Five common pricing mistakes a CPQ solution will address

Pricing is difficult and also very sensitive. Changes in pricing is one of the most effective way to level overall profit.

This list of pricing mistakes can be used to build a good business case for a CPQ (Configure-Price-Quote) investment.

Weak controls on discounting

It’s not uncommon that sales representatives are given a lot of freedom when it comes to negotiating the price. This means what the profit per deal is very dependent on the person executing the sales.

Discounts are often given without a controlled won/loss analysis and are more based on gut feeling. This means that prices will vary very randomly.

Without analysis and a proper approval process these issues will not go away. This is something a CPQ solution will address.

Inadequate systems for tracking competitor selling prices and market share

It’s difficult to understand the completion and most companies don’t put any effort into analyzing the lost deals.

With a CPQ solution it’s possible to benchmark the won and lost deals in a very structured way. It’s possible to find what key features of the product that correlates with won deals and also what features that are typical for lost deals.

Cost-plus pricing

Cost plus pricing is still very common in the manufacturing industry. The problem with this approach is that it assumes that the customer value is dependent on the production cost. Everybody knows that this is not the case.

A CPQ solution can price on factors that are actually valued by the customer and at the same time ensure that margin.

Price increases poorly executed

There is a problem when price increases can’t be motivated. If we’re not providing any new customer value, why should I pay a higher price?

It’s essential to plan ahead and do price increases as your product improves. If your new engine will cut fuel consumption there is no problem to pay a higher price.

That’s why price increase should be coordinated with product development. This means that timing is essential. Do the math and plan ahead. This is a process that a CPQ solution should support.

Worldwide price inconsistencies

In a global market it’s no longer possible to have inconsistent pricing.

By introducing a central storage for local price it’s possible to understand and correct price inconsistencies. A CPQ solution normally connects the global and the local prices. This means that a CPQ solution introduces the possibility to have governance for local pricing.

Configure Price Quote software - the key benefits

Configure Price Quote software shortens the sales processes by automating the configuration, pricing and quoting of complex products, services and bundles.

“configure price quote” software is getting attention from global companies looking to reduce errors and streamline sales of complex product. Configure price quote software will serve as a consistent front-office interface with all necessary integration to existing back-office systems.

CPQ (“configure price quote”) is more and more becoming a critical advantage in several industry verticals. Fast and accurate quotation processes is no longer something to strive for – it’s now a critical factor in the competitive landscape.

The primary benefits with Configure Price Quote software include:

  • Guided and automation sales process supporting your customers through important selection including configuration, quoting and ordering.
  • Central pricing processes for establishing, maintaining and publishing pricing for products, services and combination bundles.
  • Workflow for quoting including creation, management and negotiation of sales quotes.

Guided and automated sales process

  • Increased deal size by simplifying cross-sell, up-sell and solution bundles. Service contracts and other related services are quoted together with the product ensuring returning revenue for a longer period of time.
  • Reduced costs and increased customer satisfaction as incorrect orders are dramatically reduced.
  • Increased sales productivity when repetitive, time consuming manual work is eliminated.

Central pricing process

  • Pricing consistency and automatic pricing changes instantly available in all sales channels.
  • Defined structure for pricing to decrease the maintenance due to changing market conditions.
  • Pricing models based on customer segments with analytics feedback for continuous improvements. Built in dashboards for sales and pricing governance.

Workflow for quotations

  • Significant time savings to create, negotiate and convert quotes into orders.
  • Increased visibility and traceability in the quoting process.
  • Support for channel and partners sales for complex products.

What is CPQ?

Definition

CPQ is an acronym for Configure, Price, Quote. CPQ is used to describe the process of selecting components (configure), handling pricing (price) and generating documentation (quote). CPQ software is primarily used for complex products, services or a combination of the two.

CPQ solutions
  • supports a simple way to select valid product combinations with respect to product rules and limitations
  • price the product correctly according to bundling and discounts
  • creates an accurate and persuasive quote based on this information
CPQ software connects front and back end systems and automates the lead-to-cash process.

What is a CPQ process?

What’s included in a CPQ process? Is it all automated and in what way is it adoptable and flexible?

Configure: All complex products have limitations to how modules or sub-components can be combined. The user normally specifies key features and main products, a configurator handles all limitations and itty-bitty details.

Price: Manufacturing costs, geographies, competitive situation, and local protocols - the pricing can be just as complex as the product itself. The price adjustments should both be automatic but also offer flexibility and advice for sales tactics.

