CPQ: THE ROI ARGUMENT - Calliduscloud · CPQ traditionally was a tool for large enterprises – specifically, in industrial equipment manufacturing – and past solutions were pricy

CPQ: THE ROI ARGUMENTBy Chris Bucholtz

© 2014 Callidus Software Inc. All Rights Reserved.

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Introduction

If you sell a complex product mix, you know only too well the pitfalls that threaten sales success: thin margins, operational constraints, configuration rules and a need for approvals before a quote can be generated. These take the salesperson’s focus off selling and put it on administrative processes. If those processes are too time-consuming, they delay the sales process and can result in frustrated customers and – worst of all – deals that are lost just as they approach the end of the sales funnel.

And, to make matters more uncertain for salespeople, the trend toward complex products is only accelerating. Competitive pressures are leading many manufacturers to seek ways to become more agile and at the same time more customer-oriented. That means more product offerings and more variations, and a rise in practices such as configure-to-demand and make-to-order.

Yet, for the sales team, the pressure is on to increase sales velocity – to move more deals through the pipeline faster. The only way to reconcile these conflicting forces is through technology – specifically, Configure Price Quote (CPQ) software.

CPQ traditionally was a tool for large enterprises – specifically, in industrial equipment manufacturing – and past solutions were pricy. But the advent of SaaS has caused prices to drop, and, according to Gartner, the technology is now finding its way into new sectors, including high-tech, telecommunications, life sciences and healthcare. The return on a CPQ investment today is greater than ever before. Can your company afford to be a CPQ holdout?


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CPQ Investments

Before the advent of SaaS, CPQ could be prohibitively expensive for most companies. However, the advent of SaaS has shifted the costs –instead of paying for expensive software, and its deployment and configuration, up front, the model has shifted to subscriptions. That’s driven prices down – a CPQ product can now be purchased for as little as $75 per seat per month ($900 per year).

Just as important has been the advent of CPQ software that easily integrates with CRM and other business software. CallidusCloud’s CPQ solution, for example is part of a suite of products, allowing it to work seamlessly with contract lifecycle management, incentive compensation management and other related systems and take advantage of a built-in integration with Salesforce.com. While a stand-alone CPQ solution may cost less, it may also have attendant integration costs that drive up the total cost of ownership.


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Accelerated Sales Cycles

Companies that use a CPQ solution see a sales cycle length 28.8 percent shorter than companies without a CPQ solution.

Companies that use a CPQ solution have an average deal size 105 percent greater than companies that do not use a CPQ solution.

Automated Up-Selling

Most modern CPQ products include electronic workfl ows and an automated approval process. Workfl ows allow sales personnel to progress through each step of building a quote – and do so quickly so they can deliver accurate product recommendations, custom confi gurations and pricing. This allows salespeople to avoid having to take customer requests back to a product expert to get product and pricing information. By automating the approval process, CPQ shortens cycle times and allows salespeople to conclude deals more rapidly.

The most eff ective way to boost revenue is to increase the average purchase size per customer. CPQ provides a view of all suggested products in a sales scenario, and can guide salespeople in off ering specifi c products proven to result in successful up-selling. Not only does this aid the salesperson in getting the up-sell, it breaks salespeople out of the rut of selling products they have extensive knowledge of and fi nd easier to sell. CPQ also permits the creation of bundles to take advantage of products that are frequently purchased together, allowing sales reps to suggest eff ective product mixes quickly.

CPQ Benefi ts

While CPQ is not inexpensive, the value it returns far exceeds its cost. These are the

some of the signifi cant benefi ts CPQ provides; the monetary return of each benefi t

varies by business.


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Quote, Proposal or RFP Generation

Companies that use a CPQ solution generate an average of 20.9 quotes per sales rep for month; companies without a CPQ solution generate an average of 14.0 quotes per sales rep per month.

Companies that use CPQ solution are 23 percent better at margin protection than companies without a CPQ solution.

