First, we need to help our audience understand what a CPQ is, who needs a CPQ, and why only 20% of businesses need a CPQ. Whereas the rest of the world, 80% only need an SPQ!
To start, let us break down CPQ, the C, the P, and the Q. When you think about the C, this is the process of Configuration or Configure with a Configurator. When you think about what this means to your business, the big question is, are the products you sell Complex? If you define the word Complex, it means having many interconnecting parts and intricate details. For example, when you think about a data center company, it consists of many racks. The rack has numerous parts, including servers, monitors, drives, cables, software, services, fasteners, and hinges integrated to form a single rack. Whereas if you think about a software company, you sell software with different versions, services to install, and support to manage. A Datacenter with racks will need a Configurator to configure a Bill of Materials, also known as a (BOM). Typically, a sales engineer needs a configurator to allow many different rules or attributes to allow for any combinations to fit the client specifications or requirements, known as Build-to-Order (BTO). A buyer will want the Quote to have a complete items list, including a comprehensive bill of materials (BOM) for a proper installation. Now that we understand what a configurator does and how it handles super complex product configurations with many distinct parts, we can discuss the P of a CPQ. The P is defined as Pricing and is also known as Complex Pricing. When you configure a complex product, the Pricing is complex because, like the configurator, your business may have many different pricing rules or attributes based on the products you are configuring. When we think about the data center example, a rack has assorted sizes, models, power, locks, etc. The servers can have various sizes, ram, memory, outlets, etc. The monitors can be DOS, LED, have assorted sizes, brightness, etc. Let us not forget about the various drives, types of cables, different versions of software, many hours for fields services people to install, and additional support levels. These configurable attributes drive different complex pricing based on what the sales engineer has configured for the customer. Okay, we now understand how the C and the P work together in a CPQ to configure complex products. Now let us talk about the Q, which is a Quote, also known as a Proposal. Going back to the data center example, a sales rep needs to create a quote for a client that needs three new racks for their Data Center. The customer expectations are that the Quote will include a complete Bill of Materials (BOM) with the exact Configuration for their requirements. The Quote (or Proposal) needs to consider all the line items (parts) required to assemble this product when delivered. The Pricing needs to represent all the different details based on my configured product with all the correct SKU numbers if additional parts are required. When you think about how complex this Quote is, you start to think about the sheer size of this Quote and all its intricacies. The Quote is not a few pages; it is a living document that is very sophisticated with a tremendous amount of detail. The Quote will need to include specs, warranties, and detailed descriptions of installing the racks at the client’s data center.