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November 10th, 2022 | 10 min. read

How Does CPQ Software Work?

It happens all too often; your quotes take way too long to prepare, the end of your company’s sales process becomes convoluted thanks to complex workflow approvals and product complexities, you name it. Prospects tend to to drop off before a deal is done, and even if a deal does get closed, it is a “critical client” only and usually leaves behind a trail of errors that requires lengthy and costly amendments. The time may have arrived to ask yourself the same question that we will answer.

Configure, Price, Quote (CPQ) software solutions allow businesses just like yours to generate complicated sales quotes quickly and accurately. They centralize relevant data, including pricing rules, product configurations, customer discounts, bulk orders, logistic fees, and other variables—and then automate that quoting process.

At Pricefx, we are perfectly placed to look at CPQ, as we combine CPQ software with an award-winning suite of 360-degree pricing solutions including unique and industry-leading price optimization capabilities, value estimation and large deal negotiation tools.

So, to get the ball rolling, let’s first analyze exactly what CPQ software does before we move on to discussing how it works and the considerable benefits possible for most types of business.

What CPQ Software Does

As we referred to above, CPQ stands for configure, price, quote. CPQ software is often an extension of, or integration with your Customer Relationship Management platform (CRM) or your ERP (Enterprise Resource Planning) tool or other in-house systems to create a standardized and compliant quoting process for your business.

As a powerful, user-friendly sales tool, CPQ shortens the quoting process while reducing the time spent by your sales team on performing administrative tasks. It will allow businesses to improve their quote response times, increase sales win rates, and drive overall revenue growth.

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It can also make the overall quoting process easier, faster, and more organized. 

  

When it is utilizing the insights of price optimization, CPQ software makes sales far more profitable when it is working together working efficiently together with an AI-informed pricing software solution. 

But not all CPQ is created equal as not all CPQ has the advantage of price optimization that goes along with it as package.

Let’s examine the two different models, starting with non-price optimization informed CPQ software.

Non-Price Optimization Powered CPQ Software

In short, a non-price optimization powered CPQ software is better than no CPQ software at all.

This type of CPQ Software is usually only suitable for B2B users. 

Often added on to a CRM or ERP or your chosen other business intelligence software, CPQ software can help your organization businesses create and share accurate price quotes quickly and easily.

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It does so by streamlining the entire contracting process, allowing your salespeople to do some of the following things:

  • Create multiple quotes quickly and efficiently
  • Track prospect and customer information within your CRM
  • Tailor contracts and sales quotes to individual customers
  • Eliminate user error by drawing from reliable data sources to auto-populate fields

Intelligent Price Optimization Powered CPQ Software

Intelligent Price Optimization Powered CPQ Software does all those things too, and a lot more besides.

This type of CPQ Software is usually suitable for B2B and B2C users alike.

For example, at Pricefx and other price optimization informed CPQ vendors, the CPQ software offers all the benefits we have mentioned above. That includes automation of quoting, ordering, and contracting processes involved across the sales cycle. However, in addition to configuring the products, pricing the order with real-AI price optimization gives your products the best possible pricing opportunity aligned to your company’s unique set of business objectives all while rapidly generating flawless quotes with fewer clicks.

Frequently, Rebate and Channel Management is another critical point of difference with a price software infused CPQ solution, organizing your rebates and payouts and from one single source.

Deal Planning Tools and Negotiation Guidance tools are also often features of a pricing software infused CPQ to anticipate buyer objections and offers counter proposals, while remaining aligned with your company’s business objectives to drive value and profit.

Putting the C – P – Q into the Software Makes it Work

CPQ software at its best provides features that amplify the selling capabilities of your salespeople. It lifts the sales team from slackening quote processes and equips them to focus on value creation while closing deals.

Let’s take a deeper dive and understand what makes C, P and Q tick and work so well.

‘C’ Stands for Configure

Configure – means configuring products, services, or solutions to meet a specific need.

Imagine yourself for a moment, and that you are in the process of selecting a new vehicle in the dealership showroom.

For example, you advise the salesperson you want a red car with stick-shift transmission, black fabric interior and either an electric or hybrid model.

That is configuration.

The car salesperson asked you a set range of questions about what features you want in your new vehicle including;

  • Your preferred vehicle color?
  • Auto or stick shift transmission?
  • Fabric or Leather seats?
  • Gas, diesel, hybrid, or electric vehicle?

Much the same way, CPQ software asks your sales reps a series of questions about each customer and, depending on the answers given, can narrow down (i.e., configure) a potentially vast, complicated product catalog into the best customized selection for each of your clients.

CPQ software also defines incompatible products, preventing quotation errors and expensive product returns. The software can also optimize upsell and cross-sell opportunities, steering your salespeople towards more functional combinations or recommend additional products and services – a great added revenue boost for salespeople and the kind of service customers love.

