Configure Price Quote software, commonly referred to as CPQ software, has grown in popularity as companies look to streamline quoting processes and improve pricing capabilities. However, when companies rely only on a CPQ system, they inadvertently solve only half of their pricing challenge. They miss out on effectively setting and optimizing prices to ensure sales reps make the best possible pricing decisions every time they quote. Before diving into why price optimization and price management software is needed alongside CPQ software, let's start with a refresher on these solutions.
What is Configure Price Quote?
The Configure Price and Quote (CPQ) software market has exploded in the past five years as B2B companies invest in better deal execution and customer-centric sales. Salesforce.com defines CPQ as, “a sales tool for companies to generate quotes quickly and accurately for orders. CPQ applications often work in tandem with CRM platforms, ERP programs, and other business technology, which helps ensure integrated data as well as accuracy.” Simply put, CPQ is a critical tool for B2B companies to close deals faster by streamlining the quote-to-cash process.
What is Price Optimization?
Modern business moves at lightning speed through many sales channels. Order history, customer behavior, competitive concerns, available inventory, demand swings and geographical market specifics all influence prices from one selling scenario to the next. For companies that have large customer and product counts, using spreadsheets and other manual tools to set prices at a granular enough level to reflect this commercial complexity, is difficult, if not infeasible. Without a market-aligned price at hand for each unique circumstance, companies lose margin or revenue. Price optimization software uses artificial intelligence and machine learning to calculate the profit and revenue maximizing prices for every microsegment of a business, enabling companies to provide tailored pricing guidance to salespeople that meets P&L goals.
Price optimization is proven to be the most effective profit lever available to B2B companies, whether they are using a CPQ in tandem or not. Integrating optimized prices certainly increases the value and return on investment of CPQ, but price optimization is a powerful tool in it is own right, delivering tremendous value regardless of the commercial system that ultimately serves up optimized prices.
What is Price Management?
Price management is the function of creating and updating prices within a business. It includes setting and managing prices across a variety of price types such as list, matrix, negotiation, or customer-specific. For mid- to large-size B2B companies, manual price management is increasingly impractical. Leading B2B companies are utilizing more robust price management software to help the pricing team tackle price management and administration challenges, streamlining previously burdensome tasks with price management software.
Read more: An Introduction to Price Management
Is There a Lack of “P” in Your CPQ System?
CPQ software is no doubt the most effective way to deliver price guidance to sales reps as well as streamline and provide guardrails in the quoting process. Given the name, it suggests that pricing is a core capability of CPQ software. However, the only pricing functionality offered in a CPQ is simply the ability to load basic pricing logic or price books into the software to populate a quote. This misses a critical component of generating an effective quote: getting the price right. In other words, how do companies make sure that the prices provided to sales reps are aligned with the market, granular enough to reflect the selling circumstance and up to date as companies face increasingly volatile market dynamics?
To generate and manage prices, B2B companies need to complement CPQ with price optimization and management software, which enables pricing teams to:
- Make strategic pricing decisions
- Update price lists
- Execute cost pass-through strategies
- View pricing analytics to assess price performance
- Generate negotiation guidance for sales reps
When solely reliant on CPQ, B2B companies lack these critical pricing capabilities and are forced to use more rudimentary methods that likely result in revenue or margin loss.
It's true that CPQ is one of several critical execution systems that B2B companies need to function in the digital economy and provide a quality customer experience. However, much like ERP, CRM and eCommerce, CPQ systems need an infusion of pricing intelligence to realize their full potential.
Why Should You Consider Price Optimization & Management Before Writing RFPs for CPQ?
Many companies begin their journey to better pricing and quoting with an RFP, or request for proposal, for CPQ. But as they build their requirements, the focus often quickly turns to or includes pricing functionality that can only be supported using purpose-built pricing software. As a rapidly maturing but still under-utilized capability, price optimization and price management solutions often get left out of consideration for these transformative projects. The conventional wisdom is often, “After all, CPQ has “Price” in its name, shouldn't it handle all my pricing needs?” As discussed above, what the company really should explore in addition to CPQ is price optimization and management software to derive the most value out of whichever CPQ solution they choose. Many companies still need CPQ, but CPQ alone cannot provide the ability to deploy robust pricing strategies in the same manner that price optimization and management software can. CPQ can deliver the right price but cannot generate it.
Can Configure Price Quote Software Handle Deal & Agreement Management?
Deal management encompasses every aspect of the customer price agreement lifecycle - from negotiation to creation to updates to renewals. Customer price agreements exist in most B2B companies, and in many cases make up a significant portion of a company's revenue. Yet they are often undermanaged. These agreements are sometimes handled within CPQ software or managed directly in an ERP, yet agreement management functionality is not a key focus or mature capability within the CPQ software category.
Increasingly, B2B manufacturers, distributors and services companies conclude that status quo deal management processes are no longer feasible and seek a better approach. Best-in-class deal management solutions can centralize all agreements, ensure new agreements are created at prices that reflect the customer relationship and margin goals, provide a mechanism for mass updating agreement lines, and facilitate seamless communication between pricing, sales and end customers.
Read more: What is Deal Management?