Why a configure, price, quote (CPQ) software solution can create harmony for sales and finance execs

A Configure, Price, Quote (CPQ) implementation discussion held in a sales silo can have a detrimental impact both upstream and downstream, but when discussed in unison can provide high value to both sales and finance.

For any sales executive, the universal, albeit simplified, goal is to sell products or services that make the company money, ultimately driving commission for said executive. So, it makes sense that the idea to implement a CPQ solution to be the heart of the sales cycle as the connection point between lead to close and order to cash often starts with the sales team. However, CPQ solutions also have a significant impact on the automation of downstream business functions like revenue recognition, fulfillment, and invoicing.

When this type of project kicks off without input or buy-in from the finance team, the sales team may be creating future issues for the broader organization.

As a general rule of thumb, both the customer and entire organization wins when you quote the way you bill. But if sales is driving the quoting process with one set of objectives and rules, and finance is billing in a completely different way, you can imagine that doesn’t set the stage for a positive employee or customer experience. But when sales and finance align on how products should be priced, and this message is communicated upfront to the customer, it makes for a consistent, efficient, and streamlined quoting process.

The disconnect often comes from the misconception by sales that finance will make the quoting process more complicated, or enforce restrictions based on the back-end system capabilities, creating a less profitable quoting outcome. However, let’s consider this scenario:

ABC Company sells on-premise server products that are meant to be shared across multiple locations. To make post-sale onboarding a seamless process, sales needed to note each individual location that would need server access as a unique line item on the quote to enable installation. But because the sale of each additional product had no actual cost associated with it, sales would mark each product sold as a $0-line item – essentially a free add-on. When the quote came across finance’s desk as an order, it inaccurately appeared as a 100% discount when it should have shown as a sub-component of the overall sale price. This process was negatively impacting top-line numbers, affecting the company’s ability to recognize top-line revenue.

To course correct, finance created a new product to represent the locations and associated the product with a unique cost. Sales could then add the locations/products as individual line items on quotes without them appearing as a discount. This new quoting process, deployed in a CPQ environment, ended up increasing the value of each opportunity, brought in larger commissions for sales, enabled finance to accurately recognize revenue, and maintained a great customer experience.

As this scenario shows, both groups bring valuable, but different insights into the company sales cycle. This is why they should partner on a CPQ project well before implementation.

Sales has insight into the details around specific deals, like which discounts customer respond best to, while finance can shed light on what is actually feasible from a back-office and accounting perspective. While sales can create countless pricing scenarios and discounting strategies, if they can’t be accommodated by ERPs and billing systems, they shouldn’t be offered. This brings us back again to the original concept: quote the way you bill. Here’s how a collaborative discussion might go:

• Sales: “I find it’s easier to sell our software product bundled with support if I don’t call out the additional support and implementation costs on the quote. I’d prefer to be able to roll the total price up to a single line item and not show the price breakdown to the customer on the quote. Honestly, it’d be easier if I could just select a single line item with all the prices baked in.”

• Finance: “We’re okay if the physical quote doesn’t break out the prices for each product and service being offered, but we can’t combine it all into a single product. Doing this would make revenue recognition much more difficult on the back end, and we still need to know the terms of the support contract. The system needs to capture a price and discount for each product that is being sold.”

• Consultant: “Taking these two requirements into consideration, we can accommodate both scenarios. We can configure the quote document to automatically roll up costs to a single line item when presenting to a customer while also retaining the per product pricing and discounting for use by finance.”

This holistic approach provides a view into the impact that the solution will have on the broader organization, including ways to facilitate consistent and standardized pricing strategies and opportunities to help automate back-office functions. If the requirement is presented by either sales or finance individually, the solution likely won’t meet the needs of the organization, but when considered in concert, an agreeable solution can be presented that suits all parties.

Sales and finance may always have their differences, but if the initial CPQ conversation includes constituents from both groups, the odds are much stronger that the project outcome will be a quoting process that seamlessly passes through the ERP, speeds up fulfillment, and results in a clean invoice that is free of manual efforts. With changes issued by Financial Accounting Standards Board (FASB) regarding the rule ASC 606: Revenue from Contracts with Customers, which will create international alignment on how companies recognize revenue from contracts with customers, it’s more important now than ever that finance and sales align on quoting processes. Finding harmony around this shared goal will add value to the entire organization and, just as important, make your customers happy in the long run.