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Building a Case for CPQ

October 11, 2018


If you are a stakeholder for a CPQ System, at some point you will have to justify the investment. Don’t wait until you are asked, build your case in advance. You’re looking for a CPQ System to solve a problem that exists. Try to be specific and avoid business cases that can be easily challenged: “we need to improve our ease of business” or “all of the people that have the knowledge are retiring”. Almost certainly true but hard to hang a number on.

A good CPQ Vendor will guide customers into areas where there are financial benefits to be had. At channelcentral the main value we see is attach selling, which we improve by use of “guided selling” motions. A secondary value is reducing the workload of skilled knowledge workers. If were looking to build a case, on behalf of a customer, we might look at:

Attach Rate Improvements

Choose what could be described as run-rate business. Assume a quote win rate. Look at how a CPQ System could improve the Pitch Rate (#times something is quoted with a parent product) and make a range of assumptions. Apply margins. If the gain is more than the outlay: there’s ROI. Your company may insist on a minimum level of ROI to invest in a project: find out what that is.

Example:
System Quote Value per Month: $1M
Attach Value %age per Month: 50% so Total Quote Value $1.5M
Success Rate: 33% = $500k Sales
Increase the %age by 10%: Total Quote Value now $1.6M ($33k incremental business)
Net Margin on $33k say 40% = $13.2k
Cost of CPQ: $2k per Month.
ROI: $11.2k.

The Net Margin figure should be higher than normal as the variable costs associated with attaching to an existing order are low.

Skilled Knowledge Worker Improvements

Through audit it’s possible to calculate an average ‘cost per quote’ for a business. Sales time plus technical resources, re-quote count etc. Estimate the minimum quotation value that makes sense to your business and anything that doesn’t meet that level needs to be either a Customer or Sales quotation. Then re-calculate the cost per quote versus $margin.

An interesting side-effect is that our experience has showed the deal pipeline that the Skilled Knowledge Worker manages often goes UP not DOWN. This is because their availability is better to manage large deals. Instead of spinning in the Hamster Wheel of low value, low margin deals.

If you are wondering why we do this ‘with a customer’ rather than ‘for a customer’ the answer is simple: you need access to figures that most Companies wouldn’t share: raw margin and employee costs. We could make assumptions but they wouldn’t be accurate.

Lastly, don’t be afraid to ask customers to self-quote. Many of them will gladly do this (if it’s easy, available and comprehensive) and if your system uses Single Sign On you can identify them and follow up. Some won’t do it which is OK: use Sales.

Building an ROI case doesn’t need to feel like hard work.

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