Quote: Documents describing a complex product includes texts, illustrations, data sheets, drawings. All specific for each offer generated. The level of details should be flexible and document generation should be fully automated.

How diverse products can ruin your business

Yesterday I talked to a dear friend who is also a web shop owner. She sells STEM-education kits to Swedish parents and sometimes to Swedish schools. If you didn’t hear the term STEM before it stands for Science, Technology, Engineering, and Mathematics. These skills are most likely good to know in the future.

In kids-electornics we have two big-sellers” she told me. “One small kit retailing around $60 and a bigger kit retailing at around $130.

Then we have some other similar kits in the range from $80-$100. You basically get what you pay for, the more expensive the more STEM-experiments you can do.

There’s basically only market demand for the big-sellers and therefore she decided to lower the price on the mid-range products to reduce stock. This is when something strange happened…

The surprise

Instead of an increase in sales (when prices were cut) there was an overall reduction in sales.
After some analysis there was one obvious but maybe not intuitive conclusion.

When prices of the mid-range kits came to close to the small kit (with the discount there was only a 10 % difference) it became more difficult to decide what to buy. And when it becomes difficult to decide there will be no sales.

What can we learn?

When deciding how to price make sure that it’s easy to differentiate products. Remember that price is a very important factor in making this decision. By keeping a clear separation of prices you help your customer to decide what to buy, and thereby speed up the purchase processes significantly.

Prices don’t need to be logical, just make sure they help the customer decide how to pick and choose your various options. It's equally important, no matter if you run a web shop or if you're responsible for a CPQ-system.

As a "pricing officer" you need to do quick changes and sometimes quick adjustments. Don't forget that the correct prices will help you both to sell and earn some money while doing so.

Top 4 reasons why manufacturers choose a CPQ solution

What criteria can you use to determine if your company needs a CPQ solution? How can you tell when it’s time to invest in CPQ software?

I wouldn’t set out specific criteria as much as offer four reasons that I think will help you sort out an answer.

This is what we hear over and over again from clients and potential customers.

Spend more time selling

Is there a feeling that not enough selling is being done by your team? If so, this deserves your immediate attention.

Sales people are expensive and their primary role is to engage with customers and prospects. This is how your organization generates revenue.

Preparing quotations and proposal documentation is still a major tasks in many sales organizations. If this can be reduced there will be more time for actual selling. This is the first reason to invest in a CPQ solution.

Better proposals

A good quote delivers a vibrant, crisp and compelling proposals that distinguish you from the competition. A superior quote will persuade your customer and win more business.

Developing best practice for quotes, RFP documents and other sales documentation enables your team to increase the overall quality of the delivered proposals.

A better proposal will tell the customer that you will fulfill their needs and deliver what the customer wants. A better proposal that will provide important benefits and clearly describe the delivered value. A better proposal that validate that you have the right qualifications to fulfill the customer needs.

The proposal should send the message why your company better than anyone else can deliver the optimal solution with the highest value. This is the second reason to invest in a CPQ solution.

Get the price right

Working with complex products is somewhat problematic. To get the price right is a challenge and it makes a big difference when it comes to bottom line earnings.

The first problem: One option often requires another option. Forgetting that other option in a quote can be will severely reduce the profit. But to keep track of all options and exception is a difficult task that requires up-to-date knowledge.

The second problem: When multiple products are combined there is normally a reduction in price that only applies under certain conditions. To work with packages is an efficient way to expand the offering, but it also requires that up-to-date knowledge.

The third problem: In a changing world pricelists need to adopt fast. What was previously done on a yearly basis is nowadays more likely to be day-to-day updates. To be able to adopt to changing circumstances also requires that up-to-date knowledge.

The third reason to invest in a CPQ solution is the fact that up-to-date knowledge should be part of the CPQ package.

First to respond

When a customer asks for a quotation or proposal it’s unlikely the request is sent only to your company. The most likely scenario is that the same questions and requirements will be sent to up to a dozen competitors.

Companies with an implemented CPQ solutions reports that speed makes a difference when it comes to closing more deals. A rapid respond really makes a difference.

Being the first to respond will in itself not guarantee better business. But in combination with more time selling, better proposals and correct pricing it definitely makes a difference. That’s why it’s the forth reason to invest in a CPQ solution.

CPQ - Configure, price, quote software

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8 secrets for a successful CPQ project

1. Focus on solving concrete problems 

Always start with a concrete product and set a goal to get the product live in a production environment. With today's SaaS-CPQ-solutions, efficient product modeling/pricing tools and a straightforward system configuration, it is not at all impossible to launch a first product within a month or two.

