Closing Prospects using CPQ software

The acronym CPQ stands for Configure, Price, Quote. It sounds simple enough, so why would anyone need software for that?  If a prospective customer says to a plumber ‘How much to fit a shower into my bathroom?’ the plumber might reply ‘Well, you can have Model X at $300 or Model Y at $375 and the labor cost will be $400 so either $700 or $775 depending on which shower unit you prefer…’

Simple. But imagine now that a company making plumbing accessories is asked by Home Depot to supply 10 000 copper compression 90-degree elbow pipe fittings. Getting the price of supplying one unit wrong is unimportant but quoting an un-advantageous price to the customer for 10 000 units is going to lose the sale. Quoting too low a price so that the manufacturer can’t make a profit on the units means that they may well lose money on the deal.

The nuts and bolts of accurate quoting for business

CPQ software prevents these problems from happening by using artificial intelligence and an empirical rules-based system to ensure that absolutely every variable is considered when costing out, in this case, the manufacture of a 90-degree elbow adapter.

A dashboard is available to the CPQ user that might involve:

• Adding in the cost of the hexagonal steel nut that fits the unit to the accepting copper pipe
• Accounting for the cost of the copper ‘olive’ (a piece of copper that looks not unlike a wedding ring) that makes the watertight seal when it is compressed.
• The cost of shipping 10 000 units, possibly to various different Home depot locations.
• The labor cost of packing the units into boxes.
• The cost of the cardboard boxes and even the parcel tape needed to seal them
• The variable sales tax rates in differing states.

And that’s just for a piece of copper bent at 90 degrees with a threaded nut over the end. Imagine the complexity of manufacturing a car engine and quoting for that, or even running an e-commerce business with hundreds of available product lines. The more complex the product, the more inter-related variables exist, which effects the cost of manufacturing and producing it. In computing circles, this inter-relationship of so many factors is known as 'combinatorial explosion’. The only way to accurately consider them all and create a realistic price that offers sufficient profit to the manufacture is by using a Configure, Price, Quote platform.

Pricing Safety Nets

The even better thing about CPQ software and its rules-based automation system is rather like changing a formula in a spreadsheet. If the cost of 22mm hexagonal nuts increases by, say, 5%, clearly that doesn’t mean that the cost of the entire unit for sale goes up by that amount. Instead, it’s possible even to build in a safety net on the CPQ dashboard by assigning a ‘worst possible case’ scenario, whereby perhaps the cost of 22mm hexagonal nuts increases by 20%.  The AI prediction engine would then offer the company management a transparent ‘at a glance’ inflated cost of manufacture should that worst case occur. In which case, the company might mitigate that risk by adding on 2.5% to each unit cost on their quote to home depot, or perhaps offer them a discounted price for buying 20k units instead of 10 000. In short, CPQ software puts organizations squarely in control of their quoting. CPQ can even factor in the cost of competitors’ offerings. It only needs a salesperson to spend a couple of hours on Facebook or Instagram to find the prices offered by their competitors, feed them into the CPQ and the platform makes accurate like-for-like comparisons. In this way, the company quoting already knows if they are slightly cheaper or more expensive than their competitors.

Quality is key

Naturally, there is more to doing business than just providing a quote that is satisfactory to the prospect and advantageous to the seller. Quality of product, longevity, how many returns to store by end users is paramount. If Home Depot sell 10 000 plumbing elbow units but 1000 of those are returned to the store by unhappy customers due to product quality, very soon the manufacturer of those units is going to find themselves out of business. And that’s not just a hypothetical situation – since the United Kingdom left the EU, it has become far more difficult for UK businesses to source quality items made in Germany and France, instead turning to China for products that often have a considerably higher failure rate. CEO’s have found that running a business in the UK has become more difficult post Covid-19 and Brexit, as this BBC video article outlines; therefore the need for CPQ software has become even more necessary in the UK as profit margins tighten.

Once a company can be absolutely confident that the price they are offering is realistic, it becomes so much simpler to close the prospect into a paying customer, because the salesperson involved is aware of the landscape of the sale before they attempt to navigate it, offering a considerable upper hand in negotiations.

Knowledge is power, after all, and never more so than when closing a sale with an important client.