What Is CPQ, or Configure Price Quote?

Commerce companies across various industries sell complex configurable products and services, the prices of which are not fixed and depend on chosen options and associated parts. It’s a challenging, time-consuming and risky task to configure such products and calculate their prices manually because each component may have dozens of interconnections. Hence, the change of one triggers numerous other changes.

CPQ (Configure Price Quote) software systems help organize a seamless sales process of complex goods by providing automated configuration and price management. Let’s take a look at the working principles of this type of software, its benefits for your business and the leading CPQ market solutions.

What Is Configure Price Quote (CPQ) Software?

CPQ is an acronym for Configure, Price, Quote and refers to a software system that producers and sales teams use to craft personalized configurations of complex products that have a huge number of interconnected options, and then calculate accurate price quotes and deliver tailored proposals to clients.

CPQ software is used by sellers of complex configurable products such as equipment, machines, furniture, or construction materials that provide options for customers to choose size, assembly set, color, etc.

Example: You want to buy an excavator but the standard model doesn’t comply with your requirements. You need a specific arm size and increased lifting capacity. In this case, a producer must change not only an arm and the chassis but also various other related elements in the hydraulic power system, suspension, etc. To calculate the final price, managers will have to take into account all the elements of a new configuration. The result may also depend on other conditions, including economic factors, competitors’ offerings, the quantity purchased and more.

CPQ software systems aggregate all the configuration rules that can be related to physical processes and design features (the CPQ system also allows you to control the compatibility of configurable options), with price or marketing constraints. This is possible due to integration with third-party systems. As a result, both sellers and buyers benefit from CPQ:

• The former can quickly develop the most optimal configurations of products and services, generate an accurate price and capture additional sales opportunities (upsell, bundle, cross-sell), thus staying ahead of the competition.
• The latter get a personalized quote for the best price possible in the current market conditions and according to their desires.

Main CPQ software features:

• 3D-, VR- or AR-enabled visual product configurators
• An advanced rules engine based on artificial intelligence
• A cloud-based platform
• Real-time price calculation and management
• Automated quote generation
• Integration with third-party systems (CRM, ERP)
• Reporting

How Does CPQ Software Work?

In a nutshell, CPQ software optimizes all stages of the configuring and selling of complex products because it:

• configures products and services according to customer needs
• automates price calculation with the help of artificial intelligence algorithms
• generates personalized quotes according to brand and legal rules promptly.

The functioning of CPQ software is divided into three stages. Let’s look at each of them separately.

Configure

The selling process based on CPQ software starts with product configuration.

• The system takes data about configuration elements, nodes and options either from integrated ERP, BPM, CAD systems, or designers and engineers enter the information manually.
• System operators enter a set of rules under which it’s allowed to configure the product.
• Users choose the options they need.
• CPQ configures a product (often with a visualization capability) and transfers configuration data to eCommerce systems (SAP Hybris, Magento websites), CRM systems (MS Dynamics, Salesforce), or displays it on a built-in interface.

This means that clients can use a CPQ configurator on an eCommerce website to set individual parameters for a product they want to buy. More precisely, they can configure size, color, materials, components and other options.

• CPQ solutions can also provide a guided selling experience. Guided selling is a digital interaction based on eliciting the customer’s needs in order to quickly navigate through the product catalog, sort out options and provide relevant recommendations. It works on the principle of in-person communication between a user and a salesperson: the system asks targeted questions to guide buyers toward the right product.

At this stage, a program helps clients get exactly what they need and simultaneously detects additional sales opportunities. For example, by analyzing individual configurations, CPQ algorithms determine what complementary items or related products can be offered with a particular order, thus promoting cross-selling.

Price

The next step is to determine the price of a product, which can be calculated only after the configuration is done. Pricing of configurable products is a tricky task because such products may have millions of permutations. If calculated manually, the result might be far from optimal: sales reps are not immune to human error and may spend much time determining prices that may turn out not to be reasonable to buyers.

By using a CPQ system with preset rules and options, sales teams eliminate this headache and reduce the risk of losing clients.

In addition, CPQ provides AI algorithms that research market trends and buying patterns, combine them with individual customer configurations and quickly determine the most reasonable prices. They can also set up rules and personalized discounts without damaging your company’s profitability.

Quote

When you are done with configuration and pricing, you should, without wasting time, send a highly detailed proposal to your customer. Fast response time may play a key role in closing a deal.

CPQ software generates complex quotes, automatically considering your company’s and legal rules. CPQ quotes contain commercial information (cost, margin, etc.) and can be exported to ERP or CRM systems for further analytics, accounting, or production needs. Finally, the system generates personalized, error-free proposal documents to be sent to clients. The only thing sellers have to do is to check them.

Industries Using CPQ

We are seeing increasing complexity in B2B and B2C markets driven by many factors, including:

• the COVID-19 pandemic and subsequent higher demand for a seamless digital buying journey
• tight supply chains that leave no room for error
• the evolving landscape of interconnected digital systems
• widely used Industry 4.0 technologies such as IoT or digital twins.

As a result, producers across industries need to find optimal ways to connect with their end users and ensure the right path to markets. The following are the main examples of industries that deal with configurable products and benefit from implementing sector-specific CPQ solutions.

• Machine and equipment manufacturing — plants, factories and various companies using machines and equipment need individual configuration according to their specific production processes.
• High tech and electronics — complicated technologies comprising robotics and electronic elements should be tailored to the various conditions and processes they are used in.
• Medical equipment manufacturing — the configuration of medical devices should be at the highest level because it impacts people’s lives.
• Automotive industry — more and more customers want to configure automobiles to their mind as they use them on a daily basis and want a comfortable experience.
• Construction industry — with a variety of building materials and modern technologies, each construction project can be unique.
• Furniture production — there are hundreds and thousands of options offered to design pieces of furniture, limited only by the customer’s imagination.
• Banking, insurance, financial services — financial products comprise numerous details, and one changed detail impacts the entire product.

CPQ and CRM Integration

It’s a frequent use case to integrate a new CPQ solution with an existing CRM system used by your company. Why do it if a CRM by itself is an efficient tool? Undoubtedly, CRM systems have become standard tools widely used by businesses of all sizes. They significantly simplify work with customer data due to clear organization and analysis opportunities.

However, sales managers need to use additional programs such as Microsoft Excel to perform pricing and quoting tasks, which is not always convenient and may even result in errors.

By integrating CPQ and CRM solutions, you bring your sales process to an entirely new level. You’ll not need to worry about the connection between tools or that some data will be lost. The entire workflow from lead acquisition to closing the deal will be managed from a single source, bringing your business more revenue than ever.

Benefits of CPQ Software

Configure Price Quote (CPQ) software accelerates and simplifies all stages of selling complex products, from preparation to closing the deal. Such digital systems give sales reps a substantial competitive advantage by eliminating costly mistakes and shortening the sales cycle. Customers also benefit from interacting with organizations that use CPQ solutions.

Benefits for Organizations

Sales operations efficiency. CPQ implies the automation of many business processes. Like any automation, it results in enhanced performance efficiency, precisely in a shorter sales cycle. This happens because sales managers can react to customer requests much quicker, spending less time between customer acquisition and conversion.

Moreover, the system integrates with other tools and solutions (ERP, CRM) used by various departments within a company. When all the necessary information on products, prices and customers is integrated into one ecosystem, any employee can freely access it at any time and be sure that the information is up to date. The fact that data isn’t siloed ensures consistent pricing and eliminates errors, which also contributes to improved operations efficiency.

More sales opportunities. The intelligent automated system can discover more opportunities for bundling, upselling, or cross-selling than human employees.

Higher revenues. Since CPQ software improves the efficiency of operations and captures more deal opportunities, more purchases are made and revenue streams increase. The improved customer satisfaction also plays a role: without being distracted by administrative and routine tasks, sales reps can focus on communication with clients, and happy clients are more likely to make a purchase, return to the company in the future and recommend it to others. In addition, the optimization of pricing and discount policy increases the lead conversion rate.

Benefits for Employees

Sales managers get a convenient calculator to generate price quotes accurately and quickly.

Production workers minimize the number of errors and rework. The outcome complies with declared specifications, which is especially important for industries with regulated security requirements such as OHSAS and ISO 14000.

Engineers get the ability to seamlessly transform technical processes into sets of configuration requirements and rules.

Logistics and delivery specialists get clear instructions on how to pack, transport and assemble the final product.

Financial specialists get a transparent picture of margin restrictions and actual prices.

Benefits for Customers

Reduced response time. Customers don’t have to wait for hours to get the information they need, which is a significant advantage for people who appreciate their time.

More accurate quotes. With CPQ, quick response time doesn’t mean neglect of accuracy. The integration and collaboration between departments and real-time information updating ensure that customers get error-free accurate quotes and should not worry about compliance or any other issues. This practice cultivates a sense of trust in the company.

Personalization. CPQ helps generate tailored offerings and personal discounts — the things clients like most of all.

Why Does Your Business Need a CPQ System?

There are several criteria that can make you think your business needs a CPQ solution.

• You sell complex configurable products.
• Your sales team can’t provide quick responses to customer requests.
• The sales cycle is too long.
• Quotes often contain errors and need to be reworked.
• Your business loses profitability because of incorrect discounts.
• Your sales team doesn’t notice additional sales opportunities.
• The satisfaction level of your customers is low.

Top Best CPQ Software Solutions

Let’s look at the most popular CPQ software products according to Gartner’s Magic Quadrant.

Source: Salesforce

1. Salesforce CPQ

This tool by Salesforce is positioned as a leader in the Magic Quadrant for CPQ application suites in 2020. The high position is explained by the comprehensiveness of the solution and its applicability to SMEs and large enterprises. Salesforce CPQ provides a range of features for sales management, marketing automation, partner relationship management, customer service, and more. You can seamlessly integrate it with Salesforce CRM and use it on mobile devices.

Salesforce CPQ has no free version and requires time to be completely implemented into business processes.

2. Oracle CPQ

The Oracle CPQ is also among leaders. This cloud-based solution offers incredible integration capabilities with Oracle solutions (Oracle Commerce, Oracle Subscription Management), third-party ERP systems (Microsoft, SAP) and web service apps (currency exchanges, e-signatures, manufacturing materials, mapping and more). You can easily configure new products or import products you’ve configured before. The pricing is high but reasonable, though reporting and analytics could be improved.

3. SAP CPQ

SAP is a continuous leader in Magic Quadrants, and this product is not an exception. The comprehensive SAP CPQ program offers advanced configuration, scalability, interactive pricing, cloud deployment, extensive integrations, cross-sell and upsell recommendations, and many other features. No free trial is available.

4. FPX CPQ

FPX CPQ, a B2B sector-specific solution for manufacturing industries, is positioned as a leader among niche players. This purpose-built tool offers exceptional domain experience coupled with cloud capabilities. The solution can integrate with your existing technology stack to generate completely accurate sales proposals.

Recently, FPX has become part of a new software platform for manufacturers — Revalize. The platform brings together five industry-leading companies: FPX Intelliquip is a central piece, AutoQuotes — a CPQ and PIM tool, Configure One — a CPQ tool with 2D/3D visualization capability and AutoCAD integrations, Lighting Analysts — an engineering simulation tool for interior and exterior illumination, Pipe Flo — a fluid system modeling and simulation software.

As a result, Revalize has a presence in eight different manufacturing segments: building products, medical devices, mechanical equipment, fluid handling, foodservice equipment, specialty vehicles, specialty manufacturing and lighting manufacturing.

5. KBMax CPQ

Another niche player is KBMax CPQ. It provides CPQ solutions for manufacturing, retail, heavy equipment, biotech and other industries. Customers like its flexibility, user-friendliness and the ability to work with niche-specific tools such as SolidWorks Bill of Materials (BOM).