The Ultimate Guide to CPQ Pricing – Everything You Need to Know
If your salespeople need help to create accurate quotes, CPQ is the solution. This software automates pricing calculations so sales quotes are precise, fair, and compliant.
CPQ solutions can turn complex product configurations into sales proposals your team feels good sending clients. However, a successful CPQ implementation is an iterative process.
What is CPQ Pricing?
CPQ is a sales solution incorporating quote management, product configuration, and guided selling components. It enables sales teams to create and send professional-looking quotes and manage discounting (one-time discounts and subscription pricing).
Unlike standalone tools salespeople use for quoting, pricing, and proposal generation, CPQ is a single, integrated platform that automates and streamlines the entire process of creating a sales document. It also supports multiple pricing models, including quota volume, tiered, subscription, and bundled pricing.
In addition to a clear and professional-looking quote that will leave customers with a great first impression, CPQ reduces the back-and-forth between sales reps and clients. This results in faster quote turnaround times and a more consistent customer experience.
While many people think of CPQ software as being used by companies selling business-to-business products, it’s pretty common to use the technology to configure consumer goods like coffee or computers. These systems take the product configuration (additional add-ons beyond a base size and style), determine the price using an algorithm, and present the result to the user as a full quote.
CPQ solutions offer features supporting the most common sales scenarios, from codified product configuration and accelerated quoting to contract integration and eSignature, and advanced approval workflows to prevent margin erosion or rogue discounting.
CPQ Pricing Techniques
CPQ pricing techniques involve applying product rules and automation to configure, price, and quote products. This reduces errors and enables fast, accurate, and efficient processing. It can also increase margin, reduce cost and enable new revenue streams.
A key CPQ feature is guided selling, which is the ability to recommend additional or alternative products or services based on user buying criteria. This feature can help salespeople sell more effectively by making it easier for buyers to buy what they need. It can also improve sales productivity and enable cross-selling and upselling.
Another CPQ feature is real-time pricing, automatically updating prices as the customer chooses. For example, if a customer selects a certain number of licenses, the price will change accordingly. This is similar to how tax software changes an expected refund as you enter information. It also works for configurable products like computers, where customers can see their expected configuration and price rise or fall as they select options.
Finally, a CPQ feature is block prices, which helps to handle pricing exceptions. For example, suppose a particular customer needs more than the maximum number of a product code allows. In that case, a CPQ system can add an overage rate to prevent them from being overcharged. This is a great way to manage varying pricing for different customer segments without creating and maintaining a separate price book for each.
CPQ Pricing Principles
CPQ software helps salespeople develop quotes quickly and accurately. It allows them to use multiple product configurations while remaining compliant with business rules – and helps ensure that only the most up-to-date discounts are applied. In addition, CPQ can also automate pricing calculations, saving time and eliminating the risk of human error.
For example, if you sell a product with many variations — for instance, different color options or additional features — the right CPQ solution will allow your sales teams to quickly configure those variations into a quote that matches a buyer’s specific needs. Similarly, your product configurations will include constraints to prevent salespeople or customers from entering an impossible or illegal order.
When determining price, CPQ solutions can automatically determine a quote’s total value by using rules that consider delivery charges, taxes, discounts from suppliers, and markups. These automated pricing mechanisms help companies protect profit margins and limit rogue discounting.
In addition to allowing salespeople to generate quotes quickly and accurately, a good CPQ solution should enable teams of salespeople to source products from different divisions. This capability is essential for PS selling teams across multiple regions and geographies. With the right CPQ solution, a team in one region can access a catalog from another division, configure those products in real time and then provide buyers with a consolidated quote.
CPQ Pricing Strategies
When selling a complex product with many possible configurations, pricing can vary depending on the tier chosen or other variables, making it difficult for Sales teams to keep up. CPQ helps streamline pricing management processes, enabling teams to create and update quotes easily.
CPQ software allows for multiple types of pricing models, including tiered, matrix, and customer-specific. Pricing can also be based on dimensions, such as volume and region. Using a centralized repository of pricing information, CPQ eliminates spreadsheets and reliance on manual workflows. This allows for a more streamlined and efficient process for the sales team, freeing them to spend time focusing on their core business activities.
Once a price strategy is in place, it can be easily implemented in the CPQ system. For example, in a service-based deal, the quoting system can use rate-based pricing, where customers are charged for the time spent providing their deliverables.
CPQ can also offer dynamic pricing models, adjusting prices automatically according to market conditions and pricing rules. This is often used in service-based deals. Lastly, CPQ systems can use value-based pricing based on the monetary value the customer is willing to pay for the product or service. This is a more complex model and requires a significant degree of skill to implement effectively.
