What Is Configure, Price, Quote (CPQ)?
Configure, Price, Quote (CPQ) is a sales tool that makes it easy to calculate the prices and lead times of complex, configurable products, and to quickly generate quotes with the relevant information.
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What Is Configure, Price, Quote (CPQ)?
Configure, Price, Quote (CPQ) is a sales tool that simplifies and expedites the process of creating and distributing quotes for complex products or services. CPQ allows sales teams to configure custom products based on the customer’s needs and requirements, determine the costs and selling prices based on the configurations, and produce professional quote documents and invoices that can be instantly shared with the customer.
The CPQ process can be broken down into the following steps:
- Product configuration. The sales team selects and configures the products and services that meet the customer’s requirements. The CPQ software provides a user-friendly interface to configure options, features, and accessories while ensuring that the configurations are valid and meet any business rules and constraints.
- Price calculation. Once the product configuration is complete, the CPQ solution calculates the right price based on the configurations, discounts, and any other pricing rules. If CPQ is a functionality within an ERP/MRP system, the software can also use production schedules and available capacity to give you an accurate lead time estimate.
- Quote generation. The CPQ software generates a professional-looking quote that includes the configured products, services, prices, and any other relevant information. Some systems also allow quick invoicing by automatically converting the quote to a hard order.
- Quote management. The CPQ solution provides a centralized platform to manage quotes, track their status, get an overview of the sales pipeline, and make changes as needed. When using a cloud-based system, sales teams can access the quoting system from anywhere and collaborate with other stakeholders to get the best outcome.
The main goal of Configure, Price, Quote systems is to make the sales process more efficient, and error-free and to improve the customer experience by providing clear, accurate, and detailed quotes.
CPQ tools are most often dedicated software or a functionality in CRM platforms or ERP systems. Although primitive Configure, Price, Quote processes could also be set up with spreadsheet templates, this is not recommended as spreadsheets are notoriously clunky and error-prone.
How do Configure, Price, Quote systems work?
CPQ software typically works by using a combination of data inputs such as product catalogs, pricing rules, and customer-specific information to generate quotes for customers. This information can be input manually or through integrations with other systems, such as ERP software. The software uses rules-based processes to automatically configure products based on the customer’s needs and constraints, determine the correct pricing, and generate a quote. The resulting quote reflects the accurate cost of the product configuration based on the information entered into the system.
Benefits of CPQ software
There are many benefits to using a CPQ system. These include:
- Increased efficiency. CPQ automates many manual and repetitive tasks involved in generating quotes, freeing up sales teams to focus on selling and building relationships with customers.
- Accurate pricing. CPQ ensures that quotes are accurate, consistent, and in compliance with any business rules and constraints. It eliminates the risk of errors and inconsistencies that can arise from manual processes.
- Faster quoting. With CPQ, quotes can be generated and delivered to customers in a fraction of the time it takes to create them manually. This results in faster turnaround times, shorter sales cycles, and improved customer satisfaction.
- Better customer experience. As CPQ provides clear, accurate, and detailed quotes in a fraction of the time compared to manual methods, it results in a better customer experience and increased likelihood of winning the sale.
- Increased sales. By streamlining the quoting process and improving accuracy, CPQ can lead to increased sales and improved productivity for the sales team.
- Better collaboration. CPQ provides a centralized platform for sales teams to manage quotes and collaborate with other stakeholders to get the best outcome. If the CPQ is part of an ERP/MRP system, the sales quotes can include accurate lead time estimates while hard customer orders can be converted into manufacturing orders and scheduled for production in just a few clicks.
In summary, CPQ can significantly improve the sales process and lead to increased efficiency, accuracy, and sales.
When should you use Configure, Price, Quote software?
CPQ software could be helpful in any company that manufactures products with customization options but the true significance of CPQ reveals itself once quoting becomes too unwieldy for a traditional Customer Relationship Management system. This may happen due to several factors, including:
- High-complexity configurable products. When selling products with many options, variations, and dependencies, CPQ can simplify and automate the process of customizing and pricing the products. Product complexity is the core reason for implementing CPQ systems.
