In the prior blog post I wrote about manufacturing CPQ software benefits and review recommendations. In this post I want to expand upon the business use cases driving the increased need for Configure Price Quote (CPQ) software as well as share some operational recommendations and best practices.
Complex Products Slow Sales Cycles
Complex products are often characterized by sophisticated product configurations with many options and rules which dictate inter-dependencies and interoperability. They also tend to be big ticket sales with lengthy sales cycles. Long sales cycle durations are an increasing problem as product life cycles are shortening.
The product selling challenges are magnified by resource constraints. Many manufacturers have designated product experts who through years of experience possess the deep knowledge to know permissible product configurations, combinations and dependencies. These people generally liaise with sales reps who are engaged with prospects and customers.
More often than not these domain experts are few so when they are busy, sales people and sale opportunities stall. The communication problem is exacerbated when dealing with business partners and indirect selling channels. These resource limitations not only introduce delays to sales cycles but can prevent the company from offering more fluid product combinations for promotional purposes, introducing new products, expanding sales territories and scaling the business.
Configure Price Quote (CPQ) software is increasingly being reviewed as an option to thwart these problems and apply technology in a way that institutionalizes product knowledge, decreases sales cycle durations and scales sales operations.
CPQ Software Goals and Results May Differ
According to the Gartner CPQ MarketScope, the top 3 business drivers for manufacturing Configure Price Quote software are illustrated below.
However, as Gartner and other analyst firms routinely note, between 30% and 50% of CRM software implementations, and consequently CPQ software deployments, fail to achieve their objectives or fail outright. Fortunately, the challenge can be mitigated when recognizing that the technology must be part and parcel with a business strategy, measurable outcomes and well defined business processes. And when these contributing factors come together the results are compelling, as shown below in a CPQ research brief by Aberdeen Group.
CPQ Users Outperform all Others
|Sales Effectiveness Metric|
|Percent of sales reps achieving quota|
|Overall team attainment of sales quota|
|Lead conversion rate|
|Average deal size or contract value|
|Average number of proposals, quotes or RFP responses delivered per rep per month|
|Average sales cycle|
|Average number of conversations or meetings per sales deal won|
Configure Price Quote Best Practices
To help your company achieve its own impressive performance metrics, here are some CPQ best practice recommendations that look beyond the obvious Configure Price Quote capabilities and business processes.
- Personalize Beyond Product. Delivering highly relevant and personalized quotes and proposals is a clear best practice. What's not so clear is that CPQ software can be used to customize quotes and proposals beyond product attributes and combinations. Consider applying your CPQ software to include additional customer or sales cycle attributes such as the customer's objectives, purchase history, industry or regional legal requirements and competitors in the deal. These non-product attributes apply more intelligence to the sale opportunity which can render superior quotes and increase sales win rates.
- Use Notification Alerts. Product life cycles are shortening so manufacturers are increasingly agile in terms of new product introductions, combinations, promotions and retirements. It doesn't take long for an item on an outstanding quote to be replaced, incur a price change or be discontinued. Trying to manage these events manually for many outstanding quotes is futile. Most of the CPQ software applications I've worked with don't offer robust workflow capabilities. However, when combined with CRM software, you can generally use the CRM workflow to create alert notifications which notify sales reps of these conditions in real-time. This capability helps lessen prospect surprises and gives the sales person a good reason to reach out to the prospect, possibly to induce action before an item is replaced or incurs a price increase. Alerts can also be used to notify sales people of quote expiration dates.
- Replicate Top Producers. Sales managers chase an elusive goal of helping the bulk of their sales team replicate the behaviors of their top producers. CPQ software can bring some much needed data and information reporting to the quote or proposal process for this objective. Measuring the pricing, product combinations, cross-sell options, support plans, warranties, margins, discounts, accompanying documents, references and other factors — or even specific document verbiage or content blocks — for both winning and losing proposals can identify patterns to replicate or avoid. This best practice can be extended if also using Contract Lifecycle Management (CLM) software which integrates quotes with contracts.
- Support Guided Selling. CPQ software is highly supportive of needs based selling and supporting both the sales manager's goal of enabling repeatable processes as well as the product manager's goal of steering customers toward higher volume products or product combinations. Embedding CPQ needs based prescriptive dialogues within CRM software process guides or possibly workflow routines can go a long way in making it easier and more intuitive for the sales force to sell higher volume and higher margin products.
- Use Real-Time Prompts. Use automatic up-sell and cross-sell messaging during quote creation to increase top line revenues and bottom line profits. Real-time commission visibility, on sale and up-sell messages, margin calculations and shopping cart totals are the types of internal information that should display to sales people when creating quotes in order to guide desired product sets and sales behaviors. A similar capability is to use smart pricing or discounting rules for document discounts which then back-write to line items in a way that maintains product margin minimums or health thresholds.
- Perform SKU Rationalization. CPQ reporting can be used to understand which SKUs may need revamping or retirement. Inevitably, certain items will become less utilized. Information reporting can identify those SKUs that are consuming space in the warehouse and on the balance sheet but failing to contribute to customer demand and manufacturing margins. Similar analysis should be applied to kits and bundles as well as warranties and services related to SKUs.
- Include Indirect Channels. Manufacturers team with a variety of indirect sales channels such as agents, dealers, distributors, franchisees, OEMs and resellers. As these business partners generally don't receive or invest in the same product or sales training, using CPQ software can aid their sales pursuits while also decreasing customer-facing errors that may ultimately be inherited by the manufacturer. When partners use CPQ software manufacturers can also gain sales performance and forecasting visibility.
There are generally multiple types of business partners and even individual partners selling complex and high dollar products often have varying rules of engagement such as prescribed or preferred customer segments, defined territories, exclusivity options, margin structures or negotiated discounts. While variable-based price lists may apply to indirect channels, rules and what's permitted with discounting are often more complex. Leveraging CPQ software either stand-alone, or preferably as part of a CRM or Partner Relationship Management (PRM) system can manage the rules governing indirect channels, make it easier for your partners to sell your products and extend the benefits from the direct sales force to the indirect sales force.
- Experiment With Bundles. CPQ software makes it much easier to experiment and measure product combinations. A tactic to create awareness and demand for a new product is to bundle it with a legacy product. Creating kits and bundles can also be effective for pulling through high margin accessories or ancillary items.
- Make Buying Easy. Customers have more options, are more demanding and are less willing to put up suppliers that are difficult to buy from. Manufacturers must be cautious that CPQ software can become a double-edged sword if not properly managed. On the up side, this type of application accelerates the pricing and quoting functions. But on the down side, many customers get confused and frustrated if given too many options. Choice is good, but too many choices cloud decision making and delay sales cycles. Don't use your CPQ software to promote product proliferation but instead use it to refine the product selection based on dialogue and relevancy. A performance measure that I recommend watching is the number of quote or proposal revisions delivered to a prospect. As this number rises, it's a clear sign that there’s confusion with the salesperson and/or the prospect.
While no technology is a panacea, and all business software deployments incur risk, when properly deployed Configure-Price-Quote software business results are compelling. In addition to the benefits cited in the above table, research from Aberdeen, titled Configure-Price-Quote: Best-in-Class Deployments that Speed the Sale, found that CPQ software adopters used 27% less time (4.9 versus 3.6 hours) to create a quote or proposal, and had 2.2% higher sales person quotas ($1.014M versus $992K), which when coupled with the research showing reps using this software more frequently made their quotas (58% versus 46%) provides a demonstrable revenue impact that shouldn't be ignored.