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How CPQ Software Has Transformed B2B Sales

Barry: Frank has recorded 200+ podcast recordings about the CPQ world. So Frank, tell us a little bit more about yourself and Novus CPQ Consulting.

Frank: To give you a little bit of background on where my CPQ experience comes from, I started working with CPQ 26-27 years ago. At the time I was the development lead for industry-specific solutions for industry-specific manufacturers. And it was an IBM, SAP and a small consulting company in Germany, a project, and nobody wanted to touch the SAP variant configuration at the time.

So I got the honor of doing that and I loved it. It gave me an opportunity to do something else besides developing code. So I could go into the plant and see how the process actually worked. So, that was great. And I continued to do that on the IT side and on the business side, I’ve set many product models myself in various tools. I have done that on the IT side and on the business side, as well as the merchant and acquisition side. I was with HP for 13 years, was with IBM, was with other companies in between. In 2015, I found Novus CPQ Consulting. 

The idea was really to split time in two areas, one as like an industry analyst to learn and work closer with the different solutions to see how they compare. And the other one is to have customer projects, to help them find the right solution for them and get more out of these solutions. So I’ve done that ever since. I would say probably 235 different CPQ vendors by now and a large number of system mini creators as well. And obviously all the customers I talk to. In addition to that, I also talk to a couple of folks from universities to see what they are up to and what the latest trends are in that area. And I’m located now North of Denver in Fort Collins, Colorado. Now you probably know more than you wanted to know, but at least you have some idea.

The History of CPQ

Barry: Thanks for sharing. I think an interesting place to start would be to talk about the history of CPQ. Obviously, a lot has changed in CPQ since ‘95. You started doing CPQ in the manufacturing industry, and now we see CPQ as much more than just manufacturing. Another thing that I also thought was interesting is that you’ve now worked with 35 CPQ companies. That means that there are even more. Can you tell me some of the top trends about the top three ships from CPQ from 1995 to 2022?

Frank: So I have to think a little bit about that. There’s been a ton of changes since then. In ‘95 the CPQ tools were completely new. They were called product configurators. You wouldn’t have called them CPQ.

That term just came up somehow in 2010 or so, but the tools have been around for a long time. They have enhanced capabilities concerning product configuration. So you can handle more and more complex configurations. You can handle it faster and that has changed. But in the mid-90s, what was typical is that you would have a product configuration tool that’s tied to an ERP solution tool, an enterprise resource planning system, like your SAP or Oracle and other solutions, which were out there.

So they would be tied to that one. You would have pricing capabilities also in what I mentioned earlier, the SAP variant pricing, variant configuration solution that has pricing capabilities, but now you have much more.

And the third one is, I think the user interface and the user experience has completely changed. So initially the idea was these ERP solutions can do everything and your sales reps can also use these tools. Now that turned out to not be true, because a lot of these interfaces were pretty hard to understand. They have lots of terms in there which wouldn’t necessarily make sense to a sales user. Like for example, I remember on the SAP side they had, they probably still have something that’s called an Item category, which tells you what kind of product it is and what kind of treatment that needs.

And I regularly saw sales reps confused by that, right? So now you can hide much more of that capability. And also one additional thing that I should mention you ask only for three, but this one I could just think of was that the manufacturers were really pretty strong early on with these product configurators, right? And that has spread to a whole bunch of different industries that use the solutions. Now, you also have solutions which use visual CPQ, which was even five years ago, not even close to the level where this is right now.

So there is a ton of progress in all different kinds of areas. The latest one is probably this excitement about integrating your CPQ solution also with billing solutions, since you have to move towards subscriptions, right? And you could go on and on. So tons of things have changed if someone worked in the mid-90s with these solutions, didn’t do anything with it, and looked in 2022, the first time into these solutions again, they would be very surprised to see what they do and how they are used.

What does CPQ do?

Barry: Oh, absolutely. And I guess for our audience that doesn’t know what a CPQ is maybe we could have started a little earlier with this. Not all of our audience uses CPQ and I actually thought it was interesting when you mentioned sales reps didn’t know how to use the CPQ, but some of them might not even know what a CPQ is. Maybe we can even define what CPQ is or ‘product configurator’ if we want to be more retro.

Frank: So let’s go there. So what does CPQ do, and that includes product configurators. So from a sales point of view, and again, going back to the mid-90s, as you have potentially complex products, like let’s take an example, you have a car. Complex products, many different parts, it could have it in many different flavors. So just to make sure you’re getting a workable product or a car, you can actually drive, look, and behave the way you want it, right? So, that has taken quite a lot of time.

Now time is money. You want to have these, you want to know faster, what is configurable? And what’s the correct configuration. What price do you get for it? So all these CPQ solutions and previously the product configuration solutions were basically intended to get the workable product out of these complex products.

And you want to do it obviously faster all the time. You may have been happy in ‘95 to configure something and have the solution within five days, right? Right now, I want to have that in five minutes. So speed is very important.

CPQ definition infographic
CPQ Definition

So configuration is really different engines, address different complexity, obviously not everyone is trying to build the car. You may have just a much simpler product, a T-shirt or something like this, but even that comes with long sleeves, short sleeve, sleeve printed, color, different sizes, and so on. So you have to use a configurator for all kinds of different capabilities and complexities. The pricing could also be very different. Traditionally you would say, I import the price out of an ERP system. And I display that while we configure a product. So you know what pricing is.

