications. Good quotes are pivotal in the sales world, as they serve as a representation of the business’ professionalism, quality, and accuracy. Furthermore, speed is essential in this part of the process; it can make all the difference in effectively standing out to customers who will often request quotes from multiple companies. In this way, quoting works as a way for businesses to sum up what they are offering in the most appealing and professional way possible to buyers.

Due to the complex nature of configurable products, this step can quickly get complicated. Quoting is a practice with plenty of room for errors and missteps, and can likewise be cumbersome to compile and revise.

However, CPQ software delivers a seamless, error-free way to deliver this function to businesses. Via automated document generation and approval flows, it can build personalized, accurate quotes for customers and allow salespeople to effortlessly review and adjust details prior to sending.
 
 

What Businesses and Industries Use CPQ?

CPQ software is a powerful tool that can be leveraged by a multitude of businesses and industries offering configurable products, such as those that will vary in specifications and price. It is broad in options and extremely nimble, allowing organizations to adapt it to best meet their specific needs. Examples of this include:

  • Manufacturing, heavy equipment, and construction: In these sectors, there is a great deal of product variations and customizations that occurs. The quoting process is complex, as it entails considering various measurements, material requirements, and production time estimates. CPQ can be an extremely valuable tool in helping companies to quote accurately and quickly.
  • High technology: As products in this industry are highly configurable, with many options and variations in electronic components, instruments, machines, etc., it makes sense that CPQ would be of particular use here. By streamlining the quoting process, organizations can provide potential customers with accurate estimates for their desired product in a timely manner.
  • Fashion and apparel: Fashion and apparel businesses have a high degree of product variations, as customers can often choose from a range of colors, styles, and sizes. This makes it difficult for businesses to generate quotes that are both accurate and appealing to buyers. CPQ can be an essential part in overcoming this challenge.

There are also numerous other industries that can benefit from the use of CPQ software, including automotive, food and beverage, and medical technology.

The bottom line is that if your business offers products that can be customized or configured in any way, things can get complicated quickly and jeopardize your operational efficiency. CPQ system can help mitigate the problems of inefficiency and disorganization by centralizing and streamlining the sales process as a whole.
 

What Are the Key Features of CPQ?

CPQ software hones a wide range of features and capabilities businesses can leverage to configure complex product with ease, deliver accurately priced quotes, and accelerate their sales processes. The following are just a few of the key features pertaining to CPQ.
 
CRM and ERP Integrations

CPQ software has the ability to connect with enterprise core systems, such as Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems. In this way, the multiple departments involved in the quoting process have access to centralized customer information, pricing lists, product inventory, etc., eliminating the risk of errors when configuring and pricing products.

Furthermore, integrations with CRM and ERP platforms allow workflows between operations and sales to become more efficient, with consistent requirements and specifications flowing from one system to the other. As a result, businesses are able to produce and deliver customized offerings with higher levels of accuracy and efficiency, which increases customer satisfaction.
 
Guided Selling Functions

As salespeople configure a product, CPQ software can verify in real-time the accuracy of each selection and provide intelligent feedback via guided selling functions, such as easy-to-understand pop-up messages and color-coded highlights. Furthermore, up-sell and cross-sell messages lead salespersons to relevant recommendations based on specific configurations, helping them provide the most complete offerings.
 
Pre-Configured Pricing

CPQ software often comes with logic-based pricing and discounting capabilities, enabling the configuration and maintenance of sophisticated rules and formulas. Whether you price on Cost + Markup, use complex formulas and tables, price based on territory, lease calculations or a combination of all, CPQ handles any complex pricing requirement. With pre-configured pricing, sales teams are sure to deliver an accurate price at the highest possible margin each time.
 
Collaboration Tools

Salespeople aren’t the only ones who are involved in quoting. Engineering, legal, and finance staff have a role in generating as accurate a quotation as possible. Your sales team can efficiently collaborate and eliminate bottlenecks with these departments by leveraging automated review and approval workflows. CPQ system can prevent rogue discounting by setting thresholds for maximum discounts without authorization. Product change requests can route to appropriate team members for fast action and pricing.

CPQ software allows those in sales to work with other departments and submit the best and most precise quotation possible without confusion or disorganization.
 

What Are the Benefits for Businesses and Sales Teams?

CPQ software provides tangible benefits for businesses and sales teams, such as increased efficiency and time and money savings.

No matter how much they would like to, sales reps following the traditional quoting process tend to spend more time on administrative tasks than connecting with their customers. This represents a great waste of time and resources, as such work can easily be streamlined through CPQ software.

CPQ allows salespeople to avert the need for tedious tasks by delegating them to a system that uses automation and rules to get the administrative work done faster. It gives sales reps more time to focus on their customers and on bolstering their ultimate experience.

Furthermore, in sales, time and money go hand in hand. Because CPQ software acts as a major time saver for businesses, it is also a saver of money and resources. By allowing CPQ tools to manage the quoting process for them, salespeople and managers are empowered to allocate more time and resources to other parts of their operations. That means an enhanced ability to evaluate other processes, improve practices and support operations. Companies can further improve their inner workings, leading them to sell more efficiently and increase revenue.

Additionally, businesses that implement CPQ software enjoy the benefits of:

  • Faster response times
  • Higher sales closing rates
  • Better ROI
  • Lower customer churns
  • More quotes created in less time

 
The value of CPQ software is clear. It allows businesses and sales teams to operate in a more efficient and collaborative manner, while also providing time and money savings. The result is a streamlined and accelerated quoting process that leads to increased sales and customer satisfaction.

If you are looking for a way to improve your company’s sales process, consider implementing CPQ software. It just might be the answer you are looking for.
 
Reference Articles
https://www.technavio.com/report/configure-price-and-quote-software-market-industry-analysis
https://spotio.com/blog/sales-statistics/
https://www.sugarcrm.com/sales-statistics/
CSO Insights, “The Impact of Big Data on Sales Performance”
NewVoiceMedia, “Serial Switchers Swayed by Sentiment: How Bad Emotive Customer Experiences Are Costing Brands Billions”
Aberdeen Group, “Powering a Profitable Sales Organization: How CPQ Cuts Costs,” “Unlocking Competitive Sales Advantages with CPQ”

Share

LinkedIn
Twitter
Facebook