Blog, Pricing

How to Integrate CPQ with ERP and CRM: CPQ Series Part 3

By Frank Sohn
June 27, 2018

In this series on Intelligent CPQ (ICPQ), we’ve looked at what it is and why it’s important and the four steps to using price optimization, one integral component of ICPQ. For your CPQ solution to provide the most benefit, it should also interface with other third party systems such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM). In part three of our ICPQ blog series, we’ll examine why and how.

While some smaller companies still use CPQ as a standalone system, most larger companies now integrate their CPQ into the IT system architecture. It becomes clear how tightly these systems are integrated when we look at the data flow from the opportunity in a CRM system, to a quote in the CPQ solution, and then to an order in the ERP system.

CPQ solutions sit between these IT Systems. This means that critical data like customer, product and pricing data must flow through CPQ from CRM to ERP. Since our focus here is on pricing, we need to refine this and say price data and price logic must flow from CRM to CPQ and ERP. Why is this important? Because the price that was offered to the customer in a quote and accepted by the customer has to be the price that is used in the order.  Just imagine the customer’s reaction when the price on the order is higher than the price on the accepted quote.

Before we look at an example of this data flow between CRM, CPQ and ERP consider some important notes concerning how data in general and price data in particular is exchanged between different IT systems:

  • Data Type. Every system may have it’s own.

        Example:

Customer ID in CRM is a 20 digit numeric field

Customer ID in CPQ is a 15 digit alphanumeric field

Customer ID in ERP is a 10 digit numeric field

Note: This is not unique to CPQ but it shows that while the same data (e.g. Customer ID) is used, it can be defined differently in different systems. Some type of mapping is needed between the impacted systems to ensure no data is lost. It is important to note CPQ solutions native to a CRM system use the same data.

 

  • Price Data. This includes all price-records like costs, list prices, discounts, surcharges etc. that are available for a product or service

Example:

Product ABC is $50 (cost), $80 (list price) with a 15% discount to all customers at the “Silver” level

Note: A product can have many different prices. Price data is typically stored in a price book and it’s common for companies to use many different price books (e.g. A price book for USA, Canada, UK, etc).

 

  • Price Logic. This is the logic that is used to calculate a customer price.

Example:

 

The price logic in this example is list price minus discount plus surcharge = customer price. This logic can be different for every customer and product combination. You can generally differentiate between two different types of price logic. These are static prices and dynamic prices.

A static price is a price set independently from market conditions.

A dynamic price is the exact opposite and is calculated on the fly. The mantra behind dynamic pricing is offering the right price, to the right customer, at the right time, for the right product to improve sales margins.

Note: The price logic uses the price data to calculate the price. This means that both price data and price logic are required to calculate the correct (customer) price.

5 Steps Between CRM, CPQ and ERP

To see how CPQ data, price data and price logic needs to flow between these systems, here’s a high-level look at the 5-step sales process between CRM, CPQ and ERP:

  1. Sales rep creates an opportunity in CRM
    • Question to consider: Where is data such as Customer, Product, Customer ID and Price coming from?
  2. Sales rep prepares a quote for a customer
    • Question to consider: How is the price calculated? Where is the price logic and price data coming from?
  3. Customer accepts quote
  4. Sales rep converts quote into an order
    • Question to consider: How does the solution ensure that the quote price is equal to the order price?
  5. Order is available in ERP
    • Question to consider: How is the order price calculated? Where is the price logic and price data coming from?

Conclusion

Keep in mind, the same price data and price logic should be available in all three systems to ensure the same prices are calculated across Opportunity, Quote and Order. This directly impacts the user experience and customer satisfaction.

  • Customer and product data should also be available in all three systems.
  • Determine which system provides all the pricing capabilities that are required to support your pricing strategy (see Blog Post 2). That system should be your lead system.

 

Editor’s Note: For more on Intelligent CPQ, please visit the Vendavo website.

  • CPQ , CRM , ERP , iCPQ

    Frank Sohn

    Frank Sohn is President & CEO of Novus CPQ. A Configuration, Price and Quoting Expert with 20+ years of experience, Frank founded Novus CPQ Consulting in 2015 and has worked in CPQ and Quote-to-Cash business and IT roles since 1996 with companies like Hewlett-Packard, Juniper Networks, PriceWaterhouseCoopers and Consulting Companies in Europe and the US.