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How Does a CPQ Tool Work?

September 30, 2021

Product configurations and pricing models are becoming increasingly complex, especially if you run a subscription-based business that offers a variety of pricing models and multiple product/service configurations. If your sales reps are still sifting through spreadsheets to find the right configurations and pricing or if quote approvals are handled manually, you may be thinking – there has to be a better way. The answer is a configure, price, quote (CPQ) tool, which can improve the efficiency and productivity of your sales cycle.

The ABCs of CPQ

An industry term used to describe an integrated set of software applications that support configuration, pricing and quote activities for solution and negotiated selling, CPQ solutions typically include pricing engines, proposal generators, quoting systems, and rules or constraint engines, and are complemented by approval and authorization workflows. To get a better understanding of how CPQ works, let’s take a look at each of the components.

Configure: As the word implies, configure refers to the configuration of the products and services you offer. What happens when a customer requests a product to be customized or requires options to meet their specific needs? Without a CPQ tool, this is where complications arise. With a CPQ solution your sales reps simply enter the information into the system. Using a unified product catalog and rule-based configuration engine, the system determines the components needed to develop the requested product.

Price: Using pricing rules that incorporate various pricing schemes such as subscription, usage-based, dynamic, hybrid, packages, bundles, discounts, and promotions, sales reps are able to quickly offer favorable and personalized pricing, while ensuring a margin of profitability. Once complete, workflow automatically forwards it for pricing and discount approvals.

Quote: The last stage in CPQ – the quote – which contains additional details and is company branded, is converted to PDF format and sent to the customer for approval or request changes. By including the ability to accept the quote via e-signature the processes can be expedited even further

Simply put, CPQ automates the configuration of products and services, calculates pricing, and creates a branded quote that provides precise configuration, appropriate pricing, and includes the right level of detail to eliminate issues that can stall the sales process.

Now that we have a common understanding of each CPQ component, let’s take a deeper look at CPQ in action.

A Day in the Life of CPQ and its Benefits

You receive a proposal request for a product that requires modifications, as well as additional options. With the information in hand, the CPQ tool walks the sales rep through the process of entering the information into the template. Instead of days or even weeks, a quote can be generated in 15 minutes or less – ready to be automatically routed to the appropriate personnel for approvals. With this kind of time savings, not to mention quotes that are error-free, your reps will have more time to sell and build profitable customer relationships. However, the benefits don’t end there.

When it comes to delivering on return on investment (ROI), CPQ is hard to beat. A study conducted by Aberdeen compared the sales cycle of CPQ users versus non CPQ users, uncovering the following impressive figures.

Sales Metrics

CPQ Users

Not CPQ Users

Average sales cycle length

3.42 months

4.68 months

Reps achieving quota

58%

46%

Sales quota achieved by sales team

56%

52%

Lead conversion rate

35%

30%

Average deal size

$432k

$211k

Average number of proposals per month

20.9

14.0

And these benefits are just the tip of the iceberg! Accurate and efficient quote creation isn’t a siloed activity. For this reason, CPQ needs to be tightly integrated with your other systems such as customer relationship management (CRM), billing and enterprise resource planning (ERP), etc. To get a better idea why integration is necessary, let’s take a high-level view of some of the other software solutions CPQ needs to interact with.

To begin, we have the configure, price, and quote components. From there it needs to expand its reach for approvals. Once you have a signed contract an order is generated and the product delivered. Upon delivery an invoice is generated, payment is received and revenue is recognized. As you can see, the accuracy of the quote generated has a domino effect on many departments and processes – not to mention your profitability

While CPQ delivers countless benefits, it may not be right for all businesses. However, there are indicators to let you know when it’s time to incorporate a CPQ solution.

Is CPQ Right for My Business?

While you don’t want to jump the bandwagon and implement CPQ if it’s not yet needed, you also don’t want to wait until your company is facing loss of sales and revenue due to late quotes and/or errors that lead to customer mistrust.

To help you determine if now’s the time to integrate CPQ into your software ecosystem, we’ve identified 11 key indicators that a CPQ tool may be right for you.

  1. Do your products and/or services have complex pricing and discounting schemes?
  2. Throughout the sales cycle, are you experiencing a high degree of errors?
  3. Are your products complex by nature and require expertise for accurate configuration?
  4. Does the required data to create a quote reside in disparate systems?
  5. Are you losing revenue due to over-discounting?
  6. Does it take your sales reps days to generate a quote?
  7. Do you have a lengthy quote review process?
  8. Is your product or pricing information outdated?
  9. Are you missing out on upsell and cross-sell opportunities?
  10. Are the quotes generated inconsistent or lack branding?
  11. Do you lack visibility into the entire sales process?

If you answered yes to even one of these questions, now’s the time to begin looking into CPQ. The next question you may have is… how can I be sure I’m investing in a CPQ tool that is right for my business? While you won’t find a cut-and-dry answer to this question, there are some features and functionality the CPQ solution you choose should provide.

Harness the Power of CPQ with a Solution That’s Right for Your Business

Just like no two CRM or ERP solutions are identical, the majority of CPQ tools will offer a common set of functionality with differing feature sets. A few things to look for in a CPQ solution include an advanced rules engine, automated quoting and pricing management, seamless integration to billing, ERP & CRM systems, reporting, and of course a solution that’s able to handle your workload today and into the future.

As part of our unified quote-to-cash platform, BillingPlatform CPQ offers a fast and seamless experience to configure products and services to meet buyer requirements. Our cloud-based architecture unifies the entire revenue management process – from the first entry in the CRM system to managing subscription and usage-based pricing to recognizing revenue in the general ledger. With an easy-to-use interface, we bring CPQ out of the back office. We provide a solution that enables companies to win more deals, grow and retain customers, and leapfrog the competition. Reach out to our team to learn more!

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