CPQ: What it is and Why You Need it

Sales teams often struggle with configuration of price quotes when dealing with complex products or services or large product catalogs. Sales teams are often forced to use manual processes that result in errors, inaccuracies, and wasted time.

And these manual processes take sales reps away from their most important activity: selling.

Whether purposefully or by accident, sales reps often deviate from pricing and discounting guidelines. This leads to discounts being given too generously or too soon, reducing sales margins, and making it more difficult to hit revenue targets.

Effective leaders know that investing in the right tools will help them streamline and standardize their sales processes, and make for a happier and productive workforce. With Configure Price Quote (CPQ) software, companies of any size can achieve scale and overcome the above obstacles.

What is CPQ?

CPQ stands for Configure Price Quote.

The purpose of CPQ software is to simplify complex pricing and expedite the quote-to-cash process.

CPQ software enables sales leaders and their teams to configure their product and service offerings, enforce pricing guidelines, control discounting and margins, and generate accurate price quotes and proposals.

Let’s take a closer look at each word:

Configure:

Configuration of products and services ensures that what you provide is actually available, meets the buyer’s needs and specifications, and can be delivered according to the agreed-upon contract terms.

Price:

Pricing rules and regulations give sales teams the autonomy and flexibility to offer different product packages and options, and grant approved discounts to buyers under predetermined guidelines.

Quote:

Sales teams can easily generate standardized quotes that are legally compliant and contain all the necessary information. This provides sales reps with certainty that quotes sent to customers are validated and that orders from those quotes will not be rejected.

What type of companies need a CPQ?

CPQ software is designed to simplify complex quoting and streamline the sales process, but it’s not for every company. If you’re selling a limited number of products or services, or have an extremely simple pricing model, a CPQ system may be beyond your needs.

Generally speaking, though, mid-size and enterprise companies need a CPQ tool. This is the case because they either possess a large or fast-growing sales organization, sell many different products or services and/or have a complex pricing structure.

There are three specific industries that benefit greatly from implementing a CPQ. Software as a Service (SaaS), service, and manufacturing industries commonly use CPQ software to improve the efficiency of their sales process, automate burdensome manual tasks, reduce inaccurate quoting, reduce sales response times, and provide a better customer experience.

Who should consider purchasing a CPQ?

The three roles or departments typically responsible for deciding to buy a CPQ include:

  1. Revenue operations: With CPQ applications, revenue operations leaders can unify sales-related processes across the company – from Sales to Account Management to Customer Success. By implementing a unified sales stack that includes CPQ, they can take a more structured approach to achieving revenue targets and aligning different departments throughout the sales pipeline.
  1. Sales: Sales leaders benefit greatly from CPQ software and are key to decision-makers when it comes to implementing sales tools that improve performance. By implementing CPQ, they can automate manual sales tasks, automate administrative oversight and ensure sales teams are selling as efficiently as possible.
  1. Finance department: This department is also in a position to determine which tools can help maximize revenue. By enforcing pricing guidelines and improving coordination with sales and revenue teams, CPQ software enables finance teams to ensure compliance and gain more accurate revenue insights.

5 benefits of CPQ software

In today’s crowded marketplace, companies are increasingly interested in adopting sales technologies that give them a competitive advantage. A CPQ solution that provides businesses with a complete view of the entire sales process from beginning to end, have an advantage over the competition.

Having a best-in-class CPQ provide a variety of benefits, and here are five of the most important ones:

1. A better selling experience

With CPQ software, sales leaders can ensure accurate and consistent pricing among customers and across the organization. By automating key parts of the sales process, CPQ reduces manual overhead and allows reps to focus on selling instead of administrative tasks, which has a direct impact on productivity.

They can close deals faster with a connected sales process, and leaders can minimize revenue leakage by eliminating mistakes and inaccuracies from the quoting process. With increased clarity and accuracy of quotes and proposals, sales teams will also earn greater credibility and provide a better B2B buyer experience.

2. Faster time to revenue

CPQ enables sales teams to send out professional, accurate and personalized quotes in significantly less time. Research shows that 84% of small businesses with CPQ software are able to send quotes within 30 minutes, in comparison to 57% of small businesses without a CPQ. And 95% of small businesses are able to send proposals within an hour, in contrast to only 75% of small businesses without a CPQ.

Aberdeen research reports that CPQ software has also been shown to shorten the average B2B sales cycle from 4.68 month to 3.42 months.

3. Increased revenue achievement

Organizations can use CPQ to protect sales margins through greater discount governance, elimination of mistakes and inaccuracies in the quoting process, and expansion of revenue opportunities.

Studies by McKinsey & Company show that CPQ can enhance pricing to generate two to seven percentage points of sustained margin improvement, with initial benefits in as little as three to six months. This ultimately leads to an increase in average deal size. And according to Aberdeen research, the average deal size for companies using a CPQ is $432k, as opposed to $211k for those without.

CPQ software also makes it possible to create a clear pricing framework for renewals, upsells and cross-sells. This enables sales reps, CSMs, and account managers to manage renewals and automate expansion opportunities – a key source of additional revenue growth.

