How to make a business case for CPQ
In 2016, I founded Hive CPQ to help ambitious manufacturers accelerate their sales. One of the main reasons I wanted to create Configure Price Quote software is because CPQ is the kind of software that has a great impact on a company. If implemented correctly, it becomes a key strategy and efficiency ingredient. Today I’m sharing my insights on how to make a business case for CPQ. Let’s dive right in!
Why make a business case for CPQ?
At my first job working for a door manufacturer, I was asked to optimize the IT infrastructure of the company. I immediately started working on improving their ERP and CRM systems to ensure a smooth data flow.
However, I quickly realized the company needed more than just the optimization of existing systems. Since they were working with highly complex products, their main challenge that was holding them back from growing their business, was generating accurate quotes and producing the right configurations. Optimizing their ERP and CRM systems wasn’t going to change that; a CPQ or Configure Price Quote solution was what they needed.
Configure Price Quote software helps companies to optimize their sales process. Sales reps, distributors, and customers can configure products, calculate the correct prices, and automatically generate a quotation in one CPQ platform. That’s how CPQ enables companies to save time and sell more, resulting in more revenue.
Implementing a CPQ has a huge impact on a business. All departments are benefiting from the efficiency a CPQ brings. However, that also means that companies will be facing some resistance when trying to implement a CPQ. People are creatures of habit after all who are not always open to changing their way of working.
In addition, CPQ comes with its own price tag. How can you justify this investment? And when can you expect your first ROI? Let’s take a look at a concrete business case.
Flywheel effect of a CPQ
The flywheel effect describes how ‘small wins’ or small pushes on a wheel accumulate over time, allowing your business to continuously grow. The concept is based on mechanical flywheels that drive rowing machines, wheels on children’s playgrounds and more. To create the flywheel effect, all friction must be removed from processes and a certain force must be applied.
I’m a big believer that CPQ can have a flywheel effect on a company: CPQ gives little nudges to the wheel so that the business can keep spinning and therefore keep growing. Let’s take a closer look at what exactly those little nudges mean.
We will be making a business case using a fictitious example of a canopy manufacturer with an annual revenue of about €20 million.
Part 1/5: Saving time
CPQ helps you save time. You can save hours of work, especially in the quotation and order process:
- Easily configure products
- Automatically calculate the correct price
- Generate accurate quotations in one click
- Send all data in the form of an order to production
What exactly does this mean for your company?
Let’s look at the example of our canopy manufacturer. They generate quotes in 10 minutes instead of 30 with CPQ and send out about 90 quotes per day.
The company can save 90 x 20 minutes = 30 hours per day on the quotation process. Or in other words, 3 to 4 Full Time Employees (FTEs).
Additionally, CPQ helps save time in order processing. Orders can now be processed 30 minutes faster than before. The manufacturer selling 10 canopies per day therefore saves another 18 hours every day! That’s another 2 FTEs.
That’s how CPQ gives a first and perhaps the most important push to the flywheel.
Part 2/5: The hidden cost of Excel and other tools
CPQ software replaces several systems such as Excel, Word, in-house software, external calculators, etc. These tools are often free, but come with hidden costs:
- System maintenance requires hours of work from the IT department,
- and the distribution, implementation, and debugging of these tools takes a lot of time.
CPQ brings everything together in one platform. What kind of impact will this have on your business?
The canopy manufacturer we used in the example earlier employs one person dedicated to keeping their Excel calculation files up to date. The inside sales department uses these sheets when preparing quotes, so they need to be able to rely on the most recent information at all times.
Suppose this employee spends on average one day per week on updating, distributing, debugging, and explaining the Excel files. That means each week 8 hours are lost that could have been spent on innovating new products or implementing a CPQ solution.
By investing in CPQ, the manufacturer can get rid of their Excel files and reallocate time to R&D, giving them a competitive advantage in the long run.
Part 3/5: Increase conversion rates with improved quotes
Marketing departments usually spend a great deal of time and money in a good product presentation on the website, social media, trade shows, in brochures or product catalogs. However, the quote that is sent to the end customer is often forgotten. And yet, a quote is something that can make the difference between a won deal and a lost opportunity.
A good quote makes your company stand out in the current hyper competitive environment. It should give the customer the confidence and desire to buy from you. With CPQ, you create faster and better quotes using some attractive templates. This increases your customer’s willingness to buy.
