October 25, 2017
Configure, Price, Quote (CPQ) automation has driven high value for many companies over the years, particularly those that deal in complex product lines. It shouldn’t be a haphazard investment however. Before embracing an integrated, intelligent selling tool, how do you know if CPQ will benefit your bottom line? How can you measure its value?
As I shared in an earlier post, CPQ systems are undergoing significant transformation as digitization continues to impact business across every industry. While different vendors place varying emphasis on the solution’s components, the universally accepted understanding is CPQ includes support for product configuration, price guidance, and automated quote creation with some degree of contract lifecycle management. How is this helpful? For several reasons.
When managed well, a smart CPQ strategy earns results. If your organization offers any amount of product complexity, be it bundles, configured products or services or solutions, CPQ will direct sales to the products that are compatible and appropriate. If your quoting process is time-consuming and requires an element of negotiation, CPQ will automate the work, reduce inaccuracies, and improve effectiveness. But it’s important to move beyond a one-time integration of a static price list. Price optimization in a CPQ workflow will boost profitability on a deal-by-deal basis and, by presenting the right price at the right time to the right customer, you will drive a vastly improved customer experience – and make more money.
While the benefits of CPQ seem like a no-brainer, getting started on such an effort can be a challenge, especially if you first have to convince other members of the C-suite how the investment will deliver a significant ROI.
Improved efficiencies and effectiveness
At the highest level, value from CPQ solutions comes from improving the efficiency and/or the effectiveness of the commercial process. Efficiency is about reducing costs for the same amount of output: the amount of resources, time and effort it takes to complete a quotation, including all the rework (e.g. because of errors) that happens along the way. Ideally, this reduces cost rather than requiring more quotations.
Effectiveness is made up of 3 components: 1) price 2) quote size and 3) quote win-rate. This is the area that will have the highest value although it is also harder to estimate and measure the impact.
The drivers of value will vary significantly depending on the level of complexity in configuration, pricing, and quoting – so it’s important to understand where you fit before you begin any improvement efforts. They may vary from about 25% for the simplest cases up to more than doubling the profit for the highest complexity cases. The additional opportunity in complex cases comes with a big caveat however: the most complex cases are also those that require the biggest investment, have the longest time-to-value, and have the highest risk of disappointing.
To estimate the ROI your company can realize by implementing CPQ, start by trying this new calculator. Answering 6 quick questions will provide you with a free report that shows how your organization can benefit across 4 business areas: sales effectiveness, go-to-market efficiency, process improvement and back office supply chain.
You can also read how to develop a value-generating CPQ program in our whitepaper, Getting Your CPQ Strategy Right.