What Is CPQ? A Manufacturer’s Best Friend!
Imagine this scenario:
You work at a small, independently owned manufacturer of specialty delivery vehicles. You receive a call from a company looking to order 10 trucks for their fleet. As a sales rep, you go through all of the available options with the customer, explaining what your capabilities are.
Once that’s done, you contact the manufacturing floor, talk to the engineers and machinists to determine exactly what will go into the bill of materials (BOM) and look at the specifications requested by the customer to see if they can be met. Of course, you have to record all of this information, determine what customizations are required and how they will affect the price. After all this, you crunch the numbers and get back to the customer with a quote.
This could take days upon days of work.
That’s many wasted days, waiting around for a major order which can make or break your company’s bottom line – and days during which your potential customer could be looking to see what your competitors have to offer. This becomes more inefficient when you deliver the quote to the customer and they change their mind on some of the specifications. The process starts all over again until you & the customer settle on an appropriate product mix.
There has to be a better way to do this.
In an attempt to improve this process, some businesses are creating quotes with an Excel spreadsheet. Others are writing notes and then sharing them for review by the various stakeholders. These are 20th century solutions trying to run a 21st century business.
That’s where CPQ comes in.
What Does CPQ Mean?
CPQ stands for Configure, Price, Quote and it is software used by manufacturing companies to produce quotes and process orders for configurable products.
Let’s break down each of these ideas:
While discrete repetitive manufacturing – where you make a product with no variations, make to stock, and pick & ship upon receiving an order – still exists, the trend is towards “mass customization”, and the “lot size of one”. Customers increasingly want products tailored to their specific desires…and they want them now. Look at the success of businesses like Build-A-Bear, which allows children to pick exactly what they want with their teddy bear. When it comes to music, apps like iTunes and Spotify allow us to create dozens of custom playlists to fit any mood or situation. It only makes sense for customers to expect the same opportunities from larger manufacturers.
In the past, manufacturers offered a few options, and gave customers limited choices. But the landscape has changed, and if customers don’t find exactly what they’re looking for, they’ll move on to the competition.
If this sounds too difficult to achieve, consider this: is it too difficult for your competitors? If you are unable to allow extensive configuration of your products, you’re leaving the door open for your competition to answer this need and take significant market share from you.
If you offer your products in standard configurations with little variability, pricing might be relatively straight-forward. But, when you offer extensive configuration to your products, you need to be able to arrive at an accurate price regardless of whether a specific configuration was ever quoted or sold before.
The pricing component of CPQ ensures that accurate prices – across market segments, geographies, and sales channels – can be arrived at without manual intervention. What’s more, discount approval workflows, discount structures, “favorite customer pricing”, and variable price books can be applied to ensure that you’re maximizing revenue. Pricing can be based on BOM characteristics, production costs, or features and options – or combinations thereof.
The key takeaway here is that your business needs software to keep track of all of your pricing structures to ensure quotes are accurate.
Extensive configuration options and accurate pricing work together to allow you to create a quote for your customer’s review and consideration . There are two key considerations of the quote — the quote itself and the professionalism in which it is presented. CPQ software handles both of these with ease.
First, the quote has to be a formal document. This helps ensure that the information you’re presenting to your customer is clearly laid out, easy to understand, and eliminates confusion. This helps eliminate rework, customer concessions, and product returns.
The best CPQ software includes visualization capabilities to allow customers see 2D and 3D representations of the product that is being proposed. Visualization helps the customer better understand what is being offered, provides them the ability to confirm that the product characteristics are consistent with their intent, and engenders customer loyalty by providing them an interactive view of your products.
CPQ to the Rescue!
Let’s revisit the scenario laid out at the beginning of this article in an environment with CPQ software at work:
You receive a call from a company looking to order 10 trucks for their fleet. With CPQ software at the ready, you can discuss with the customer the various options that are available, some of which they may not have been aware of, providing a path for upselling. Since the software knows all of the rules for configuring your trucks, there’s no guesswork. As options are selected, the price is updated in real time and an interactive 3D model of the product continuously updates, showing the customer how their selections will look to ensure it meets their requirements.
A quote can be built at the push of a button and emailed to the customer, or shared on a web page personalized just for them. The sales rep and the customer can iterate over the quoted products, quickly and efficiently making changes until the customer is satisfied. Discounting rules allow sales reps to offer discounts within boundaries pre-established by management, or it can be sent to managers for approval of more aggressive pricing terms.
Once the order is won, the order details, including detailed bills of material, can be instantly sent to integrated manufacturing applications, like ERPs and CRMs, without any data re-entry or manual intervention.
The process that could previously take days upon days can now be completed in hours, or even minutes thanks to the flexibility and power of CPQ software.
Why is CPQ Used?
CPQ software is used for:
CPQ software simplifies even the most complex products and eliminates errors from incompatible options.
Instead of taking days or weeks, an order can be finalized and moved into production in a matter of minutes
Sales teams don’t need to worry about complicated pricing structures since it’s built into the software. This also reduces the overhead for new employees and speeds up training.
CPQ software lets customers see 2D and 3D mock-ups ahead of time, so they know exactly what they are getting.
Who Can Benefit from CPQ Software?
CPQ software is used in manufacturing because it has a variety of benefits for both the manufacturer and their customers.
Benefits for your customers
Customers get a more satisfying and engaging experience when buying from a company that uses CPQ software. Even though they may not realize it, customers will feel more confident and positive about the buying process. Since CPQ software makes the process faster and easier, customers don’t have to wait around for a quote. This means they can commit to their order right away and get it into production quickly.
Second, it allows them a wider variety of customization options that they may not even realize existed. CPQ software lets customers freely switch between options with confidence so that they can fully explore what your product has to offer.
Using 3D and 2D visualizations lets you show the customer what their finished product will look like. This results in happier customers and helps reduce errors and returns. Some manufacturers use CAD automation to get fully-configured drawings and 3D renderings of the product. When customers can see what it looks like, they’re more likely to buy the item and also more likely to order from you in the future.
Benefits for your company
After implementing CPQ software, you’ll start seeing a whole new level of speed and efficiency. Yours reps can quickly close sales and move on to the next order, improving productivity. Your sales team will also be able to train new employees faster than ever before.
In the past, you had to spend weeks teaching sales associates all the intricacies of your business before they could get through the quoting process. Since CPQ software handles all of the product configuration rules, it removes the need for specialized training.
Along with an increase in the number of sales, you can also see an improvement in the size of each order. With a full understanding of costs and margins for each component, CPQ software helps your sales team with upgrading and upselling orders. And the whole experience being more streamlined makes for fewer errors and a better outcome with the customer. This will turn one-time buyers into repeat purchasers, which can really help your business.
Additional benefits include the consolidation of all product information into a single source of knowledge. By formalizing the rules for configuration, CPQ software can enable your dealers and distributors to quote products. It can even be provided to customers directly, allowing them to configure products and make purchases without needing to go through a salesperson.
CPQ Is for Companies Looking to Take Their Business Levels Ahead
Configure, Price, Quote (CPQ) Software is an important upgrade for manufacturers. It allows you to generate an accurate price quote quickly, without having to spend days getting feedback from different departments. It also allows you to eliminate mistakes which could cost you a sale (or future sales). But the biggest reason why you should consider CPQ is that it will allow you to grow your business by making the sales process quicker, easier, and more efficient.