The Ultimate Guide to CPQ Software
December 19th, 2022 (Updated 03/09/2023) | 11 min. read
Before deciding to implement a CPQ (Configure – Price – Quote) Software solution, many businesses have a similar set of accumulated pain points that have helped them decide to turn their quotation procedure into something more modern and intuitive for their salespeople to use every day. It could be that your quotes take way too long to prepare and get into the hands of your customers. It may be that the end of your company’s sales process has become tortuous and tangled due to complex workflow approvals and product complexities. Your prospects are disappearing before the deal is closed, and even if a deal does get over the line, it is often as a “critical client,” and a trail of errors are left behind that require lengthy and costly amendment to fix. Or it could be all those factors combined. If that is what led you to this article, we answer all your questions and more in ‘The Ultimate Guide to CPQ Software.’
At Pricefx, we are perfectly placed to take an in-depth look at CPQ, as for more than 10 years now, we have been combining CPQ software with our award-winning suite of 360-degree pricing solutions including unique and industry-leading price optimization capabilities, value estimation and large deal negotiation tools.
Let’s first analyze exactly what CPQ software is and does before we move on to its role in the Quote-to-Cash process and the difference between CPQ and pricing software. We will close with who it is for and who it is not for, and check which are the best CPQ software solutions available in the in the marketplace today.
What CPQ Software Is & What it Does
As mentioned in our opening line above, CPQ stands for configure, price, quote. CPQ software is often an extension of, or integration with your ERP (Enterprise Resource Planning) your Customer Relationship Management platform (CRM) tools or other in-house systems you may have and is used 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. Remembering previous quotes for similar customers, offering optimum prices with automated workflow approvals, and suggesting product combinations for upsell and cross-sell opportunities (and much more), CPQ software provides business organizations with the opportunity to improve their quote response times, increase sales win rates, and drive overall revenue growth.
Long story short, CPQ Software makes your quoting process easier, faster, and more organized.
Use CPQ to streamline the entire contracting process, allowing your salespeople to do 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
When used together with the informed insights of an Artificial Intelligence price optimization tool offered as a part of a total 360-degree pricing software solution, CPQ software transforms the sales department to become more profitable and give back more time your sales team to do what they do best – sell.
How the C, P & Q of CPQ Software Makes it Work
CPQ software provides your salespeople with a range of tools and features that will boost their sales and transform them to focusing on value creation while closing deals, rather than concentrating on selling volume.
To get the full CPQ picture, let’s understand what makes the C, P and Q work.
‘C’ Stands for Configure
Configure – means configuring products, services, or solutions to meet specific needs.
Configuration and flexibility are often at the heart of so many pre-sales conversations. Potential customers are looking for the right product to suit their needs.
Often, they do not need to know about every solitary product you have or every single feature that might be available.
It is up to your salespeople to demystify the product and build a customized solution that creates the functionality customers need to get the job done.
Imagine that your company sells smartphones. Your salesperson can ask prospects a set range of questions about what features your customers want in their new phone including;
- Your preferred color?
- Internal Storage Size – 16GB, 32GB, 64GB, 128GB, or 256GB?
- Camera with 12, 16 or 24 megapixels?
- Extended battery life version or not?
- Include gorilla glass screen protection?
- Bundle with a call and data plan or unlocked?
That is configuration.
The more complex, the greater the number of parts, accessories, options or the more features your products have, the more CPQ can assist your salespeople to become targeted ‘super sellers.’
Similarly, your CPQ software asks your salespeople 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 to include in the quote for each of your clients.
CPQ software can assess your customer’s needs and where possible, investigate their historic buying patterns to define incompatible products, preventing quotation errors and expensive product returns. In much the same way, CPQ can customize upsell and cross-sell opportunities for each client individually 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.
With CPQ Software your salespeople suddenly transform into trusted advisors, providing added value to customers with personalized quotes all while increasing profit and margin for your organization.
‘P’ Stands for Price
The more varied and complex your company’s product range is, the more convoluted your pricing structures and rules will be. If your company offers customizable products, having a set price before they are configured will not be a luxury that your business can enjoy.
Manual pricing and piecing quotes together from 10 000-line price list spreadsheets can risk losing your company business due to slow turnaround times on quotes, potential human errors and unoptimized pricing.
CPQ provides price guidance and authorizations to ensure that your salespeople are offering the best personalized price for each customer (including promotions, rebates, and discounts) while maintaining profit margin simultaneously aligned with your company’s own unique set of business objectives (such as increase sales volume, increase revenue etc.).
‘Q’ Stands for Quote
When preparing quotes with a CPQ software tool, an electronic document will be generated including information on the products or services that your customers are hoping to order/purchase, together with contact information, a summary of prices, the deal’s terms and conditions, and blank panels for dates and signatures (usually e-signatures) to finalize the contract.