Margin Protection

Automating the generation of quotes, proposals and RFPs allows reps to build them quickly without having to do repetitive tasks, research bundles and content on their own, and become mired down in administrative eff orts. This doesn’t just give time back to sales reps so they can create more quotes – it allows them to act more quickly and more responsively when a quote is required, meaning they can beat customer deadlines even when they enter into consideration for a deal at the last minute. It also means those quotes are more accurate, saving more time – and in some cases, more deals.

By building in guidelines and “guardrails,” CPQ software allows reps to discount – but not so far as to exceed a margin threshold that’s unacceptable, or to impinge on margins when selling bundles of products. It saves time in eliminating the need for approval of discounts and minimizes pricing mistakes that can render deals unprofi table.


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Error Avoidance

The use of a CPQ solution reduces errors by as much as 40 percent.

The lead conversion rate for companies using a CPQ solution was 35 percent, compared to 30 percent for companies without a CPQ solution.

Sales Performance Improvement

Errors in quotes and proposals introduce delays that are frustrating to the customer and threaten sales, and they extend the sales cycle. But, when proposals and quotes are generated and sales people place orders manually, mistakes are inevitable, especially when salespeople are in a hurry and they’re performing repetitive tasks. CPQ helps avoid errors made in data entry and in simple misunderstandings of product lines or customizations. Not only does this speed up the sales cycle, but greater accuracy in sale orders also reduces the volume of credit memos, RMAs and returned products.

CPQ contributes to better sales performance in several ways. First, it enhances your sales reps’ appearance as authorities on your products by putting the right content at their fi ngertips at the right time. By automating quote generation and approvals, it makes the buying experience more frictionless – it’s less time-consuming and thus more enjoyable for the buyer. And by producing quotes faster, it means deals are less vulnerable to delays on the customers’ side


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Applying the Numbers

Let’s apply the findings in provided above (taken from a 2013 Aberdeen Group study) to a hypothetical company to show how CPQ, having only an average impact, can radically alter the performance of a sales organization.

Our hypothetical company is ObscureCo, a maker of a wide variety of specialty components that are sold into several B2B markets. The company’s sales force has 48 sales reps. Before the arrival of CPQ, the company’s performance looked like this:

Applying the Aberdeen data, here’s how the company’s performance would have changed after implementing CPQ:

Sales Cycle Length

Sales Cycle Length

Lead Conversion Rate

Lead Conversion Rate

Average Margin per Deal

Average Margin per Deal

Quotes per Sales Rep per Month

Quotes per Sales Rep per Month

Average Deal Size

Average Deal Size

5 months

3 months,16days

$21,550

$44,178

22%

27%

30%

35%

26 (1,248 total)

35 (1,680 total)


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Conclusion

CPQ provides real cost returns to businesses in the form of bigger deals, more consistent upselling, and margin protection. By shortening the sales cycle, it allows businesses to improve cash flow and frees up resources. It also provides a return in opportunity cost – by making proposal and quoting tasks easier, it gives time back to sales that they can use to work with additional prospects or to make sure more of the ones they’re already working with close. It also helps minimize errors, saving time in the proposal process and, more importantly, saving significant money by preventing the delivery and manufacture of incorrect products.

Then there are the “intangibles” – the impression a sales person leaves when he or she can develop a complex proposal quickly, in an error-free way, and help buyers address their needs as quickly and frictionlessly as possible. By simplifying the B2B customer experience and thus improving it, CPQ helps fuel loyalty and maximize customer value across the lifetime of the customer.

In all these ways, CPQ rewards businesses who invest in it. If you’re a business with a complex product mix, and you’re using manual processes to develop and manage quotes and proposals, you literally owe it to yourself to investigate CPQ .

Calculate Your Potential CPQ ROITo see how the impact CPQ could have on your business - in additional revenues and in operational cost savings - use our CPQ ROI calculator. http://calliduscloud.com/cpq-roi-calculator/

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CPQ: THE ROI ARGUMENT - Calliduscloud · CPQ traditionally was a tool for large enterprises – specifically, in industrial equipment manufacturing – and past solutions were pricy