CPQ is an approach to generating precise and accurate quotes for customers by applying advanced software solutions and automation capabilities.
For most traditional consumer transactions, knowing the price of a purchase is as simple as looking at the price tag. But when the transaction in question includes highly configurable business services, landing on a final price gets much more complicated. Large product catalogs, complex offerings, and customizable solutions all create obstacles for sales teams in configuring accurate price quotes for individual customers. And when teams are forced to rely on manual, time-consuming, error-prone processes, it distracts them from the task that should be their foremost concern: selling the product.
Configure-price-quote (CPQ) may be the answer these businesses have been waiting for. CPQ is a type of software tool that makes it possible for sales teams to generate order quotes quickly and accurately, automatically considering every relevant sales variable. Now, rather than requiring sales to follow manual calculations, organizations can set the CPQ solution to work based on a set of pre-programmed rules to create error-free pricing quotes at the push of a button.
The modern sales process needs fluidity to meet customer needs. Sales teams must be able to offer configurations, options, and discounts while quoting precise pricing at every stage in the customer journey. Unfortunately, when those teams step away to look up pricing rules on outdated spreadsheets or perform by-hand calculations to figure out a customer’s end cost, the process loses its momentum. And should a decimal point get misplaced, or a pricing rule be overlooked, the quoted price may not be fully reflective of the product or service being sold.
To address these issues, effective CPQ software delivers a range of capabilities, including the following:
Not every customer is the same, and they certainly don’t have the same product or service needs. As such, pre-configured bundles may be a reliable place to start but are often not the best solution to meeting customer requirements. Guided selling through CPQ software allows sales representatives to move away from pre-configured bundles and instead adopt a consumption-based selling model where the customer only pays for the resources they use.
CPQ systems can take customer data and consumption history into account to automatically design bundles that are specific to the needs of the user. Artificial Intelligence (AI) guides the user to identify their needs and match solutions to available products or services. It then analyzes the answers and helps narrow down the selection of options to those that fit the provided criteria. In essence, the CPQ can take the role of an experienced sales agent to work with the client to discover exactly what they need and then pair them with the correct solution.
Dynamic configuration goes hand in hand with guided selling. As the sales representative works with the customer to discover their needs, they traditionally must manually select different product or service attributes to create a user-specific product configuration. Again, a reliable CPQ tool streamlines this process, making the configure aspect of configure-price-quote much easier and less time consuming.
CPQ applies automated rules and takes predefined attributes into account along with hierarchy-based configuration to customize products in real time. Once again, AI plays a central role in this process, using historical data and other relevant information to create a highly personalized product. The result? Easy, dynamic configuration that helps reassure customers that the product or service they are considering is a match for their unique requirements.
A business should not have to retrofit its monetization mechanism to its tools. Top CPQ solutions allow for flexibility in pricing, supporting tiered pricing, flat-subscriptions, outcome-based royalty, consumption-based pricing, and more. Sales teams can likewise apply price, discounts, and any changes to subscriptions terms directly in the tool, giving their clients a clearer picture of actual prices.
Pricing flexibility in CPQ also means the tool must be capable of allowing for dynamic pricing based on changing market conditions and supporting extremely complex pricing rules. The best CPQ systems likewise simplify the distribution of pricing data across point-of-sale systems and channel partners.
The capability that CPQ is best known for, quote generation automates all the various inputs and rules that help define the price of a configurable product or service. This has the capacity to completely revolutionize the sales process, eliminating bottlenecks and other clutter from the sales pipeline that can easily result in lost deals.
CPQ can also be applied to existing contracts in the form of amendments. Amendments allow sales teams to make adjustments such as adding products or changing quantities while tracking changes and maintaining a complete auditing trail.
Organizations need a platform based CPQ solution with a composable architecture that can accommodate a growing portfolio or products, services, configuration options, and customers. It should not be a black box. Organizations can then extend the CPQ application as well as build brand-new custom applications on the same data model and platform. Configuration capabilities allow the organization to tailor the CPQ solution to fit custom needs across multiple business units. Without this extensibility, organizations run the risk of needing large investments with systems integrators to custom-code solutions.
CPQ software should be seamlessly integrated with other solutions for many reasons. CRM systems provide access to important customer information. ERP systems store detailed, up-to-date information about products, pricing, discounts, and inventory levels, ensuring quote accuracy and configuration feasibility. Once a quote is accepted, the CPQ system can automatically generate orders in the OM system, reducing manual data entry and minimizing the risk of errors. Integration with customer service and field service solutions empowers agents to create quotes during post-sales engagement, speeding up deal cycles. Finally, integration provides enhanced visibility into the entire customer lifecycle, from lead generation to order fulfillment.
Waiting for offline approvals can slow even the most fast-tracked sale down to a crawl. CPQ systems that apply workflow-based management ensure that approvals are ready when they’re needed, reducing approval times, and further streamlining the entire sales process. With the correct business rules, CPQ tools can also allow for multiple approvers while automatically rerouting approval requests when necessary.
Specific solutions and other situations where prices may vary depending on partner qualifications can apply auto-approval workflows to further reduce the lag associated with the approval process.
For subscription-based services, renewals are a major source of recurring revenue—one that can make or break an organization's earnings. But renewals can also be tricky; without the right information in place at the right time, an otherwise dependable renewal can easily fall through the cracks.
CPQ replaces error-prone manual renewal processes with automated solutions. This helps ensure that when renewals come up, reliable quotes are already standing by with updated contract terms and pricing. This reduces customer churn and cuts down on the risk of lost clients from mishandled renewals.