CPQ pricing guidance and quotation procedures will enable your sales team to:
- Establish a sales ‘corridor’ that gives your team transparency of both a minimum price and a maximum “ceiling’ price to sell at ensuring your company is profitable on each closed deal.
- Sell with confidence on pre-approved workflows – no additional workflow approvals to go through, or price ‘second guessing’ thereby increasing win rates.
- Free up more time to spend doing what they do best (selling and providing excellent service) and less time on performing brain-numbing administrative jobs.
- Sell at optimized prices with the CPQ delivering optimal pricing recommendations based on what you have done previously with comparable products and across similar clients.
- Empower value-based pricing, up-selling and cross-selling opportunities.
- Promote price negotiation process enhancement with clients.
- Increase quotation productivity, as quotes are faster and easier to make.
- Work Smarter – Not Harder – Improving work/life balance.
Are CPQ Software & Pricing Software the Same Thing?
In a word, no, but they do work together well.
Configure, Price, Quote solutions are designed to help you streamline core quotation processes for your customers. CPQ enables you to keep prices updated with current market conditions. CPQ users in general, can improve customer retention by 3.9% annually, while non-users report a 0.6% decrease.
With CPQ, sales teams can streamline their quotes and workflows by reducing administrative tasks and other red tape in addition to the range of uses highlighted in the bullet-point list directly above.
Pricing software, on the other hand, can help you;
- Manage your price lists
- Automate pricing calculations
- Control profit margin leakage and realize business rules
- Automate approval workflows
- Optimize for the right price for the right person at the right time, considering information from customer segments, product groups, and historical transactions
- Leverage artificial intelligence (AI) to optimize prices and react swiftly and appropriately to your competition and the market in real-time and make data-informed pricing decisions that drive revenue growth.
However, when pricing software and CPQ are used together, the real-AI price optimization gives your products the best possible pricing opportunity all while rapidly generating flawless quotes with fewer clicks.
Deal Planning Tools and Negotiation Guidance tools are also often features of a pricing software powered CPQ to anticipate buyer objections and offer counter proposals, while remaining aligned with your company’s business objectives to drive value and profit.
CPQ’s Role in the Quote-to-Cash Process
Quote-to-Cash is the end-to-end sales process, starting with a customer intending to buy and ending with the customer paying for the product. It includes several integrated activities for the vendor, including lead management, pricing, quoting, negotiating, contracting, billing and even renewing orders.
An organized Quote-to-Cash process allows companies to plan accurately all the integrated vendor activities.
It also ensures that each sale is accurately priced, quoted and executed to ensure financial success including all the parts of that process (the quotation and pricing of a CPQ solution are only a part of a multi-step Quote-to-Cash process that begins with lead management and ends in automated order renewal).
Businesses that lack a structured and optimized quote-to-cash process are forced to guess blindly if a sales engagement is profitable, and the required margins are being realized. A Quote-to-Cash solution usually integrates sales software with customer relationship management (CRM) software, helping to manage sales opportunities.
CPQ, on the other hand, focuses on the sales process and is designed to help salespeople provide customers with more accurate quotes.
In reality, CPQ software acts effectively like an add-on or a subset of the total Quote-to-cash process, providing salespeople with a more thorough toolset that lets them better configure, price, and quote customized products and services to their customers.
Who is CPQ Software For?
CPQ Software will assist your company in your B2B or B2C processes if your organization:
- Experiences slow and inaccurate quote generations for customers
- Includes many complex products in your quotes with even more complicated pricing models
- Is a global operator needing fast and accurate pricing data for hundreds or even thousands of stores across multiple regions
- Is losing money on some deals due to the over-discounting or inconsistency in your discounting
- Has siloed quoting procedures and multiple previous customer quotes are found on multiple devices or in multiple systems
Who Is CPQ Software NOT Right For?
CPQ software is extremely useful for large organizations that have broad product ranges and operate across multiple regions, but many businesses are not in this situation;
- If you do not have thousands of products in your range, or a variety of negotiated prices or configurations, then CPQ is probably not necessary for you.
- If your sales reps can develop quotes for customers without making serious errors or losing prospects due to the process taking too long, then CPQ may only provide you with marginal benefits.
- If most of your business is generated from large one-off projects for things like running a call center or building a skyscraper, then CPQ may not deliver the efficiencies that justify the cost.
If your business is a small one and your product line straightforward, then the small financial benefits that your business may gain might not be worth the cost of CPQ.
That’s Great – Which CPQ Software is Best for Me?
Now you know what CPQ software does, how it works and the increased business efficiencies, departmental alignments, and pricing insights that it can provide for most companies.
You may already have an idea if the innovative technology of 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.
Check out the list below of 6 of the best price CPQ software tools (other than Pricefx) and how they stack up
However, to dive a little deeper into reviews of the 6 best CPQ software solutions available today (and how Pricefx stacks up against them), check out the handy article below:
Alternatively, if you know already that Pricefx CPQ software is exactly what your organization is looking for to streamline your quotation procedures, contact one of our team members now: