Providing quotes for existing and new business is a lot more complex and time-consuming than many people imagine; especially for people who have never been involved in the quotation process. There is a plethora of factors to account for when any business is quoting for a new or renewing contract.
From a simple enterprise like two guys running a window cleaning round, to a multinational company selling aircraft parts, detail is the key. Failing to consider everything that affects the final quote might find you working for little or no profit, or, conversely, pricing yourself too high and failing to seal the deal at all.
This is where CPQ software is vital. CPQ stands for Configure, Price, Quote. CPQ is a SaaS (Software as a Service) platform that runs in the cloud. Businesses of all sizes use it to simplify their quotation processes and, more importantly, ensure the accuracy of any final price sent to the prospect.
CPQ uses Artificial Intelligence (AI), specifically machine learning (ML), to examine all the numerous interdependencies that interrelate whenever creating a quote for a service or product. Initially, human input is required to program the rules-based architectural data. After that, unless any of those rules need to change, quotes for vastly complicated projects can be created in moments. As you would expect, a user dashboard allows managers to add, delete or edit specifications at any time.
How Do I Start a Window Cleaning Business? The Answer Is Crystal Clear…
It's true that CPQ software isn’t required for people starting the very simplest of businesses. Returning to the window cleaning partners above, all they have to consider when deciding what to charge their customers might be:
- The cost of ladders, buckets, detergent, squeegees and replacement costs (how long they last before the rubber perishes or the handles fall off!)
- Public liability insurance costs
- Cost of running a company van
- Cost of marketing ads on Google or other media
All that’s required then is to add that lot up for the year, divide by 12, and they have a monthly overhead cost from which to work out a price based on the average time taken per house with a given number of windows. You can do that with the calculator on your smartphone during your coffee break!
The Butterfly Effect – Turbocharged
But now imagine the aircraft parts scenario. The inter-relationships between the compatibility of all the related parts around the part you’re quoting for must be considered, and the knock-on effects can be exponentially disruptive.
For example, if the airline asks for floor fixing brackets for a given type of seat, the choice of brackets may be limited, because certain seats have differing plate sizes near the floor than others. Then, add the complication of whether an adapter would be required. That sounds easy, but on a 150 seat aircraft, 600 bracket adaptors would be needed. If each one weighs, say 500 grams, that’s 300 kilos of payload before any passengers get onboard. Airlines hate weight, so can you provide the brackets without adapters? The ML accounts for all these scenarios, working out weights, prices to source parts, compatibility with nearby parts, tolerances, safety regulations and dozens of other factors.
This ever-expanding ‘butterfly effect’ of interrelationships within any given complex system is known in mathematical terminology as a ‘combinatorial explosion.’ To defuse that bomb, the ML creates a series of rules-based logical binary decisions, effectively true / false, for every single factor that can affect the quote. After only a few moments, a quote appears on the CPQ dashboard for the price of seat brackets without adaptors, displaying the logic required to reach that point. Only then can senior management make appropriate and considered commercial decisions based upon the CPQ’s recommendation.
Computers Only Get It Wrong Once
It’s true that the effects of technology getting things wrong can be devastating, from iPhones accidentally dialing 9-11 to laptop issues. But the flip side to that argument is that once the problem is fixed, AI and associated tech ensures that such problems don’t recur. So if a quote appears from CPQ that doesn’t seem right, an engineer can take a quick scan through the dashboard, change one of the quotation ‘rules’ and the error won't happen again. Unlike humans, computers never make the same mistake twice.
Obviously, there’s a continuum of complexity that exists in any commercial ecosystem. At one end, you have the window cleaning guys, at the other, you find Boeing and Airbus. Wherever you sit between those extremities will dictate how useful CPQ software would be to your company, or if you think you even need it at all.
Most sales managers agree, particularly in the current global climate of high inflation and economic downturn, once they have used a CPQ platform, they look back and wonder how they ever managed to remain in business without it.
This article was produced and syndicated by Wealth of Geeks.
Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.