2. Be aware of the limitations of CPQ

In the field of psychology, the Dunning–Kruger effect is a cognitive bias in which people mistakenly assess their knowledge in a specific field is greater than it is. It is related to the cognitive bias of illusory superiority and comes from the inability of people to recognize their lack of ability. Without the self-awareness people cannot objectively evaluate their competence or incompetence.

When you try to launch a CPQ-system, it is easy to fall into this trap. To describe the logic that limits how the product can and may be sold in a general way is somewhat cumbersome. Here it is important to understand what you need to understand before you start with product logic. Then the way to a working CPQ will be as straight as it can now be.

3. Listen to everyone involved – and to the customers

For some, external assistance may be required to ensure that the CPQ system provides useful results. Ideally, if you kick-start a project with a whiteboard meeting where all the key people involved spend an afternoon figuring out details and documenting the requirements you have.

4. Take on industry expertise

More and more companies have begun to realize that CPQ is not a miracle cure in itself. Many companies that start working with CPQ assume that "we have a lot of product data – plug in a CPQ and let it tell us something interesting".
Here we see that we as consultants have an important role to play in moderating, questioning and provide industry best practices.

5. Realize the value of tests in reality

By making a rapid first version of your CPQ-system you’ll get a quick take part in multicultural, multilingual and even intergenerational insights and learn from them. By going live quickly and exposing the CPQs ability of the organization, you can quickly make customizations that make the system several hundred percent better.

6. Be aware of the "black box-problem"

Trust is another subject that CPQ is forced to face when it comes out in reality – something that is known as the black box problem. How can this be overcome? An important part is not to complicate things more than that they can be explained.
Often it is domino effects in product logic/price models that gives weird (but accurate) effects. Here it is important to be well prepared to explain and describe the logic in an educational way.

7. Establish clear measurements

Having clear operational measures for your CPQ-project is important to prove that it works – and deserves continued support. But many companies do not give this aspect sufficient attention in their CPQ projects.
This is a problem with emerging new technologies such as CPQ. The result is likely to be CPQ projects that are bridges to nowhere, pilots that are not scaled up and projects without any business value. Therefore, we do not make pilots. We make sure to go directly to production and in this way are the goals we set up linked to the company sales. It makes it very easy to judge what works and not.

8. Look inward

Where do you find people who can both understand CPQ and the requirements from the business? It is not an easy task. There is a clear lack of CPQ skills.
One often overlooked method to bring down skills shortages is to look internally to find people who can take CPQ trainings. This way you can work so that there are people who have both CPQ and industry expertise. This is a very important part of our deliveries. We see no long-term benefit of the system if it cannot be managed internally. Our role should only be consultative once we have released the first product.

Configure Price Quote Software


CPQ is normally a cloud-based software that helps sales teams to automate their quotation routines and manage interactions with clients.

Configuration

The C in CPQ stands for configuration. This means keeping track of all the logic that goes into a complex product. Certain options are required, others can not be combined.
The number of permutations is normally enormous. Even simple products often have millions of possible ways of combining a product. This means that the maintenance-effort required to keep the product logic up to date is one of the most important factors when evaluating the configuration engine.

Pricing

The P in CPQ stands for pricing. The next set of logic to master is the rules and constraints regarding prices and discounts. Certain items come cheaper as a bundle, some item are alliable for bigger discount while other can not be discounted at all.
This means that workflow and organizational hierarchies are needed to do pricing effectively. Keeping track of prices and the possibility to escalate the sales opportunities to management is all part of pricing.
Support for different pricing models, pricelists and purchasing agreements are essential in pricing.

Quotation

The Q in CPQ stands for quotation. Texts, specifications and images all come together in an advanced template that dynamically adjusts the quotation for each customer.
The ease of use and flexibility of the document generation is a very important factor when evaluating how the quotation can meet your business needs.

For a global company it’s often a requirement that both configuration and quotation must natively support multiple languages.

Vendors

According to analysts the leading vendors in CPQ are Apttus, Oracle, Salesforce and SAP. Niche players in manufacturing are PROS, FPX and Tacton. 

Why CPQ - business drivers at a glance

Configure price quote (CPQ) software cuts through sales difficulty to help leading corporations sell more effectively. CPQ empowers sales reps and associates to recommend combination of goods and services, generate accurate quotes, and gets deals signed faster.

With effective step-by-step guided selling and streamlined workflows for quotes, proposals and contract management CPQ software takes advanced sales to the next level. CPQ increases average deal size, accelerates sales cycles and makes your business more professional.