Let’s go back to our canopy manufacturer. They produce €200 million worth of quotes per year at a conversion rate of 10%. Say that the company increases their conversion rate by 1% using CPQ for faster, better, and accurate quotes. This would result in an additional €2 million revenue!
The improved quotes from a CPQ can therefore help companies to give the flywheel a third push.
Part 4/5: Turn everybody into a product expert
Your products are not always easy for your customers to understand. There are different options, product codes, rules, pricing lists and more to consider. A Configure Price Quote solution removes this friction and turns everyone into a product expert.
CPQ contains all the necessary product information to make sales run smoothly. Both sales reps and your distributors/customers can:
- Quickly create quotes and place error-free orders
- Consult the latest product information
- Visualize the products in 2D/3D
What impact can a greater product knowledge have on your sales? By using CPQ software, the canopy manufacturer experiences:
- Fewer questions for the canopy product expert, saving on average one day of work per week
- No longer a need to maintain product catalogs or tutorials (saving one day per week)
- No more errors in quotes and orders, halving the number of complaints and returns (saving two days of customer service per week). In doing so, the company also gains 2% of their total revenue that they would otherwise spend on shipping and manufacturing wrong products.
Considering this, the manufacturer could save up to 5 days per week! By turning everyone into a product expert using CPQ, you remove all friction and give your sales process another push.
Part 5/5: Enable customers to make their own quotes
Lastly, it is crucial to give your customers the ability to generate their own quotes; This is the final piece of our flywheel, removing all friction and ensuring that the wheel can continue to spin!
Empower your distributors and customers to generate quotes with CPQ:
- Back-office employees and sales reps are no longer a blocking factor in the sales process. They can now start focusing on more complex projects.
- Customers receive their quotes instantly, resulting in shorter lead times.
- Time kills deals: shorter lead times have a positive effect on sales results!
How exactly would this work in the case of the canopy manufacturer? Say that the company gives their distribution network access to CPQ, and about half of the canopies sold are now ordered completely autonomously by a distributor.
- The back-office workload was halved
- The distributor saves at least 2 hours by generating his own quote
- On average, quotes are signed after one day instead of three days
- The manufacturer can double its distribution network without additional resources
This has the following impact on the company:
- Distributors are now selling on average 10% more than before. This amounts to 0.15 canopies per day, or 33 canopies on a yearly basis.
- In one year, the manufacturer doubled its distribution network, adding another 1.65 canopies per day or 363 units per year.
- Repeat this year after year…
Enabling your customer to generate their own quotes is therefore the final push of the flywheel. It removes all friction from the sales process, so your wheel continues to spin!
CPQ or Configure Price Quote helps companies boost their sales, but the software comes with its own price tag. How can you justify investing in a CPQ solution? In this business case we demonstrated how CPQ creates a flywheel effect in five different pushes, ensuring your business continues to spin and to grow!
We used a fictitious example of a canopy manufacturer with an annual recurring revenue of 20 million.
- The first push is time saving. By automating the quote and order process, the company was able to save 48 hours per day, or 5-6 FTEs. If one FTE costs the manufacturer on average €60K, they’re saving out on 5 x €60K = €300.000 per year!
- Secondly, with CPQ you can get rid of the maintenance, training, and distribution of ‘free tools’ such as Excel, Word, or in-house software. By doing so, the canopy manufacturer frees up one day per week for one of their FTE’s, saving an additional 1/5th x €60K = €12.000 per year!
- The third push is the increased conversion rates as a result of improved quotes. Say that our canopy manufacturer increases their conversion rate with 1%, and that they produce €200M worth of quotes per year. The improved quotes could therefore mean an additional 1% on €200M quoted = €2M revenue per year!
- The next push on the flywheel is turning everyone into a product expert. Doing so with CPQ, our manufacturer removes all friction from the sales process: no more repetitive questions, maintenance of product catalogs and errors in quotes and orders. This saves 5 days a week, or 1 FTE! This means that the canopy manufacturer saves out an another €60.000 per year.
- And lastly, the flywheel keeps spinning if you empower your customers to generate their own quotes with CPQ. This allows your business to sell more and to double the distribution network. The canopy manufacturer in our example potentially saves up to €3M additional revenue per year by giving their dealers access to CPQ.
CPQ directly saves the canopy manufacturer €433.000. For every year that the company does not have a CPQ set in place, they’re missing out a potential €5M additional revenue per year, or an astonishing €450.000 per month.
What are you waiting for?
Invest in CPQ before it’s too late.
Interested in making a business case for your specific situation? We're happy to help!
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