CPQ (Configure-Price-Quote) – what is this system for?

# BMS

CPQ (Configure-Price-Quote) – what is this system for?

28.11.2022

Buying a premium car is a pleasure. Sitting comfortably on your couch, you can set your dreams free. Using a laptop or a tablet, you can choose not only from among the models and body types but also countless equipment package options, interior styling, safety systems, engines, and colors. The number of available options is mind-boggling. Fortunately, the system ensures that the selected components are not in conflict and completes the selection with the elements required for the option to work. All this happens in real-time – any change made to the color or the texture of the dashboard is immediately reflected in the visualization model that can be viewed from all sides, and you can even look inside[i]. Finally, you can check the total price … and return to real life.

It’s no different when you want to design your kitchen or living room with IKEA products. The system will show and suggest the components for your design and product numbers and will indicate the racks and shelves the parcels you have to pick are located on in the store, as well as how much you will need to pay for it all[ii]. Access to such extensive functionality and product visualization is possible thanks to the CPQ systems.

What is a CPQ (Configure – Price – Quote) system?

The CPQ systems are fascinating tools. They allow the free configuring of complex products with multiple options and interdependencies. They can display the visualization of the selected version in real-time on any device screen, also in 3D. Price changes can be tracked with every modification of the design in progress, and after the selections are confirmed, the final offering, details of the configuration selected and information needed for a quick purchasing decision arrive by email.

CPQ programs also provide a lot of valuable additional information, allowing this specific version of the product not only to be manufactured but also assembled and used. Sticking to the automotive and furniture industry examples – for instance, information like – “this cupboard door will not go along with the drawer you have selected” or, in case of a car purchase – “selecting this safety package requires also selecting the Comfort electrical package.” Finally, the user will receive information about the date of production of the car or when their parcels will be shipped to the specified address. They will also receive assembly plans and information about the needed power supply requirements or space. Sometimes the dimensions of the packages and their weight come in handy. There are a lot of possibilities, depending on the industry, the CPQ system, customer requirements, and buying habits.

The CPQ software is evolving towards the expansion of visualization modules, quickly replacing the classic option selection tick boxes. As a result, the new Visual CPQ category allows checking a product and its features based on photos or in a VR (Virtual Reality) environment. CPQ thus becomes a comprehensive tool that supports the entire sales process rather than just facilitating the configuration and pricing.

What are the benefits of automating the product pricing and quoting process?

Traditional pricing and quoting is a tedious and unrewarding task, and in the case of multi-variant proposals for complex products, it takes high competencies and a lot of time. With a more significant number of customers and a comprehensive portfolio, the sales team must also be appropriately numerous, which translates into considerable human resources costs. Thus, any facilitation and reduction of the time to prepare the final proposal are priceless.

The Configure-Price-Quote systems eliminate from the company’s workflow the plethora of spreadsheets with lists of products, components and assemblies, price lists, and discounts. The necessity of laboriously sifting through previous correspondence and reconciling the contents of quotations also goes away. All sales information becomes available in a single place to every salesperson, which significantly improves the consistency of the team’s work. A few clicks are all it takes to prepare and send customers a PDF file with an offer tailored to their needs and expectations. Bottlenecks are also eliminated, and the volume of incorrect information routed to production departments is significantly reduced. The result? Big savings and increased production efficiency.

As shown by the experience of Epicor, one of the CPQ market leaders that acquired KBMax in May 2021, Epicor CPQ users can expect an increase in annual sales of about 168%, with a 38% reduction in the sales cycle and a 35% increase in production[iii].

These are very encouraging indicators boosting the CPQ solution providers’ market. According to forecasts by the research house TechNavio, the CPQ software market will grow from US$334.5 million in 2020 to US$416 million in 2024[iv].

What are the main advantages of CPQ?

CPQ software integrates product catalogs, product visualizations, and price lists reflecting individual pricing and discount policies in a single place. It also enables the seamless flow of data between CRM and ERP systems. In other words, in CPQ, customers’ needs meet the company’s necessary production resources. Automation in this area means flexible sales cycle management and constant monitoring of the company’s key performance indicators.

High-end CPQ systems, such as Epicor CPQ[v], allow control over the entire process from the design to production exactly to customer requirements. The integration with the ERP systems and the use of artificial and augmented intelligence techniques allows real-time demand and production planning modifications. This brings significant savings in warehousing, logistics, production, and higher margins. With customized production, accurate quotes can be created very quickly and sales can be better planned. The CPQ system eliminates most errors in orders, which also affects the final productivity of salespeople.

Automation in configuring – pricing – quoting also impacts customer loyalty levels. Their experience, emotions and attractiveness resulting from visual methods of configuring complex products and instantly receiving a complete set of information build a new quality in the customer-business relationship. This directly impacts sales growth – the conversion rate increases by 40%[vi].

Internally, managers and salespeople are provided with a consistent interface where they can track the progress of every customer interaction from the initial contact to the shipment of the finished product. It always proves very useful to have an archive of quotations and best sales practices or to track and store all useful information about customers in one place. The CPQ system thus becomes an excellent companion to CRM modules. The CPQ system also takes care of automatic contract renewal and management and supports up-selling, down-selling, or cross-selling strategies.

CPQ cuts by 30% the time for new salespeople to reach full effectiveness[vii]. They don’t need to know indexes, codes, and product-picking rules – the application does it for them. In the meantime, they can focus on the fast-paced production of offers and on establishing and maintaining lasting business relationships.

On the IT infrastructure side, the CPQ solutions can run as independent programs or be integrated with the ERP system or its selected modules. Thanks to the ability to host the CPQ programs in the cloud, offers in the process of being created can be immediately available for viewing and editing on multiple devices simultaneously and can be accessed by relevant employees according to their authorizations. This also means full support for companies selling through networks of trading partners – they, too, can take full advantage of the benefits of CPQ applications.

What are the drawbacks of CPQ systems?

In the case of CPQ systems, drawbacks are hard to find. Applications available on the market differ in functionality, sophistication, and integration capabilities, but each can improve and enhance something in the company’s sales department. Rather than drawbacks, one can talk about the requirements its use imposes – a CPQ system will do its job only on the condition that it is fed with up-to-date, correct, and complete data on an ongoing basis. Meeting this condition can be a challenge for many companies. Some difficulties may probably arise during integrating CPQ modules with CRM and ERP systems, especially if they come from different vendors.

When does a business need CPQ software?

CPQ software is especially popular with businesses that offer complex and elaborate products with multiple options, where the final price depends on configuration details, customer purchasing history and/or the nuances of discount policies. Implementing a CPQ system can either be part of an organization-wide digital transformation strategy or be initiated in a falling sales situation. If you put the cost, time and resources required to launch such a solution on one scale and on the other the additional profits, productivity gains, savings in logistics and decreased personnel costs plus improved customer relations, it’s pretty easy to figure out whether this is a worthwhile investment. Some numbers speak for themselves – a correct implementation of a CPQ has a chance of speeding up the creation of offers tenfold, a 95% reduction in the time it takes to get a discount approved by superiors, a 50% reduction in the time from sending an offer document to finalizing a sales service[viii]. Makes sense?

The Top 10 CPQ software

The selection of the best CPQ software, as in any “beauty pageant”, always depends on who chooses and what the criteria for that selection are. Fortunately, in this case, not so much the strict ranking is essential, but the list of leading providers in terms of popularity and customer satisfaction with using their CPQ systems. Our subjective list, supported by a report from g2.com[ix], includes: