CPQ (Configure Price Quote) explained

What is CPQ?

Manually creating sales quotes for complex products and services is tedious and prone to errors and pricing inconsistencies. Organizations can automate 43% of activities performed as part of configuration, pricing, and quotation, according to McKinsey research. CPQ (Configure, Price, Quote) software enables sales teams to build accurate quotes quickly and automatically based on customer needs. It handles the nitty-gritty details (configurations, pricing rules) so you focus on understanding what the customer truly needs. The result? Faster, more accurate quotes, and the kind of customer experience that builds trust.

CPQ software is often integrated with your CRM, and in many cases, it’s a module within the CRM. Let’s take a look at the different stages of CPQ.

Configure

During the Configure phase of CPQ, you customize products to match a customer's specific requirements. This involves selecting the right features, options, and quantities. 

For example, when buying a Freshworks license, you'll need to consider:

• The right plan: Choose the plan with features that best fit the customer's needs.

• License quantity: How many users will need the software?

• API call volume: How much integration and data exchange is expected?

• Storage needs: How much data will need to be stored?

Once the product configuration is done, the CPQ software will move on to the pricing stage.

Price

After configuring products, CPQ software automatically calculates the price of your solution. It is a rule-based tool to determine the cost based on:

• Product price: The base price of each configured product or service.

• Quantities: How many of each item the customer needs.

• Discounts: Any applicable discounts, such as bulk pricing or special offers.

• Options and add-ons: The cost of additional features or customizations.

The CPQ solution makes the pricing process accurate and consistent. It eliminates errors and ensures that every quote reflects the true value of the solution you're offering your customer.

Quote

In the Quote phase of CPQ, you create a detailed proposal outlining your configured products or services and their pricing. This quote includes:

• Product/Service details: A clear description of what the customer is purchasing.

• Pricing breakdown: Itemized costs, including any applicable discounts or add-on fees.

• Terms and conditions: Relevant information about payment, delivery, implementation, etc.

CPQ software automates quote generation based on existing configuration and pricing data within the system, ensuring accuracy and delivering a professional quote. This creates a better customer experience, giving the buyer all the information they need to make an informed decision.

Challenges sales teams face with manual quotes

1. Pricing errors: Manual processes lead to costly mistakes in calculations, discounts, taxes, and currencies. CPQ automates this, ensuring accuracy and avoiding lost revenue.

2. Unreliable processes: Outdated methods force reps to memorize or search for complex product information, slowing them down and increasing the risk of customer-facing errors. CPQ provides a streamlined, reliable workflow.

3. Lack of collaboration: Disconnected systems create data silos and hinder teamwork. CPQ integrates with CRM and other tools for smoother communication and accurate customer records.

4. Overburdened sales reps: Admin work eats into selling time. CPQ automates quoting, freeing up reps to focus on closing deals and not tinkering with spreadsheets.

5. Compliance Risks: Manual processes make it hard to enforce pricing rules and regulations. CPQ's built-in compliance features ensure deals follow guidelines, reducing legal risk.

How does CPQ work?

Let’s take a look at how CPQ software works and how it can help salespeople overcome the above challenges.

1. Configuration: CPQ software guides sales representatives or customers through customizing product or service specifications.

2. Pricing: Once configured, the software automatically calculates the price based on predefined business rules, pricing models, discounts, and promotions.

3. Quoting: CPQ generates a professional, customer-ready quote that reflects the chosen configuration and pricing.

4. Automation: CPQ often integrates with ERP, CRM, and other platforms, reducing manual work and streamlining approvals.

5. Guided selling: The quote software can suggest cross-sells and upsells, and ensure all steps are followed, maximizing sales opportunities for the entire sales organization.

6. Reporting and Analytics: CPQ solutions often offer robust reporting, providing insights into sales performance, pricing trends, and product popularity.

Benefits of CPQ

The  benefits of CPQ software include  shorter sales cycles, higher deal value, added customization, greater flexibility, and accessibility, improved productivity and automation, elevated consistency, and increased customer satisfaction.

#1. Accuracy

The CPQ system functions as a failsafe against human error in the quoting process. It guarantees that each proposal is accurate and perfectly aligned with the customer's requirements. It ensures profitability for the company as well as value for the customer

#2. Efficiency

CPQ expedites the sales cycle by automating configuration, pricing, and quoting. Sales representatives can swiftly respond to leads, ensuring a quicker and more efficient sales process.

#3. Consistency

CPQ guarantees adherence to the company's established pricing and discounting policies for every quote generated. This meticulous adherence ensures uniformity and consistency across all customer interactions, instilling trust and reliability in the sales process.

#4. Maximized revenue

With guided selling and upsell suggestions, the CPQ tool empowers sales representatives to identify strategic opportunities for maximizing deal size and revenue potential. This intuitive tool provides real-time insights and recommendations, enabling reps to offer tailored solutions and additional products or services that align with the customer's needs.

