What is CPQ?
Too often, when companies embark on a project to determine which configure price quote (CPQ) solution is best for them, they come to the conclusion that CPQ really stands for Confusing Plethora of Questions and their frustration stalls the project.
To avoid this, let’s start with the easy part of unpacking the acronym, and then helping you understand your needs and if CPQ software is the right solution for your sales team.
- C is for “configure”
- P is for “price”
- Q is for “quote.”
Behind each letter is a lot of business details, of course, but the basic idea is this:
CPQ software accelerates the quoting process by enabling sales teams to quickly configure, price and quote the perfect solution for any customer in minutes.
In other words, CPQ solutions increase sales productivity while accelerating sales velocity.
The impact isn't trivial: Success in the digital economy hinges on a sales experience that is quick, easy and perfectly personalized. That’s what a CPQ solution delivers.
And here’s how it works.
In this context, configuration means the grouping and arrangement of your products. Many companies now create optional combinations for even the simplest products. Fast food restaurants offer apps where customers can tweak their sandwiches down to the pickles and mayo. Why? Because customers want to customize their products and experiences.
We all want to leverage control over our purchases and no one wants to wait to get their fully customized sandwich.
In the B2B context, sales teams selling complex products that require configuration need a way to quickly configure the right product offerings to meet a customer’s needs. Sounds easy enough, but many configurations are so complex it can take years of training before a sales expert can deliver them error-free and on time.
If you can’t quickly pass along the personalized product configurations that customers demand, you lose business in a fierce and competitive market. The game rapidly moves on without you.
- Are you losing sales because of a time-consuming process for your sales teams to put together a quote?
- Are you losing upsell and cross-sell opportunities due to your people either forgetting or not even being aware of possible connections with products they are quoting?
- Are you losing sales because the quotes being sent to customers contain products that are not ideal for their needs?
- Are you experiencing warranty/replacement costs due to the fact that inappropriate products are being sold and then have to be replaced for free or refunds have to be issued?
If any of these are occurring, a CPQ investment may pay for itself quickly just on the configuration capabilities alone.
CPQ tools optimize and accelerate the configuration process by helping sales people create complex, zero-error configurations in minutes. Yes, no errors. Even junior reps with a single day of experience can sell products like a pro.
But CPQ doesn’t stop there. Some CPQ solutions infuse AI insights during this process, enabling sales reps to recommend product add-ons that perfectly fit an individual customer’s needs.
When anyone on your sales team can effectively configure any product for any customer, you not only win more deals, but can also lean on AI to bundle the right products or services so each deal is fully maximized.
Additional Tip: The best CPQ solutions go beyond simple configurators to include easy-to-navigate catalogs with guided selling to help sales teams find the right products for customers. World-class CPQ solutions also offer advanced ways to help sales people visualize those catalogs in 2D/3D, or even augmented/virtual reality. That’s a powerful view. And customers notice.
This can refer both to the prices of individual items as well as packages. These prices can also be for services and products, which may be sold together or individually.
If you have complex pricing, you may be losing business or selling at less than optimal margins simply due to ignorance by your team on how to offer optimal prices. You also may be losing deals due to long quote turnaround time resulting from too many hands involved in delivering pricing or special pricing requests.
Additionally, if your company has tier-based pricing for your products and services, your team may not be adjusting pricing correctly or may have difficulty explaining pricing to customers, resulting in lost revenue and sales.
You could once price lemonade at your corner stand for 25 cents because, well, everyone else was doing it, too. Kids from around the block would pay a quarter, and so would the CEO of the Fortune 500 company who stopped to honor your entrepreneurship.
That’s the old approach to pricing. Static. One-size-fits-all.
The digital economy works differently. Customers are singular, their industries are unique and their market demands are constantly changing. Sales people now need to deliver pricing that accounts for every nuance.
What does a downturn in oil mean for a plane ticket price? How about a sudden surplus? What could a spate of bad weather or a scarcity of fertilizer mean for produce prices?
Salespeople need to know how to price and discount when the deal demands it. They need to know how to incorporate customer buying patterns and market data that impacts willingness-to-pay. Of course, no one has the luxury of time to research the perfect price, and delays in customer quote requests mean one thing: lost deals.
That’s where AI-based CPQ tools produce even better results than CPQ tools without AI.
A CPQ tool, especially one supported by pricing science, can assure the best pricing is made available for every quote. A properly designed and easy to maintain CPQ system can provide positive ROI based on pricing improvements alone.
CPQ software helps each salesperson price a product or configuration for any customer. Infused with AI-based price optimization technology, CPQ tools become smart quoting engines.
With AI-packed price optimization tracking a million variables, salespeople can deliver perfect product prices for individual customers in real time. Split second personalization means major gains in profit.
