Analyst Perspectives

Configure, price and quote (CPQ) software has been traditionally viewed as a specialist outpost of software, almost exclusively B2B and predominately used in manufacturing or specialty chemicals or other industries where there were large variants of similar products that required careful configuration, pricing and ultimately generating a quote that could be forwarded to a prospective customer for consideration. But in recent years, this has changed, both in the number of vendors offering CPQ products, either standalone or more commonly as part of a broader offering, and the number of selling organizations recognizing the value of either the “C,” the “P,” or the “Q” or some combination of these.

The fundamental business benefit behind CPQ is the need to ensure that proposals are both accurate and internally consistent as well as compliant with overall policies. As selling organizations’ products and services increase, along with their potential permutations of component parts, so does the possibility of choosing invalid combinations. Likewise, most organizations impose guardrails when it comes to discounting from a list, whether as a straight discount or as free periods or free services, and most CPQ products either offer, or integrate with, a rules-based approval system. And in support of making the buying process as frictionless as possible, an accurate configuration and pricing process, coupled with digitized quote and e-signature capabilities, makes for a better all-round experience for all. Although sometimes seen as a “restraint” by sales teams, in fact guardrails are a benefit to sales teams in standardizing and automating processes that speed up sales execution, reducing both mistakes requiring “walk backs” and delay-causing exceptions. I discuss more on this topic in my Analyst Perspective, Why Finance and Legal Are Important to Revenue and Sales Operations.

Newer innovations support more visual configuration capabilities, enabling sellers and buyers to review not just a list of products and services but also a finished physical product. This is, in essence, what is happening on many automobile manufacturers’ websites that feature a “build your own” car process. For manufacturing B2B companies, this can also be a competitive advantage to their buyers, either delivered as an animated display or faithfully rendered in a pixel perfect quote. CPQ vendors either provide their own product catalog capabilities or integrate with a third-party product information management (PIM) system. But, in general, more industries are seeing the value of a structured CPQ process as part of overall sales and revenue engagement and execution, as the benefits can accrue from any or all of the different components of CPQ.

As in many software applications that create more streamlined and automated processes, such as with CPQ, there are additional benefits that I refer to as “second order.” A positive byproduct of the modernization and digitization of business processes is that data and signals are constantly being produced as part of the activities within these processes. The CPQ process is no different and continuing benefit and value can be derived by analyzing the processes using the data generated. Which products and customers are typically causing exceptions? Which sales staff are applying for heavier discounts? How much overall discount is the company offering, by product, by team, by region? Examining this data can help identify ways to speed up execution as well as provide better guardrails to not only improve execution but also identify areas for reducing unnecessary discounting.

As a sales process can be derailed at the CPQ stage as much as it can be from a demo, a digitized CPQ process will help to reduce this risk, and in addition, the transfer of the quote details into downstream activities is also an important benefit. The accepted quote contains information relating to products and service including terms, prices, quantities and any special provisions. All this information is crucial to both contractual terms as well as provisioning, fulfillment and billing. The digitization of the quoting process means that the key terms of an accepted quote, whether as part of a negotiated contract or standalone, can drive the next steps in the provisioning, fulfillment and billing process without the need to manually rekey or transfer data as typically this is where errors and mistakes occur. This also holds true in any future changes or additions to an existing order or contract.

With the increasing adoption of mixed-revenue models, including subscription and usage, more industries are deploying more complex bundles of products and services that require configuring and pricing correctly, with guardrails and approval processes in place to minimize errors and the need for costly and damaging corrections. In addition, ASC606 and other revenue-recognition reporting requirements can also be included as part of the CPQ process to ensure compliance at the point of sale rather than a post-sale accounting treatment when the die has already been cast. But despite the benefits and advantages of a more automated and digitized CPQ process, we assert that by 2024, fewer than 1 in 10 organizations will deploy an automated, integrated CPQ and optional contract management system, reducing their competitiveness and resulting in poor initial customer experience.

If you are considering upgrading your quoting process, you should be mindful of some of the mistakes that can lead to lengthy and costly implementation processes. Look to gain incremental advantages. Standard pricing, quoting and approval process is for many organizations an important first step. In addition, do not try and automate or create rules for every edge case. There will always be exceptions that need manual intervention; the aim is to minimize these, not eliminate these. And involve the sales and revenue teams in the planning. Explain the benefits of a well-designed process to prospects and buyers, not just the savings for the seller or the value to the CFO’s team. A customer’s experience when buying in terms of ease and speed can greatly influence how the relationship starts. And happy customers will buy more.

Regards,

Stephen Hurrell