Blog 11: The CPQ Paradox by Peter Prins, Merkato CPQ Consultant
It’s a common occurrence for businesses that we, as CPQ professionals, view as ideal candidates to underestimate their suitability for CPQ solutions. Yet, upon familiarizing themselves with our software and its capabilities, these companies quickly realize the immense benefits at their disposal. Savings of dozens of hours per month from quote to execution is more the norm than the exception!
One intriguing question arises: why do many companies only later recognize the efficiency gains they could have achieved all along?
Sales as a Bottleneck? Not Quite.
CPQ stands for ‘Configure Price Quote,’ succinctly embodying the process of configuring a product to derive a sales quote. For many businesses, the time invested in quoting is minor compared to other operational processes, with quote generation taking just a few hours.
Most companies have eased this task with spreadsheets for price calculations and document templates for standard texts and images, allowing sales reps to tweak content as needed.
However, the reality often deviates from this seemingly straightforward process, with the copy-paste workflow introducing inevitable issues, such as accidental inclusions of uncalculated options or faulty pricing leading to minimal margins on orders.
Hidden Flaws
Practice often shows that the cut and paste workflow entails unavoidable problems, such as:
Accidentally deleted texts in the quotation, causing the customer to expect a non-calculated option.
- Using an outdated calculation sheet without recent price increases.
- The customer requests an alternative offer or adjustments, which depends on the vendor’s adeptness with its version control.
- Variations in quotations cause confusion.
- Missing information that still needs to be retrieved by the office staff or during work preparation.
CPQ As Process Improvement
Apart from the sales benefits, by generating consistent, error-free quotes, there are countless benefits throughout the rest of the ordering process:
- Quote version management > Once a quote has been sent, adjustments can only be made if a new version of the quote is created. Traceability;
- Optional offer > A quote with options cannot move to the order phase until the customer has made his choice among the options.
- Input validations > Missing data blocks the possibility of moving the quote to the next stage of the process.
- Technical control > Technical approval for specific options or specialties, therefore first an engineering consultation / approval before ‘specialties’ can be offered.
- Financial control > Approval is mandatory above a certain discount or amount by a manager.
- User-based rules > Products or options that are not available to distributors in a certain region, for example, are not available to them.
- In short, there are many features available that help ensure that the ultimately accepted quote can be converted into an order without issue. And since all information is present and validated, downstream processes can be activated with the press of a button.
Links to other business applications, such as CRM, ERP and/or PDM (product data management), avoid manual entry or copying of item lists with configured prices and characteristics.
Benefits Across the Board
What does all this mean for the entire post-sales process?
Preparing the job will have a lot less research to do after receiving an order. They can really focus on the special parts.
The same goes for engineering. With specifications set after sales, there will be less discussion and repetitive work to achieve the desired solution.
Purchasing sees the needs in the ERP system and will be able to focus primarily on finding scale advantages in purchasing. Emergency or repair orders will be much less frequent.
All this has an impact on the different stages of the process after the sale: CTO parts are easier to plan, production is less busy with urgent orders, and transport has to deliver less afterwards. The percentage of ‘First Time Good’ will increase.
The bar chart above shows the gain that can be made in the whole process.
The CPQ Paradox: More Work for Sales?
At first glance, it may seem that sales teams face an increased workload. However, the reality is that CPQ facilitates a more comprehensive and accurate capture of customer needs and specifications, translating to substantial benefits later in the process.
The CPQ Paradox: More Work for Sales!?
One thing is clear when you look at the graph: Sales gets more work!? But that’s not the goal!
However, if we look at the completion of a single quote, this may well be the truth. The configurator is faster than the old copy and paste work, but the extra work for the seller is mainly in the ‘complete sale’. This means that we ensure that the customer’s wishes are correctly translated into a solution, provided with all the necessary data.
In addition, consultation with engineering will have to take place for specialisms. And high-risk orders may need to be assessed by a financial manager.
But also aspects such as payment terms, delivery terms, financing, product specifications and all other aspects that convert an A4 quotation into a “Digital Product Definition”. By Digital Product Definition (DPD) we mean the complete file containing all features and agreements of the entire deal. So not just a conversation, an image, a price. In the DPD we also want to record functional specifications for later analyses. The DPO can be consulted by various parties throughout the entire production process.
So these are the points that a salesperson could spend more time on, which will yield many benefits later in the process!
The modern CPQ tool is much more than a system for calculating a price and creating a nice document. It has become a system to capture data for stakeholders throughout the process.
Project risk
In the Merkato implementation process, sales is an important user and important stakeholder. Of course it is important that sales finally has a tool with which they can work well. However, it is a pitfall to lose sight of other process benefits that are taken into account during implementation.
Given the paradox, if sales has too much influence on the implementation project, it is likely that sales will not be enthusiastic about using this solution. Perhaps they are afraid of losing freedoms and will encounter all kinds of exceptional situations not to use the configurator.
It is therefore important that when implementing a CPQ project it becomes clear that it is a process improvement. Every department should be involved in these implementations and management should monitor the vision and end goals.
If addressed correctly, the CPQ paradox will not pose a project risk!