Additional Tip: As you look at CPQ software with AI-based pricing optimization, focus on those that provide transparency on how price recommendations are derived. This will help fast-track the adoption of pricing recommendations.
Once CPQ software has done all the heavy-lifting of configuring and pricing a product or service, the deal still isn’t sealed. Your sales team must now deliver a professional, personalized quote that perfectly illustrates all the awesome details.
Quoting is probably the most overlooked part of CPQ. However, it can be quite important. When talk about quoting, we mean a summary of line items and pricing that you send to customers. Think about this for a minute. Your team delivers a quote to a customer with all the upsell and cross-sell opportunities included.
Then, because you have no control over how the proposal is being built, your prospect sees an unprofessional, poorly organized quote document that is so hard to read it turns them away from your company. Or, if you can’t provide the file format your prospect wants, so you cannot even deliver the proposal to them.
Most B2B customers are now doing their own research and requesting quotes from several vendors. They expect fast responses to their requests and it’s 50 percent more likely that the vendor who responds first wins. You’ve got to get yours right and deliver it quickly.
But the quoting process can be time-consuming, especially if you’re creating a large quote for a customer with many products and configuration options. CPQ solutions with powerful performance-quote engines make it easy for you to navigate the details and administer changes. You’ll be able to import RFPs directly into your quote and make mass modifications as needed.
Once you’ve completed the quote, your CPQ software automates its delivery in a professional, streamlined way.
Additional Tip: If you have a large catalog of products or configurations, you’ll want to make sure your CPQ solution can handle the creation and management of large quotes. Many CPQ solutions with native architectures (built for only one type of CRM) limit the number of products you can add to a quote. Invest in a hybrid CPQ solution that can handle thousands of line items without performance degradation.
More about the basics of CPQ
In this first video of the ABCs of CPQ series, we help you to understand the basics of CPQ technology. We discuss exactly what CPQ is, who uses CPQ and what the benefits are.
But Does Your Company Really Need CPQ?
- If your sales team is sluggish to a quote or price request and your cross-sell game isn’t fully up to speed, you need CPQ.
- If your product portfolio is bursting at the seams, making it difficult to connect the right items with the right customers, you need CPQ.
- If complex product configurations mean only some of the sales team can accurately create them quickly, (you guessed it) you need CPQ.
- If your otherwise awesome sales team loses profits by over-discounting products, you need CPQ.
- If a single customer is talking to multiple reps and receiving different quotes, you DEFINITELY need CPQ.
- If customer quotes are hidden on the individual laptops of sales reps, please get CPQ as fast as possible. If your quotes aren’t perfectly error-free and still sent in Excel (nothing against Microsoft!), you need CPQ.
Measuring the Impact of CPQ. What's up with the Metrics?
Once you start making strategic changes to your sales process, begin tracking ROI based on the improvements you've made. To effectively measure the overall impact, you'll need to start considering some of the key metrics to show CPQ deployment value:
- Response times: How quickly your sales team should respond to customer requests for quotes and how quickly they actually respond.
- Churn rate: Your churn rate helps you monitor how often you lose customers. This metric is important because it can let you know if you are struggling or failing to keep accounts you've previously won.
- The number of quotes created by sales: As you leverage CPQ solutions, you should see the number of generated quotes increase by each salesperson.
- Quote-to-win ratio: By using machine learning technologies to help you gain a decisive advantage in sales through improved personalization, your quote-to-win ratio can increase.
- Revenue growth and revenue expansion with customers: Since your existing customers have a lot of growth opportunities to offer your organization, you need to carefully track their sales.
- Profitability impact: Look carefully at how profitable your organization is for deals you are closing. This metric will be a direct reflection of how effectively your sales team adopts price optimization recommendations.
- eCommerce revenue: Your eCommerce revenue can help you evaluate your ROI from investing in your digital experience as an organization.
The value of CPQ for sales teams is clear. Once your organization begins putting it to work, you may be amazed at how much faster your sales process is and how closely aligned your offer recommendations are with what your customers actually want. Invest in an AI-based CPQ solution to help harness the power of machine learning to increase revenue and profitability results for your organization.
Are the Business Benefits of CPQ Truly Worth it? (You Can Probably Guess the Answer)
Even in our ultra-connected digital economy, there are still sizable gaps between your sales team and their goals.
Manual processes speedbump the sales cycle and lose paying customers. The absurd complexity of configuring products for individual needs can stump your most seasoned experts. And no sales rep can read a customer’s mind.
But AI-based CPQ software can read their data, and it can equip each rep to configure, price and quote with granular customer insight and the highest levels of professionalism, all while optimizing each deal on every channel you use to go to market.
While we’ve explored some of the high-level benefits of a CPQ solution in this article, read more about the top 9 reasons to add CPQ to your sales tech stack.