CPQ stands for Configure, Price, Quote. In most modern B2B sales environments, CPQ is the secret to bridging the gap between the escalating expectations of your company’s customers and the current experience and skills of your sales staff. Cleary now, the era of reliance on spreadsheets and manual handbooks is history for most enterprise companies as they look to scale their business whether it is in terms of geographies, workflows and process, customer segmentation or simply cutting down on admin work, pricing smarter and accelerating sales cycles.However, implementing a CPQ Software solution might not be for every business. So, we know that CPQ software is great in many cases but how can you know if it is the right solution to help solve your business needs?

That’s exactly why we are looking at demystifying some of the myths about CPQ in this article and answer the question – “What is CPQ and how does CPQ work?”

At Pricefx, we are perfectly placed to take an in-depth look at CPQ, as for more than a decade now, we have been combining CPQ software with our award-winning suite of 360-degree pricing solutions including unique and industry-leading AI optimization capabilities, value estimation, actionable pricing insights and sales negotiation tools.

So, to get the ball rolling, let’s first define CPQ and analyze its benefits to sales teams and finance professionals. Later we will move on to a discussion about how CPQ works, its features and the considerable benefits possible for many business types.

What is CPQ?

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.

What is SAP CPQ?

One notable example in the CPQ space is SAP CPQ. SAP CPQ is a cloud-based solution that helps businesses streamline their sales processes by automating the configuration, pricing, and quoting of complex products and services. It integrates seamlessly with SAP's broader ecosystem of business solutions, offering enhanced functionality for companies already using SAP's ERP or CRM systems. SAP CPQ is designed to handle intricate product configurations, apply sophisticated pricing rules, and generate accurate quotes quickly, making it a powerful tool for businesses looking to optimize their sales operations and improve customer experience.

Why CPQ?

CPQ also makes the overall sales process easier, faster, and more organized while working efficiently hand-in-glove with a pricing software solution that can optimize transparent pricing corridors for your salespeople to simply follow.

One of the most significant advantages of implementing CPQ software is the elimination of inefficiencies associated with manual quoting. Without CPQ, sales teams often struggle with non-optimized pricing, leading to inconsistent quotes and the haphazard offering of discounts, which can severely impact profit margins. CPQ systems ensure that all quotes are standardized and comply with predefined pricing rules, thereby removing the guesswork and randomness from the equation. This not only streamlines the quoting process but also ensures that every deal is profitably and competitively priced, safeguarding your bottom line while enhancing customer satisfaction.

How Does CPQ Work?

Now let’s examine the ‘C,’ the ‘P’ and the ‘Q’ individually to develop a better understanding into how CPQ works.

What is CPQ?

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.

The ‘C’ – Configure

Loosely explained, the ‘C’ – Configure – means configuring products, services, or solutions to meet a specific need. Imagine you are choosing a new vehicle – for example, you tell the salesperson in the showroom you a blue vehicle with automatic transmission, white leather interior and running on diesel fuel. That is configuration. The car salesperson in this scenario probably asked you a set number of questions to assess your needs, like:

• What color vehicle do you want?
• What transmission type do you want?
• What interior material do you want, and what color?
• Do you want a gas, diesel, hybrid, or electric vehicle?

The software can also assess products that are incompatible with one another, thereby minimizing quoting errors and subsequent costly product returns. The software can point salespeople towards more functional combinations or recommend additional products and services – great for salespeople and customers alike.

Ordinary salespeople are transformed into solution sellers and trusted advisors, providing added value to customers. Meanwhile, the ‘C’ of CPQ can empower your business bottom line by increasing by intelligently recommending product upgrades, upsells, and add-ons for customers.

The ‘P’ – Price

The “P” in CPQ stands for price. With a complex, or widely varied range of products will come even more complex pricing structures. If your business is offering customizable products, you will not be able to have a predetermined price laid out before they are configured.

Sales teams that attempt to craft prices on their own manually are at risk of losing business and revenue due to offering less than optimal prices and generating slow turnaround times on quotes.

Essentially, CPQ can provide price guidance and authorizations to ensure that you are offering a reasonable and customized price (including promotions, rebates, and discounts) to your customers while maintaining profitability (and other business objectives) for your company.

The ‘Q’ – Quote

The ‘Q’ is for ‘Quote,’ and with modern CPQ software that will usually come as an electronic document containing information about the products or services they are looking to buy, plus contact information, a table of prices with a grand total, terms and conditions, and several blank panels for dates and signatures (or e-signatures).

CPQ-generated quotes also serve as internal electronic records with sales/quote expiry dates, eliminating the need to go back-and-forth on configurations and quote generation, empowering your sales team can do what they do best – sell products and close the deals.

CPQ vs Pricing Software

When used in symbiosis, CPQ software and automated pricing software create a powerful constructive collaboration that can significantly enhance your company's profitability and business objectives.

