Configure, Price, Quote: Value for Profitable Business
September 30th, 2019 (Updated 03/23/2021) | 6 min. read
By Tolu Oke
Configure, Price, and Quote – The Throughway to Maximized Value
Companies use configure-price-quote (CPQ) software to establish prices accurately and competitively for their products or services. The software uses information from the wide, ever-changing field of data particular to the company’s area of business. It takes into consideration your business rules and objectives, and, importantly, it uses the intuitive wisdom you and your associates have gained from owning and operating the enterprise now and in the past.
CPQ is not only software, it is also a method of combining the many variables that constitute a current price for a service or product. It’s logical to view the method as first configuring the information (configure), then formulating a price (price), and finally establishing it (quote).
This first stage takes into consideration a large number of variables, some relatively stable, some that change periodically, and some that may change daily or even hourly. An example of a (fairly) stable variable is the cost of facility rental such as monthly office space, utilities like electricity and heat, and the yearly cost of business insurance. An example of a variable that may change periodically is raw materials such as lumber or petroleum whose cost may fluctuate weekly or monthly. An example of a variable that changes often and rapidly is a competitor’s prices or the shopping habits of your customers.
This is where the software goes to work analyzing and organizing the information from the configure stage. It adds up business costs such as utilities and insurance along with costs of materials, labor, and production. It also factors in variables such as your customers’ shopping habits, how often they buy, what they buy, the time of year or day of the week of purchases, demand levels, and your competitors’ prices for the same or similar product or service.
The software works within the guidelines of your business’ rules. In a strict sense, these are rules that the IT department uses as a basis for what they do for your enterprise, e.g., their computer expertise says that always in your enterprise, in a broad sense, if a user does a, b, and c then d occurs. But business rules are not limited to IT and computing. For example, if your company always has a year-end holiday sale, then the CPQ software takes this into consideration – this is also a business rule. Another example would be giving employees time off or the times of year when you normally hire contractors. Taking all of the factors into consideration produces a preliminary price.
In order for CPQ software and methods to establish final, concrete prices, your personnel have to review the data and the suggested prices the price stage of the process has produced. In other words, the software, although it does many things “automatically,” making a final price determination is not one of them. It is up to your company to agree or disagree with the suggested price based on the knowledge, past experience, current conditions, and the “gut feelings” of your company employees who are experts in their areas. While the confidence and familiarity with CPQ software and what is does increases over time, the human factor is important and should never be overlooked.
Value Chain to Profitability
We can define value chain as a strategy that businesses use that encompasses the creation of a systematic set of activities or steps which add value incrementally to the services or products the company provides. Many businesses use the concept and methods of value chain to understand their past business successes (or failures), to understand, track, and evaluate the current state of their enterprise, and to help map out the future, both in continuing the present business activities but also for other prospects such as expansion and investments.
The value chain approach stresses that every activity involved in the creation of the company’s goods or services must add value to them. The processes look closely at any activity that does not appear to add value to determine if the company should reduce or eliminate that activity. Value chain looks at all activities involved, including pre-production factors such as procuring raw materials and setting up production facilities, then proceeds through the production phase and includes the sales and marketing sides of the business. The process also looks at the delivery stage and back-end support parts of the enterprise to ensure customer satisfaction. Additional aspects of value chain include human resources and R&D.
CPQ and Value Chain Together
CPQ and value chain can work together for the betterment of your company, not only for improving the products or services it creates and promotes but also for making your business a better place of employment for you and your associates. Understanding and being realistic about your company, what has gone on in the past, what is happening now, and its future prospects gives everyone involved more knowledge and awareness. They are no longer in the dark about the current direction of the company and they have an understanding about where the company may go in the future. This type of awareness means your associates can competently contribute to the company every day when they come to work. CPQ combined with value chain allows all major departments to have a better grasp of everything the company does. Taking all of these factors together makes for a more confident and cohesive work force.
Pricing software, as part of a comprehensive, methodical approach to business planning in the value chain vein, gives your company the edge over any competitive company that has not discovered the advantages that software like Pricefx provides. ISO certified, Pricefx is a global leader in pricing software. Its platform is 100% cloud native, which means there is no adapting a previously-installed, on-premise installation to current needs, and you receive automatic updates and improvements. Installation is straightforward and fast, and the software is easy to learn in both B2B and B2C settings.
The solid basics Pricefx provides are:
- Algorithm-based functions of analytics
- Quoting functions
- Price setting
- Promotion setup and tracking
- Rebate and claim management
Advanced functionalities include price optimization and market simulations.
But Pricefx is more than software. Before we implement the program we design for you, Pricefx works with your team on an approach and a plan so we create a software package specific to your requirements, and we continue working with you as future needs develop. Contact Pricefx today so your company can begin working towards a smarter future.