What is CPQ? Here’s Everything You Need to Know.
At its core, CPQ (Configure, Price, Quote) is software designed to optimize a three-step process central to all manufacture-to-order companies.
September 28, 2020
The first, and perhaps most crucial stage, is “configuration.” CPQ guides customers seamlessly towards product selections that perfectly suit their needs and budget constraints while maximizing sellers’ margins and engineering efficiency. This configuration process is handled by a “product configurator” that’s baked into the CPQ solution (more on that later).
The next stage is “pricing.” CPQ software calculates each configuration’s optimal price, taking into account factors like order history, volume, complementary product choices, incentives, pricing strategies, and broader market conditions. It also streamlines discounts, workflows, and approval processes.
The third is “quoting.” Once the configuration and pricing have been finalized, CPQ automatically generates a compelling quote, generally in PDF format, as well as a range of other documents, saving sales reps from the burden of number-crunching and formatting, shortening sales cycles.
It all sounds pretty straightforward so far. And it is – CPQ is designed for non-technical as well as technical users. But as we delve deeper into each stage, you’ll come to discover just how multi-faceted, interconnected, and powerful CPQ is for manufacturers of all sizes.
Buyers are demanding customization. And to remain competitive, manufacture-to-order companies are having to offer ever-increasing numbers of products and options. It’s great for the customer, but a massive headache for the supplier (and sales reps in particular). It’s no longer realistic to expect sales reps to make the right product configuration choices when there are thousands of options to choose from. Mistakes and technically nonviable configurations are commonplace.
It’s no mystery that CPQ has a major impact on customer experiences, but what can it do for your organization?
A core feature of CPQ is the “product configurator.” It’s a tool that sales reps and even end-customers themselves (depending on your sales process) can use to quickly and easily identify perfectly optimized configurations from potentially massive product catalogs. CPQ product rules, little bits of logic built into the back end of the software, ensure every product is technically viable and optimized from a profitability standpoint, while mistakes and miscommunications are consigned to the past.
Product configurators come in all shapes and sizes. On the basic end of the spectrum, there are text-based versions with Amazon-style filtering systems. On the more advanced, there are 3D visual product configurators with VR (virtual reality) capabilities that provide a fully immersive shopping experience rivaling any showroom visit. There’s no doubt that visual product configurators are better than their text-based counterparts. The human brain processes images 60,000 times faster than text, and 90 percent of information transmitted to the brain is visual.
Product configurators can be used as a gated tool exclusively by reps or embedded into a B2B eCommerce website for buyers to operate independently. This latter, embedded option, is currently skyrocketing in popularity due to shifts in B2B buying preference towards independent research and self-service, not to mention social distancing measures that have confined face-to-face meetings to history for the time being.
With a visual product configurator, users configure products within a highly intuitive visual interface. They can point and click and drag and drop to attach and detach parts, resize elements, change colors and upgrade features, etc., while a visual representation evolves on their screen, in real-time. Sales reps gain a deeper understanding of your product offering; new hires can be onboarded more quickly; and buyers connect to your brand on a deeper, more emotional level.
Visual configuration inspires confidence and aids in decision-making. Buyers can spin products around and inspect them from all angles to ensure they’ve made the right choices, and there won’t be any nasty surprises later down the line. The process resolves buyers’ desire to physically interact with products before purchase and increases conversion rates by an average of 40%.
Your sales reps want to sell, generate business for your company, and earn a commission. Still, according to recent research, the average rep spends a paltry 34% of their time on revenue-generating activities and the rest on admin – generating quotes, creating proposals, and seeking approvals for discounts and other discretionary offers.
CPQ combines big data (analysis of extensive data sets from a wide range of sources) and machine learning (learning for itself and improving performance over time) with your pricing strategy (whether it be profit maximization, market penetration, or competitor-driven) to achieve results way beyond the realistic capabilities of any human pricing team.
With CPQ, sales reps are freed from the burden of manual, error-prone pricing processes, and Excel. But they can easily override algorithms and assign discounts in line with their individual permissions. Custom approval loops streamline this process. When a rep applies a discount, a request is sent automatically to a manager, who can either approve or deny with a single click. There are no more missed emails, protracted threads, and games of Telephone. Everyone works from the same central hub, enhancing collaboration, transparency, and accountability.
Having now configured a product and calculated its price, the next step in the CPQ process is to generate all the sales documents required to get a deal over the line. Chief among them is the quote itself, which CPQ generates automatically before sending it out to the prospect. Other simple documents generated by CPQ include proposals, marketing collateral, and Ts and Cs, all produced as per company branding guidelines and sent out alongside quotes.
Robust CPQ solutions, however, can generate much more than just PDFs. KBMax features CAD and design automation that allows sales reps to automatically create product renderings and highly detailed technical drawings in SolidWorks (and also AutoCAD, Autodesk Inventor, PTC Creo, etc.) without the need for engineering input.
Engineers are finally freed from menial tasks. The bottlenecks created by configuration mistakes and sales reps’ over-reliance on the engineering department are cleared, and quote speed is slashed from weeks to minutes.
You can expect to experience fewer delays and rework and a drop in refunds, chargebacks, and late penalties, all of which boils down to considerably happier and more loyal customers and higher profits. Meanwhile, engineers can concentrate on the creative and innovative work that fuels job satisfaction and readies your company for the uncertain future.
Lauren has over 11 years of marketing experience and has learned from industry experts at companies like HP and Salesforce.