What is CPQ and Why Should it Matter?

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"It’s more than just a point solution … it’s a strategy."

CPQ helps companies configure product offerings, price them and produce quotes and proposals.  It is functionality used by sales people and can be extended to customers via a self-serve portal.  Ultimately, it is about minimizing the quoting effort and accurately conveying the specific requirements for downstream processes.  As can be seen in the acronym itself, CPQ involves multiple disciplines.  The elements of a quote include …

  • product and part data, what’s off-the-shelf and what needs to be designed, valid relationships, part options and constraints, and availability
  • pricing data that may need to take into account geographies, local regulations, economic benefits, manufacturing costs, competition, margins and discounting
  • quoting conditions such as scheduling, credit status, and payment options

Applying CPQ is not for the single SKU (stock keeping unit) company, rather for companies that offer product lines with multiple configuration/custom options for each unique customer order.

Let’s highlight the benefits that are offered by CPQ capabilities.  Check out the illustration below. 

Forbes article, “Five Ways Cloud-Based CPQ Increases Sales Effectiveness and Drives up CRM Adoption”, Apr 17, 2016, by Louis Columbus

 

Lead-to-sale increases by 30%!  Are you kidding?  That’s a compelling, eye-opening number.  That benefit alone should be a compelling driver for CPQ.  

Accelerating the Sales Cycles 

Would accelerating your sales process drive additional revenue? 

Are you leaving money on the table?  We think so.  Do you?  Consultants like Louis Columbus do as referenced in the diagram above.  He points to the real possibility of a lead-to-sale increase of 30%.  In similar studies, improvements of 5% to 10% in revenues are realized by simply producing quotes faster along with refining costs that no longer have to be estimated.

So where does this uptick come from?  Let’s do a little math to see how these claims can be made.

Say your organization does a 1,000 quotes a year, driving 100% of the company’s revenue.  Each quote takes approximately five days.  The win rate is 15% within a year.  And, let’s assume 250 working days a year.

Without augmenting staffing requirements, let’s estimate a productivity improvement of just 10% (per the table above) of proposal development time by leveraging CPQ capabilities.  This 10% savings allows for the production of an additional 110 proposals per year.  Using the average close rate of 15%, this means an additional 17 proposals awarded, producing a 12% increase in revenues. 

Of course, there are numerous assumptions buried in this calculation.  This includes variations in quoting cycles, staffing to generate quotes, deal flow, manufacturing capacity, delivery capacity, and so on.  And … this is not a linear function.  But, the important takeaway is that CPQ can deliver additional revenues with the same resources.  Can your company ignore or overlook this revenue impact?