CPQ Explained in Simple Terms. Configure, Price and Quote

What is CPQ?

CPQ products help businesses create complex quotes, which also relates to CRM CPQ. Configure, price, and quote (CPQ) is a term in the information technology industry used by businesses to describe software tools that help create complex quotes. CPQ software is used when it is necessary to produce complex configurations. For example, car dealers are using CPQ tools to configure new cars. For example, particular interior options could depend on the version of the car (like “base”, “premium”, “luxury” etc.). Or certain transmission options could be available only with certain engine types because not every transmission will fit every engine.

CPQ was developed to mitigate a “combinatorial nightmare” for products with a high quantity of combinations. CPQ engine reduces the requirement for users’ competence level and helps build precise configurations, calculate pricing and raise a quote.

Examples of CPQ

Telecom

Telecommunication companies use CPQ engines to bill their customers based on usage plus fixed monthly subscriptions for telecom services. For example, if a telecom company client is paying for 5 GB of internet monthly, no matter if he/she overspent the usage, the client will be billed a fixed monthly fee. On the other hand, if a telecom customer overspends 5 GB of traffic, he/she will be paying a fixed monthly fee plus a surcharge for overspent internet traffic limit.

Automotive

As mentioned above, car dealerships, manufacturers, and distributors are using CPQ in order to configure cars, trucks, trailers, and more. For example, a car could be configured out of many options. Like a model, version (eg. saloon), engine, transmission, color, extra options, and so on. As opposed to telecom companies, where CPQ software is mostly used in the background, in the automotive industry CPQ software will be used by sales reps to prepare a quote for a customer. In other words, CPQ software will be used by auto dealerships. By the way, did you know that we specialize in Dealership Management Systems? Take a look if you still haven’t!

Insurance

It’s no secret insurance processes include risk assessment. CPQ could dramatically reduce the amount of time spent on quoting and pricing thanks to rule-based interfaces. Say you discover something positively impacting customers risk, putting him in the lower risk group? Back in the day, this would take time-consuming calculation, with CPQ such rules could be included once in the system. From now on all sales reps will be capable of raising a quick quote for any customer and if something goes wrong, CPQ will block the quotes card and inquire approval from the sales reps manager.

Software Service Company

This industry, being an experienced sales rep and consultant is very well known to me. So an example would be taken from Blondie Consultancy practice. Our quotes often include complex products. For example, we have a service contract product called Blondie Care. It’s a subscription service level agreement for existing Salesforce users. We include various services with the product, which are tracked over the period in time. For example, we often sell a contract for a year, but bill monthly. Single quotes could include a one-time setup fee, recurring annual subscription fee, and a three-month hyper care period. The customer want’s to know how much he would have to pay next month and that’s where CPQ comes into play.

Manufacturing

Days when manufacturing simple products have passed. Most of the time manufacturers’ sales processes include a complex negotiation process. During the pricing stage, there should be tones of factors taken into account which could influence the price. Such as labor cost, raw materials at their current selling price (hello Covid19 price fluctuations), factory capacities during specific periods in time, holiday period, fixed costs, and more. Implementing Configure, Price, and Quote software for manufacturing firms could dramatically reduce the sales cycles, improve profit margins and make quotes more accurate and consistent.

CPQ Vendors

As of Gartner’s Magic Quadrant for Configure, Price, and Quote Application Suites, there are the following most advanced CPQ vendors available on the market. I should take a note here – this is not a complete list of vendors available on the market. There are multiple industry-specific suppliers of CPQ, however, I never have worked with any of them, so I could not provide any comments or feedback. More or less, the list below is something we, as a consultancy firm, often see in the consideration lists of our customers.

• Oracle
• Salesforce (CPQ)
• SAP
• Salesforce (Vlocity)
• Conga
• Pros
• Zuora
• CloudSense
• Tacton
• Infor
• Accenture
• KBMax
• FPX
• Pricefx
• Vendavo
• Yagna iQ
• Apparound

Common features of Configure, Price & Quote software

I have tried to put together features that could be found in most, if not all, of the Configure, Price & Quote solutions on the market. I would like to warn you, that if you are evaluating CPQ solutions for your business, do not rely purely on features written on “paper”. Always require a demo and try to apply a particular solution with your business case. Ask your vendor, consultant, or whoever is involved in the process to build a tailored demo, because your particular use case might be different from what

Product Rules

Product rules in CRM CPQ enable businesses to prevent users from combining products which incompatible with each other. In salesforce ecosystem, for example, there are three types of product rules

• Validations. Prevent user from picking technically incorrect option. For example, if there are six units per pack, validations will only allow user to add quantity which is divideable by six.
• Alerts. Alerts, in opose to validation, won’t prevent user from doing things. They rather will show an alert about considerations of doing something.
• Selections. Selection are like additional options. If one product is selected, additional option will become available.

Guided Selling

Imagine there would be an expert sitting next to every one of your employees. This is what guided selling is meant for in CRM CPQ. Guided selling is guiding a user through a set of steps, questions, and selections. After-sales rep has selected a certain amount of options, the guided selling feature will offer different options based on the options selected during the guided selling process. A nice example of how it works could be found on the jabra.com website. Jabra is asking you a set of questions on what would be the use case for the headphones and offers you a set of options based on your answers. Go ahead and try yourself on the jabra.com website.

Approval Processes

Approval processes in CRM CPQ help you control the margins of your products. Sales reps won’t be able to sell below-set margins without prior approval. Approval land into managers mobile app or email. This makes it easy to stay connected to the company process even on the go. Approval processes are available within any of the mentioned CPQ products and are one of the most important features within the Configure, Price, and Quote software.

Quote Generation

Adjusting the feel and look of every quote is important to stay aligned with the brand. There are two Quote generation options on the market in CRM CPQ. The most popular is to generate PDF. PDFs could be sent over an email and provide very comprehensive customization options. Terms & Conditions of the offer could be included, product pictures, and more.

Invoicing

Recently Salesforce has included its CPQ product in a new package called revenue cloud. I believe this is an answer to most other vendors who are offered invoicing within their CRM CPQ packages for quite a while. Anyway, invoicing within Configure, Price, and Quote software is an essential part. Just as I mentioned before, tracking complicated, usage-based invoicing is important for business. No matter if it’s manufacturing or telecom. The ability to generate automated and complicated invoices could save hours of employee time. Resulting in costs saving, of course, and a better sense of control for managers. Many vendors on the market, besides basic functionality, also offer revenue forecasting add-ons to their products. The reason behind this is simple – the more complicated the product is, the more difficult it is to answer a simple question. What is going to the next invoice amount? This is why invoicing functionality in this software is so important.

Analytics

Not least, and definitely not the least. Analytics modules are available across almost all CPQ products on the markets. The only remark, I would like to add is that some Configure, Price & Quote packages are built on top of another product and are using built-in reporting and analytics functionality. Besides that, analytics help keep track of quotes generated, revenue recognized, product configured, and many more features related to analytics.

Industry

Configure, Price, and Quote industry is rapidly growing. According to Gartner, the market capacity for CPQ software solutions was estimated at $1.4 b in 2019 and is expected to grow roughly 16% annually. Growth of the market is seen as exponential, meaning more businesses discover Configure, Price, and Quote software benefit even more competitors begins to implement software as well. Fortunately or not, the market for this kind of solution is highly fragmented in largest vendor (Salesforce) captures only 17% of the market in the US. Data for markets outside of the US show very controversial numbers, so I believe they could not be trusted yet.