Last week we organized a live-webinar to help attendees understand how a Configure, Price, Quote software can be a real asset for industries that are looking to boost their revenue in a sustainable way. In this series of articles, we share with you the webinar’s most valuable insights.
Implementing CPQ For Profitability and Margin Protection
The characteristics of the manufacturing business, particularly in engineering-to-order (ETO) or made-to-order (MTO) scenarios, lead to processes that are very long and complicated. As a result, they frequently deliver poor revenue results in the end.
The reasons can be quite diverse but we have identified three main road blocks that prevent those businesses to get the most out their sales process:
- A complex product configuration and calculation,
- Lack of transparency in pricing,
- Internal bottlenecks involving approval and input processes.
In a first article, we addressed how the complexity of product configuration hinders value creation. We will now take a closer look at pricing issue, a fundamental aspect of the sales process for this industry.
External and Internal Pricing in CPQ Allows for Higher Accuracy
A Configure Price Quote tool can help boosting the profitability of the business regarding the pricing aspects. To better understand how this is possible, let’s look at one of our customers, a company in mechanical engineering and supplier of the automobile industry.
This customer had really complex pricing schemes which involved depreciation over time. Before implementing a CPQ, they had to do all these calculations manually, with the input of the engineering and the financial department. They had to fill in up to 50 different documents before giving their customers a final quotation. The likelyhood of errors and giving an inaccurate price therefore was very high. You may imagine the disastrous consequences for their slim margin business.
A CPQ adds real value to any business as all these price calculations, whether external or internal, are done by the system. All the pricing information is instantly at hand for the sales team and managers. The cost schemes inside a manufacturing-tailored CPQ allow not only an agile and speedy product configuration, but also the use of the most accurate prices available.
CPQ Uses Real Production Costs to Enable Better Margin Control
Product complexity, especially in engineering-to-order (ETO) or made-to-order (MTO) scenarios, has a direct impact on profit. The actual product margin becomes difficult to estimate. So when the sales team prepares the quotations, the costs are only “assumed” to be correct, and the applied margins over those costs remain theoretical. This has a direct impact on the company’s revenue.
Under usage of a CPQ system the actual, real costs can be directly and almost instantly compared with the ones used in the quotation, when the production process starts. This is essential to check the profitability of the "lot size 1" strategy, fundamental in many manufacturing companies. It also allows the company to greatly increase the accuracy of the whole sales process. The control over the margin is largely enhanced.
CPQ Facilitates Consistent Price Management Through the Cloud
We have already written about how implementing a CPQ hosted in the cloud brings many advantages to any business. Nevertheless, this becomes particularly true regarding manufacturing industries and their complex costing scenarios, for the reasons already mentioned above (product configuration, ETO and MTO scenarios, etc.). Here, the need for the most accurate costs has a vital importance – the cost-efficiency of the whole business depends on it.
A Configure, Price, Quote software in the cloud allows the data to be always synchronized and up-to-date. Moreover, the business will save all the costly maintenance that on-premise services need. Using a cloud CPQ guarantees consistent data management – including all the products’ costs and pricing. Consequently, the cost information is always the most recent allowing the quotations to be flawless. This leads to a better overall financial performance of the company, since the management has the necessary tools to handle the margins.
SUMMARY: CPQ Allows Total Transparency On Costs And Consequently Drives Profitability To Manufacturing Businesses
The manufacturing, engineering or high-tech industries have specific needs regarding pricing and costing to be able to achieve a profitable sales process. A Configure, Price, Quote software helps those companies to achieve a high transparency on costs. They can therefore better manage the margins that they need to apply to their products. Implementing a Cloud CPQ empowers a more precise and therefore highly efficient pricing. The financial performance of the company is thus improved, achieving a better profitability – and boosting its revenue.