By providing your team a powerful and reliable CPQ Software ordinary salespeople suddenly become super sellers and trusted advisors, providing added value to customers all while increasing your company’s margin and profitable growth.

‘P’ Stands for Price

With a complex or varied product range comes a myriad of pricing structures and rules. If your organization is offering customizable products, having a predetermined price before they are configured will not be a possibility.

Manual pricing by your sales team can risk losing your company business due to slow turnaround times on quotes, potential human errors and not offering optimal prices.

In combination with an AI-informed pricing software solution, intelligent CPQ software uses price optimization to determine customer buying patterns, to identify what your customers are willing to pay and to establish a value-based pricing strategy.

Virtuous-Cycle-Value-Based-Pricing

At its core, intelligent CPQ can provide price guidance and authorizations to ensure that you are offering the best customized price for each customer (including promotions, rebates, and discounts) while maintaining profitability (and your company’s other unique set of business objectives) for your organization.

‘Q’ Stands for Quote

When undertaking the preparation of quotes, most CPQ software will prepare an electronic document containing information about the products or services that your customers are looking to order/purchase, plus contact information, a summarized breakdown of prices, the terms and conditions, and blank panels for dates and signatures (or e-signatures) to close the deal.

Engage your sales team to use CPQ pricing guidance in their quotation procedure by;

  • Setting a sales ‘corridor’ that gives your team transparency of both a minimum price to sell and a ‘ceiling’ maximum price to sell at. In other words, if your sales teams’ quotes fall at any given point in your ‘sales corridor,’ your organization is making money on each deal closed.
  • Supplying confidence that the sales team’s selling corridor has been pre-approved; they are not messy and no additional workflow approvals to go through. With that kind of confidence added to the sales teams’ quotes and all workflow approval ‘second guessing’ taken away, it is a game changer for increasing the closing rates for your sales team.
  • Informing your sales team through evidence-based training that CPQ quoting will give them more time to spend doing what they do best (selling and providing excellent service) and less time on performing brain-numbing administrative jobs.
  • Providing evidence on CPQ delivering optimal pricing recommendations based on what you have done previously with comparable products and across similar client bases.
  • Demonstrating to your team how Optimal Pricing Guidance will improve Win Rates.
  • Underlining that CPQ maximizes value-based pricing, up-selling and cross-selling opportunities to assist your sales team members in reaching personal and/or team targets on route to achieving your organization’s unique set of business objectives.
  • Promoting price negotiation process enhancement with clients.
  • Increasing quotation productivity, as quotes are faster and easier to make.
  • Emphasizing the potential work/life balance improvements that CPQ provides for them;

3 Bonus Steps to Working with CPQ as Efficiently as Possible

If you want to make your organization’s CPQ software deliver your desired business outcomes as smoothly, efficiently, and as powerfully as possible, make sure you have these 3 bonus steps covered;

  1. Your Business Outcomes Are Known and In Place – You might have the best CPQ software in the world driven and informed by the best AI (Artificial Intelligence) pricing software, but unless you know what your desired business outcomes are (e.g., Are you looking to increase revenue? Increase sales volume to decrease production costs? or simply maximize your profit margin on each deal?), the technology will underperform and not drive your company to be all it can be.
  2. Have Your Integration ‘Ducks in a Row’ – What really drives the power of you CPQ software is data. Give your CPQ software the best chance on running and applying the best price optimizations on your quotes. Without quality integrations with your data systems, you’re not giving the CPQ software the best opportunity to apply your pricing rules, nor to establish your sales team optimized ‘selling corridors.’
  3. Data Cleanliness – Data cleanliness goes together with integration. Clean, decipherable data fuels maximized pricing opportunities. Imagine your CPQ software is a Ferrari. Would you fill your Ferrari with dirty or second-rate fuel and threaten its peak performance? CPQ software is no different and its fuel is data.

That’s Great – But is CPQ Software Right for Me?

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Now you know how CPQ software works and the quoting efficiencies and pricing insights that it can provide for most businesses like yours.

You may already have an idea if the innovative technology of a CPQ software like the award-winning Pricefx or similar is something that can help your organization achieve its business objectives, but you would like to make sure.

To dive a little deeper into CPQ software, check out the handy article below for further benefits of the technology and to drill down into who it is right for and who may not need it at all.

CTA-Is-CPQ-Software-Right-for-Me

About the Author

Isaias Jaramillo-Rojas is a Solution Strategist at Pricefx, where he provides guidance in the sales process by creating suitable and custom solutions for companies that are looking to boost their pricing performance through data supported decisions. Working in the past years as a Pricing Manager in the DACH Region, he focused on the development of omni-channel distribution strategies and automatization of end-to-end pricing business processes.

After living in Germany for 10 years he has become a proud ambassador for Mexican cuisine.