Billing & Monetization

The Rise of CPQ Solutions for Subscription-Based Businesses

November 01, 2022

Did you know that it is estimated that between 2022 and 2026 the configure, price, quote (CPQ) market will grow by $1.65B at a CAGR of 14.13%? Add to that the fast growth of subscription-based businesses, and incorporating CPQ solutions within the subscription business model is a winning combination.

While CPQ should be considered a necessity regardless of the industry or business model, why is it of the utmost importance for subscription businesses? Before diving into the uniqueness of the subscription business model and how CPQ can alleviate some of the inherent challenges, let’s look at what CPQ is and how it got its start.

CPQ: What It Is and Why It Is Essential 

What is CPQ?

Designed to help companies accurately define the configuration, pricing, and quotation of products across a large and dynamic set of variables, CPQ solutions gather the needed information, enabling businesses to create configurations in the best and most efficient way possible. Additionally, it takes cost, competition, and economic factors into consideration to deliver the best possible price and produces a clear and accurate quotation.

Often deployed within existing systems such as CRM, ERP, and eCommerce, CPQ solutions enable businesses to simplify complex configurations and deliver timely and accurate quotes. With the ability to expedite and automate the sales process, CPQ ensures that customers receive the exact products purchased and provides for a more effective and personalized customer experience.

Let’s look at each step within CPQ.

Configure:

Using business rules, an ideal combination of products and options/features is created. Some CPQ solutions provide proposal collaboration with other parties, like suppliers and buyers.

Price:

Using business rules, your approved discounts, promotions, and bundles are applied to the configured products. The rules can range from simple quantity discounts to more sophisticated rules, including value-based or outcome-based pricing. In addition, some CPQ solutions use workflow to streamline and expedite the approval process when pre-determined business rules have been exceeded.

Quote:

An error-free quote is generated containing details about the product(s), features, pricing, and in some cases, graphics are included. By automating this step, businesses can ensure that best practices are always applied, proposals are quickly generated, and buyers are able to understand the proposal quickly and accurately. All of which expedites the ability to convert quotes to revenue-generating orders.

CPQ: History in Brief

1980’s: CPQ entered the market as a rudimentary configuration system – simply put as a configurator. Its goal was to ensure product specifications didn’t conflict with ERP systems and to provide assistance during the sales process by helping sales reps manage product specifications.

1990’s: The configurator made its way to the front office and became a key component of interactive selling.

2000’s: Many small- and mid-sized businesses were struggling with the quote-to-cash (QTC) process and needed a way to further automate the steps. A subset of QTC, CPQ gained even more traction.

2010: Gartner Research released a report stating that “CPQ systems typically include pricing engines, proposal generators, quoting systems, and rules or constraint engines, and are complemented by approval and authorization workflows” – officially launching and giving merit to CPQ. Ongoing technical advancements further enhanced CPQ and businesses began using it as a comprehensive quotation generator.

Today: CPQ has come to life with 2D and 3D visual product configurators that use built-in intelligence to ensure all components are compatible. More recently, virtual reality product configuration is making an entrance, further enhancing the configuration process.

Ever since CPQ arrived, its proven its weight in gold by helping subscription-based businesses expedite sales processes, identify upsell and cross-sell opportunities, improve accuracy, and deliver the kind of personalized experiences that keep subscribers from going to the competition.

CPQ Solutions Help Overcome Subscription-Based Sales Roadblocks

Are you missing out on untapped revenue, encountering lengthy sales cycles, spreading data among numerous silos, or are your customers frustrated by the entire buying experience? If the answer to even one of these questions is yes, a CPQ solution may be necessary.

To know if CPQ is right for your company, look at the following questions that provide a deeper dive into the challenges subscription-based companies typically encounter during the sales cycle.

  • Does your company have numerous products and SKUs?
  • Do sales reps have to go to multiple sources to acquire the information needed to create a quote?
  • Once sales reps retrieve the information, does it take manual effort to create the quote?
  • Do your customers expect an almost immediate response to their quote requests?
  • Do you have a recurring revenue stream?
  • Are your offerings complex?
  • Can you customize offerings?
  • Are you losing money due to excessive discounts?
  • Do the quotes sent to customers have errors?
  • Is your company one of the last to provide a quote to the prospect?
  • Do you employ staff to manually review the quotes?
  • Are you planning or are currently operating internationally?

A yes to even one of these questions means that a CPQ solution may be right for your subscription-based business.

Let’s flip the narrative. By incorporating CPQ, you’ll be able to create error-free price quotes the first time, every time. The automation delivered by CPQ solutions helps streamline subscription management processes. For example, subscription renewals and upsells/cross-sells are handled on a timelier basis, increasing efficiency, and providing additional revenue opportunities. Additionally, CPQ workflows help protect your predetermined margins so that discounts don’t eat away at profitability. Further, when customers request changes, you can easily modify subscription plans, products, and services, which provides downstream benefits on your billing, invoicing, and dunning processes.

Are You Ready to Reap the Benefits of a CPQ Solution?

The benefits of CPQ across the sales cycle are numerous. From increasing quotation efficiency and accuracy through identifying upsell/cross-sell opportunities to improving customer responsiveness for increased satisfaction, this powerful sales tool enables you to transform your subscription-based business.

By removing the inherent complexities of subscription-based selling you’ll decrease quotation turnaround time, increase average order value, improve quote accuracy, win more deals, and deliver the personal experiences subscribers expect. With the right CPQ solution, you’re able to capture everything you need in one place – products, pricing and business rules – and rise above the competition by closing more deals faster and increasing subscriber retention rates. Learn more about how BillingPlatform can help by talking to our experts today.

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