CPQ software, with its ability to generate professional, tailored quotes quickly, works seamlessly with pricing software to ensure that these quotes are based on the most accurate and strategic pricing possible. This collaboration not only reduces the time and effort required to produce quotes but also ensures that each quote is optimized for profitability and customer satisfaction. By integrating these two technologies, your sales team can focus on closing deals while your pricing strategies remain agile and responsive to market changes, ultimately driving higher revenues and achieving your unique business goals.

8 Benefits of CPQ for all B2B Companies

Check out these 8 tangible benefits that can be enjoyed by a switch to a CPQ solution:

1. Shorten your Sales Cycle

Implementing a CPQ solution will streamline your response to customer inquiries by automating and simplifying the quotation and approval processes, while also integrating them with your CRM. Recent data says your cycle can be shortened by up to 28%.

2. Quote More Accurately

Human errors cause 30% of workplace mistakes. Using a CPQ enhances quoting accuracy, boosting your confidence to secure more opportunities.

3. Manage Discounts Effectively

A quality CPQ allows you to predict the effect of a discount beforehand and helps you regulate customer-specific discounts.

4. Ensure Price Transparency

With a CPQ system, you will have comprehensive answers to your clients' inquiries. This tool guarantees that all parties are clear on the quoted prices, their alignment with business goals, and the justification behind them.

5. Empower Sales Teams

Allow your team to display their true abilities instead of being overwhelmed by lengthy administrative duties. An advanced CPQ solution can turn your team into knowledgeable decision makers.

6. Increase Conversion & Revenue

Using CPQ software, companies see a 17% higher lead conversion rate, 7.5 times higher annual customer renewal growth, and a 105% increase in average deal size.

7. Increase Deal Size + Up-sell and Cross-Sell

CPQ can track your customers’ preferences. For example, the next time you are preparing a quote for a previous client, the software can suggest just the right mix of products and services for that client specifically. CPQ allows your salespeople to cross-sell and up-sell more easily and optimize the maximum profitability from each quote prepared and delivered.

8. Minimize Profit Losses

A CPQ allows you to easily view all profit reducers in your deal waterfall and quickly use historical price and cost data to identify sources of margin compression.

What’s more, CPQ software offers many advantages that span various departments within B2B companies. Here are some key benefits broken down by professional roles:

3 Benefits of CPQ for Sales Professionals

1. Increases Sales Productivity and Efficiency: Faster quote turnaround times and reduced errors.
2. Improves Win Rates: Ensures accurate pricing and tailored proposals.
3. Enhances Customer Experience: Streamlines the quoting process, enabling personalized interactions.

3 Benefits of CPQ for Finance Professionals

1. Improves Pricing Accuracy and Consistency: Utilizes automated pricing rules and complies with regulations.
2. Streamlines Order Management: Facilitates faster order processing and reduces errors.
3. Enhances Profitability: Optimizes pricing strategies and maintains cost control.

A Real-World Example of CPQ Success

By focusing on strategies that increase revenue while improving profit margins, businesses can achieve sustainable growth that drives shareholder value.

For example, a large global company was achieving pricing gains but using inefficient and time-consuming methods. They wanted to supercharge growth. Within 12 months after implementing Pricefx’s CPQ version, Quoting, they were able to:

• Spend 50% less time on the sales team’s quoting, workflow, and tracking.
• Decrease the quote approval time from days to hours.
• Increase win rates by 5% due to the faster quote turnaround times.
• Use our CPQ solution and the full Pricefx pricing solution in combination to add 14 points to growth in the first year following implementation.

Read the full case study by clicking on the image below.

Is CPQ Right for me?

CPQ can benefit your company in business-to-business or business-to-customer transactions if your organization:

• Faces delays when preparing quotes for clients
• Involves numerous intricate products with complex pricing models in your quotes
• Finds it challenging to produce accurate and efficient quotes for a complicated product range
• Operates globally and requires prompt and precise pricing information for numerous stores across various regions or jurisdictions
• Is missing out on revenue due to excessive discounting of products
• Has isolated quoting processes, with previous customer quotes only available on the devices of the sales reps who created them.

Who Is CPQ NOT Right For?

Many businesses can handle pricing and quotes without CPQ software.

If your sales team issues quotes accurately and promptly, and your deals are complex or custom, the gains from CPQ might not justify its cost.

Evaluate if the potential benefits of CPQ outweigh its expenses, especially if your business is small and your product line simple.

Revolutionize Your Sales and Finance Operations with CPQ

Implementing CPQ software can revolutionize both sales and finance operations within your organization. By streamlining the sales process, ensuring pricing accuracy, and enhancing overall efficiency, CPQ allows sales teams to focus on closing deals and increasing revenue. For finance professionals, the software optimizes pricing strategies and ensures compliance, boosting profitability and maintaining cost control.

We invite you to take the next step in transforming your business operations. Talk to one of our experts on how our CPQ solution can address your specific needs and don’t miss out on checking out our Quoting/CPQ solution here to further explore the benefits and potential of CPQ.