#5. Improved customer experience

The professional and detailed quotes generated by CPQ software instill a sense of trust and confidence in potential buyers. These meticulously crafted proposals demonstrate a thorough understanding of the customer's and needs, showcasing the company's commitment to delivering exceptional value.

CPQ software is a game-changer for businesses dealing with complex products or services. It empowers sales teams to efficiently and accurately follow the sales funnel, ultimately driving revenue and enhancing customer satisfaction.

CPQ use cases across industries

CPQ has wide-ranging applicability, finding its place in diverse sectors like healthcare, manufacturing, and insurance. It can handle intricate pricing structures across product catalogs,making it an invaluable asset for businesses with multifaceted product offerings.

Additionally, CPQ provides a platform for buyers to engage in a highly customizable experience, tailoring products to their specific requirements. This adaptability positions CPQ as a strategic tool for businesses aiming to offer personalized solutions while streamlining their sales processes.

Here are some examples of how CPQ is utilized:

1. Manufacturing

• Custom product configurations: Manufacturers use CPQ to create complex, configurable products with various options and features.

• Automated BOM generation: CPQ automates the creation of Bills of Materials (BOMs) for production, ensuring accuracy and efficiency.

2. Technology and software

• Subscription management: CPQ streamlines the pricing and packaging of subscription-based services (SaaS), seamlessly handles renewals and upgrades, and improves the buying experience.

• Bundle offerings: Tech companies use CPQ to create bundled solutions with various software and hardware components.

3. Healthcare

• Medical equipment configurations: CPQ assists in configuring medical devices and equipment based on specific requirements and regulations.

• Pricing for healthcare plans: It helps in pricing rules for health insurance plans based on coverage and demographics.

4. Construction and architecture

• Building material quoting: CPQ aids in creating error-free quotes for construction materials, factoring in quantities, specifications, and accurate pricing.

• Customized building solutions: For architects, CPQ helps design tailored building solutions, considering material options, layouts, and more.

5. Automotive

• Vehicle configuration: In the automotive industry, CPQ helps potential customers select different features, options, and accessories for their vehicles.

• Spare parts quoting: It streamlines spare parts and accessories quoting based on specific vehicle models.

6. Telecommunications

• Service package customization: CPQ enables telecom companies to offer customized service packages with various features, data limits, and add-ons.

• Device bundling: It helps create bundles of devices, accessories, and service plans for customers.

7. BFSI (Banking, financial services, and insurance)

• Loan, insurance plan, and mortgage quotes: In the financial and insurance sector, CPQ assists in generating quotes for loans, insurance plans, and mortgages with different terms and interest rates.

• Investment portfolio customization: It helps tailor investment portfolios based on risk tolerance, financial goals, and market conditions.

8. Energy and utilities

• Energy solution configurations: CPQ assists in designing customized energy solutions for commercial and industrial clients.

• Utility service packages: It helps in pricing and packaging utility services for different types of consumers.

CPQ process can be adapted to meet the unique needs of virtually any industry. Its versatility lies in its ability to streamline complex sales quote and ordering processes, ultimately driving efficiency and revenue growth.

CRM with CPQ integration

 Integrating your CRM platform with CPQ software is a strategic move that empowers businesses to take their sales processes to new heights of efficiency. This integration allows for seamless data flow between the CRM and CPQ, ensuring sales teams can access up-to-date customer information while generating accurate, tailored quotes.

This not only saves time but also enhances the overall customer experience. Sales representatives can now swiftly respond to leads, offer personalized solutions, and effortlessly track interactions within a unified platform. Furthermore, with a holistic view of customer interactions, businesses can make informed decisions, identify upsell opportunities, and build stronger, long-lasting customer relationships.

The CPQ feature in Freshworks CRM ensures that product lists are kept current, allowing for comprehensive access to pertinent product details directly from the product page. This includes the capability to include images for products and link them seamlessly with ongoing deals.

How to implement CPQ in your organization

In this section, we will walk you through the key steps and best practices for seamlessly integrating CPQ into your organization.

1. Assess organizational needs and readiness

Before implementing CPQ, it is essential to determine your organization’s needs and readiness. It involves identifying the business processes that need to be automated, evaluating the current sales process, and identifying areas where the solution can help improve efficiency and productivity. You should also evaluate your organization’s technical capabilities to ensure you have the necessary infrastructure to support CPQ.

2. Select the right CPQ solution

Selecting the right CPQ solution is critical to the success of your implementation. You should evaluate different solutions based on functionality, ease of use, scalability, and cost. It is also essential to consider how well the solution integrates with your existing systems.

3. CPQ implementation process and best practices

Once you have selected a CPQ solution, it is important to follow best practices for implementation. That includes defining clear goals and objectives, establishing a project team, optimizing your quote-to-cash process, focusing on data management, and providing adequate training and support for your sales staff.

By following these steps and best practices, you can ensure successful implementation of the platform for your organization.