Rules and constraint management are vital for CPQ solutions, ensuring that configured products adhere to business policies and technical constraints. Rules serve as the foundation, preventing errors in quotes by enforcing guidelines on configurations, pricing, and bundling options. By incorporating rules, organizations minimize the risk of incompatible or non-compliant configurations, enhancing quote accuracy. Effective use of rules and constraints improves efficiency, compliance, and customer satisfaction in the CPQ workflow.
Organizations that rely on subscription models can benefit from CPQ-enhanced asset-based ordering (ABO). The CPQ system allows sales teams to assign hardware and software as ‘assets’ throughout the sales and support cycle, thus providing the organization with a more-complete picture and accounting for every product or service being purchased by the customer.
At its core, CPQ is about collecting, evaluating, and retrieving relevant customer and pricing data. This information can be used in forecasting future opportunities and renewals. Based on buying patterns and consumption history and infused with Artificial Intelligence, the CPQ tools can accurately predict orders before they come in and help identify opportunities before they happen. Forecasting can also be applied to renewal management, providing alerts when contracts are nearing their end.
CPQ software has the capacity to blur the line between tool and agent. Using AI capabilities, CPQ helps oversee and coordinate many aspects of the deal itself. This can include identifying opportunities, tracking deals as they progress through the pipeline, generating actionable reports, and automating key tasks and processes from start to finish.
Smart deal management with CPQ creates consistency in the deal process while also providing clearer visibility and oversight that managers can use to quickly locate and address potential problems before they derail the sale. Customers likewise benefit from smart deal management as they enjoy more streamlined deal processes and a more direct focus on their needs.
Substantial amounts of data pass through CPQ systems. Hidden in that data are valuable customer and business insights. These insights may be applied to sales or customer management strategies or turned inward to improve the CPQ process itself. Most CPQ solutions include their own built-in analytics tools and reporting options, but for those who prefer to work with their data on their own, data-export options make it easy to transfer the entire dataset to a data warehouse or separate business-intelligence tool.
As mentioned above, traditional pricing quoting leaves a lot to be desired—lost deals, order errors, and interrupted sales momentum are only a few potentially damaging issues. To combat these issues, businesses in a range of industries are implementing CPQ software. With the right CPQ solution, organizations can expect several advantages, including:
CPQ makes it possible to quickly create quotes built on a range of variables that would otherwise be difficult and time consuming to account for. This is particularly useful for businesses that provide a range of products or services, or that demand significant customization on product bundles. With CPQ, pricing may be defined for each feature with the ability to further revise the closing price through discounts and other changes at various levels. By modularizing and automating the quote process, organizations that use CPQ tools see better support for their diverse products and pricing.
Errors in manually quoted prices not only slow down the sales process; they may also wear away the confidence customers have in the business’ brand. CPQ eliminates human error from the equation, enhancing sales processes by allowing users to select from individual product and service combinations and then automatically creating an accurate price quote. Discounts can also be capped and predefined margins set, so that no quoted prices ever fall below the level of profitability.
A major factor in most CPQ solutions is automation. Automating essential steps in the sales process, such as renewals, quote generation, and deal analysis, significantly shortens the average sales cycle. This and other CPQ capabilities make it possible for sales teams to ‘strike while the iron is hot,’ maintaining sales momentum and helping guide their prospects forward at a sustainable rate. Even the most complex product configurations and pricing rules can produce accurate quotes in a matter of minutes.
A single sales representative following manual pricing processes can only focus on a single deal at a time. Top CPQ systems have no such limitations; these tools can process a near limitless number of quotes at scale. Sales teams can likewise improve their quoting capacity on individual levels, through guided sales processes to produce more quotes per representative without sacrificing quality.
CPQ is a tool designed to simplify complex processes; it wouldn’t be much use if the learning curve for using it were prohibitively difficult. Built-in rules make even the most complex configuration and quoting tasks simple. In many cases, little to no training is needed for unaccustomed users to become acquainted with the basic functionality of the CPQ system. This can be a major boon when expanding a department and bringing in new employees; it can also optimize the success rates of cross-selling and up-selling initiatives that sales representatives may not be fully proficient in.
All these benefits taken together speak to a single, overarching advantage for CPQ users: Increased profit.
CPQ systems have the capacity to shorten response times, eliminate quoting errors, and guide users through otherwise difficult sales processes. This means reduced operational costs, fewer lost deals, better upselling and cross-selling success, and the capacity to accomplish more in less time. These attributes make CPQ a major area for cost reduction and revenue enhancement in modern business.
The advantages of CPQ come down to the support it offers in flexibly and accurately configuring, pricing, and quoting sales offers to reduce costs and improve returns. ServiceNow provides flexible constructs to model offerings — products, services, bundles, options, pricing and rules—enabling faster product introductions and time to market. No more black boxes.
And, because it’s natively integrated with other lead-to-cash applications on the ServiceNow platform, CPQ can go even further. CPQ is part of Sales and Order Management, providing a single platform for lead-to cash. Opportunities flow seamlessly to quotes, contracts, orders, order fulfillment, work orders and projects, customer service cases, and renewals.
Built on the industry essential Now Platform®, Sales and Order Management (SOM) empowers your business to deliver a unified lead-to-cash experience at lower cost. SOM is natively integrated with Customer Service Management (CSM), Field Service Management (FSM), and Strategic Portfolio Management (SPM). Accelerate the growth of your business as you boost the efficiency and effectiveness of your sales and service agents.
Give your users and customers the support they need, so they can focus on doing what they do best. Click here to learn more, and see how ServiceNow SOM can optimize the lead-to-cash cycle and increase revenue.