- High-volume quoting. If a company starts getting larger volumes of RFQs on a regular basis, it can be hell to scale the work of salespeople accordingly. CPQ can automate many parts of the process, reducing the time and effort required to create each quote, and making your sales team much more scalable.
- Multi-channel sales. When selling through multiple channels (direct sales, resellers, e-commerce), CPQ can ensure that each channel is pricing and quoting products consistently, reducing the risk of margin erosion.
- Complex pricing strategies. CPQ can automate complex pricing strategies, such as volume discounts, tiered pricing, and bundled pricing, making it easier for sales teams to deliver accurate quotes.
Producing complex, configurable products is the first and foremost reason for implementing CPQ software. However, if you would like to benefit from similar functionality but CPQ seems too specific, you could look for manufacturing ERP software with advanced BOM functionality.
CPQ as part of a manufacturing ERP
Traditionally, Configure, Price, Quote functionality has been present in advanced CRM apps such as Salesforce, or expensive and complex enterprise-level ERPs such as SAP. Now, MRPeasy brings similar functionality also to small manufacturers in its manufacturing ERP software available as a cloud-based SaaS (software-as-a-service) solution. Namely, MRPeasy’s Matrix BOM functionality allows for configuring products with parameters while the multi-level BOM functionality simplifies the management of complex products.
When CPQ is integrated as a functionality within a manufacturing ERP system, then in addition to configuring and pricing products, it provides a comprehensive solution for managing every aspect of production. The integration between CPQ and the manufacturing ERP system allows for a seamless flow of data that expedites product configuration, pricing, and quoting, manufacturing order creation, inventory booking and tracking, etc.
In particular, the core BOM (Bill of Materials) functionality of a manufacturing ERP system provides a significant advantage for the CPQ workflow. This is especially true if the BOM functionality includes a product configuration and multi-level BOM capacity, which is the case in MRPeasy.
The BOM is a critical component of the manufacturing process, as it provides a detailed breakdown of the materials and components required to produce a product. By integrating product configuration with the BOM functionality, the software can access this information and use it to accurately configure and price the final product. This provides a single source of truth for product information, reducing the risk of errors and improving the accuracy of quotes.
Within a manufacturing ERP system, salespeople can enter the parameters of a configured product and calculate the price and lead time of the product in just a couple of clicks. By using a cloud-based system, the salesperson can access the software while visiting potential customers, generate quotes right then and there, and potentially close deals much quicker. Integrating the system with an e-commerce platform, however, would allow the customers to configure their own products on your website.
When an order is confirmed, it can be converted into a manufacturing order and scheduled for production in just a couple of clicks.
- Configure, Price, Quote (CPQ) is a sales tool that simplifies and expedites the process of creating and distributing quotes for complex products or services.
- The CPQ process consists of product configuration, order cost calculation, and quote generation.
- CPQ systems help companies achieve increased sales efficiency, more accurate quotes, better customer satisfaction, better inter-departmental collaboration, and a shorter quote-to-cash cycle.
- You should implement CPQ software if you are selling complex products with many customization options, when quote requests become overwhelming, when you sell over multiple channels, or when you are dealing with complex pricing strategies.
Frequently asked questions
CPQ software is a tool that streamlines and automates the sales process, allowing sales reps to create accurate quotes for complex, configurable products in real time. This helps companies to improve customer service, reduce quoting errors, and reduce the length of the quote-to-cash cycle.
Configure refers to the process of customizing a product to meet customer needs using a set of rules and options.
Quote refers to the process of generating a price for a product or service based on customer needs and requirements.
Price refers to the cost of a product or service, which can be generated automatically by CPQ software based on customer needs and requirements.
CRM or Customer Relationship Management software helps manage and analyze customer interactions, while CPQ or Configure, Price, Quote software streamlines the sales quoting process by automating product configuration, pricing, and quoting.
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