4. Scaling sales operations

One of the biggest challenges companies face during times of growth is scaling their sales operations effectively. CPQ automates critical parts of your sales process so sales teams can operate efficiently and create repeatable success – giving your reps the ability to handle more deals, a growing product catalog, and greater product complexity. Having an intuitive and easy-to-use CPQ, especially if it connects seamlessly with the rest of your sales tools, also makes it easier to ramp up sales reps, and minimize change management.

5. Accurate revenue forecasting

CPQ software provides finance and revenue teams with more accurate data and better visibility into revenue. This makes it easier to identify sources of revenue leakage, as well as opportunities for revenue growth. They can also collect and analyze data from previous quotes to understand the revenue impact that similar deals, as well as pricing models, can have in the future.

Armed with this knowledge, they can optimize pricing, forecast revenue with greater certainty, and set better-informed revenue targets.

Three steps to successful CPQ deployment

Onboarding any new software can be challenging, especially when it requires implementation and integration with your existing tech stack. There’s also the matter of getting buy-in from the rest of your organization – that is, getting them to understand the value of it and actually using it.

Depending on which CPQ solution you choose, and whether it requires an implementation partner, you can have your CPQ up and running in anywhere from a few weeks to a few months to over a year. Gartner research shows that 25% of customers are able to implement their CPQ in less than 90 days.

Here are three steps to ensure successful CPQ deployment:

  1. Having your pricing and packaging fixed beforehand will enable you to get going right away. If pricing or product details change in the future, a best-in-class CPQ will make it easy to to configure those changes with minimal overhead.
  1. Map out how you want the approval process to work for your sales team. Then you’ll be able to set up predefined approval workflows so sales reps can gain quick approvals, and are unable to offer certain discounts without authorization.
  1. Make sure the right personnel and leadership are in place, and on board, to assist with the configuration of your pricing strategy and the deployment of your CPQ.

Old CPQ vs. New CPQ

What are the main differences between old CPQ software and new CPQ solutions? They typically vary by length and difficulty of implementation, ease of use and adoption and range of capabilities. These all affect their performance and the rate at which sales teams adopt them.

Implementation of older CPQ solutions tends to be a long and expensive process, often requiring the costly assistance of a third-party vendor, and taking anywhere from 3 months to over a year. They require coding on the customer end, both upon implementation and during maintenance, making it difficult to update pricing, packages and product catalogs on a regular basis

In contrast, you should be able to implement a new CPQ solution within weeks. A true measure of CPQ success is not just how quickly the software is implemented, but also how well it works, how easy it is to use, and how well it fits your current practices – so you should aim for 100% adoption by your sales reps

A modern CPQ solution will not demand complex coding on the part of the customer. Instead, a guided selling playbook should make it easy for your sales team to configure product pricing by using business rules. These rules can be easily managed by reps or admins without any coding skills. The playbook should be fully customizable, and provide a dynamic question-based flow that makes it easy for sales reps to adhere to pricing guidelines and sales best practices, with no need for administrative oversight.

Your CPQ should fully automate pricing configuration, discounting, quote generation, subscription management and contract management processes. In addition, automated approval workflows should be implemented to thereby streamline and accelerate the approval process.

An advanced CPQ will also deliver your quote into a digital sales room, which establishes a single source of truth for all stakeholders, and provides real-time deal collaboration between buyers and sellers. Ideally, it will also provide unique buyer intent data, so you can better understand buyer engagement and use that data to optimize and accelerate your sales process.

What to look for when buying a CPQ

What features and capabilities are important when determining which CPQ is the best solution for you?

Here are eight key things you should look for:

  1. No-code configuration of pricing and products, paving the way for easy CPQ implementation and maintenance. You will no longer need to depend on developer resources and third-party implementation experts.
  2. Incorporates guided selling by providing a unique question-based flow to help reps make the most strategic selling decisions.
  3. Integrates with your CRM, PRM and ERP – making it easier to sync pricing and product information, customer data and deal details between your systems.
  4. Automatic generation of standardized and professional-looking quotes and proposals.
  5. Supports subscription-based pricing and provides intuitive capabilities for managing and automating upsells, cross-sells and bundle opportunities.
  6. Customizable approval workflows to ensure sales reps are following company strategy around pricing and discounting, and to automate and accelerate the approval process.
  7. Supports multiple currencies and languages so you can provide customized quotes and contracts for a variety of regions.
  8. Connects seamlessly with other deal-closing solutions like contract management software (CLM) and your digital sales room.

Want to learn more about CPQ?

According to research by Gartner, roughly 71% of companies are using a CPQ to automate and replace their legacy solutions. And as we’ve established, the benefits of implementing a CPQ are significant.

By adopting CPQ software, your organization can improve quoting accuracy and speed, empower reps with a better selling experience, provide customers with more professional and timely proposals, and prevent costly errors that result in revenue leakage. Modern CPQ technology also makes it easy for your organization teams to execute renewals, upsells and cross-sells in a more manageable and optimized way.

If you’re looking to invest in CPQ software, do your research. You can start by comparing new and popular CPQs on peer-review software websites, and use that as part of your information toolkit to determine which CPQ would be the best fit for your company.

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