Now I could go much further and say, I want to use price optimization. So to use the slang term from the pricing community, the willingness to pay, you want to get the highest amount the customer is willing to pay. For that one, you have to potentially consider lots of data. And to come to that point as a customer willing to pay for that iPhone $699, or could you also get $749 out of it and stuff like that. And that’s a bad example because that’s almost a commodity, right? But more with this one-off kind of product as the pricing is more challenging. And then you want to also see, how do you offer the quote that you get out of this to your customers. So you have PDS, one thing that DealHub CPQ helped us for a while. And I like that from the beginning is to issue the quotes also on the micro side.

We have much more analysis capabilities and stuff like that. That’s very good. So you have these capabilities covered there, and what’s also kind of new, not completely new, but definitely newer and much wider used as these different go-to-market channels.

So initially, around mid-90s, I go back to that one as a baseline for now, I would say mostly sales reps use it. Then you have channel partners start using it as well. Then you have E-commerce stores start using it in increasing numbers, especially during the pandemic. And you get more and more flavors of this one, right? So it’s not just that you’re selling it on your own website. You also sell it potentially on marketplaces like Amazon or other industry-specific marketplaces. You also offer more starting points. So you cannot always train a salesperson in the first full week to show them how this tool works and what they need to do. You have to show it to a customer.

In this case, the customer has to keep interest. If they don’t understand it, they will leave very quickly. So you have a lot of gamification elements in there. So it’s not necessarily the goal for you just to go to a website and configure something. I want to keep you on the site for 20 minutes. I want you to be emotionally engaged in it so that you’re coming back and that you’re getting more out of the configurator than just getting a valid product out of it. You want to have some kind of an experience connected with it and so on. Lots of things have changed. And I think very exciting things, they should be used much more widely.

The challenge now is these tools are still not super simple to implement, they have lots of complex functionality. So it’s a very exciting environment. The key right now, I think, is to make sure enough people understand these tools well enough to see what huge potential they have to really have a benefit. And I work with it on both sides also as kind of a user on the sales operations side. Where we support the teams and that is really, it would be a shame not to use it. Let’s put it this way.

CPQ for the Software Industry

Barry: Can you give an example of CPQ for the software industry?

Frank: The software industry is very important for CPQ. At least for some parts, because it really started to give this push to CPQ that it wouldn’t have gotten just with manufacturing because in this case, the main driver was Steel Brick probably at that time. So now Salesforce CPQ for the Salesforce revenue cloud. So what they did at that time, which was unique, is you have a quick installation. So it’s not something that would tell you, yes, we can do this project, but oh, by the way, a very complex project, the first phase takes a year, a year and a half and then we have multiple phases after that so it becomes time intense.

And it’s obviously related to the cost. It’s also very expensive. So when they started shortening the time and making the functionality available for the software industry, that’s what obviously spurred enough interest on the Salesforce side to actually buy Steel Brick.

And then wire these acquisitions just push it in a different hemisphere, right? And with it, the rest of the CPQ solution. I think that’s really the exciting part that Steel Brick, at least from my perspective, helped to make it much more broadly visible and interesting. Now I worked on, like when I mentioned HP earlier, worked on the hardware side as well on the software side. I have had many software customers in between as well.

So software requirements are different from hardware requirements. One simple example is if you actually have to build the product, you have to have a manufacturing bill of material. You have to know how to build that part. On the software side, you don’t have to look for that, right?

So I’m looking more for my sales bill of material and I have that for manufacturing products, by the way as well, right? So I have both. On the software side, I would have just the sales bill of material and that’s fine. I have also, the sales industry has helped these CPQ manufacturers, product configurators quote to cash vendors and so on to look ahead into this integration with billing, because they all live on subscriptions. When you have subscriptions, you have changes.

So that’s something that a lot of manufacturers are interested in, they’re working towards, but a lot of them are still not there. So the high-tech and software industry helped to basically build the foundation for this. And I think the software industry is now also a big driver and a big user of CPQ solutions. So I think for the whole CPQ market, no matter what industry a vendor works in, they should all be grateful to the software companies and the high-tech vendors, because they helped to push this forward into a much bigger area, which otherwise wouldn’t have been possible.

What are the Benefits of CPQ?

Barry: Love that. So team software. I think that makes it pretty clear to our audience what CPQ is. And I think let’s take it a step further. Why would someone spend time and money to use CPQ? What are the benefits and what were the pain points that brought them to even start the conversation with CPQ?

Frank: Let’s not start with painful pain points. So let’s focus on the benefits, right? So we maybe can go back later to the pain points. So the benefit is that you have basically, you’re taking what the sales team does well and making it accessible to everyone. I think everyone in a sales team knows you have, if you look at the team as a 100%, there’s a good chance that 20 to 30% maybe of the salespeople do most of the sales, right?

So the other ones trying to use this make work better or worse. But there’s typically a smaller number of people who do most of the selling. So it’s when you have a solution like that, it helps you to standardize their approaches and make them accessible to everyone. So, because this case is what makes you successful and lets me struggle, right?

So maybe I can learn from you and take on some of the things that you do and put them into a tool. The other thing is you have a very high need right now to customize almost everything. So nobody wants to buy stuff from the shelf that’s the same as everyone else. You want to have something that’s a little bit unique. So when you have that, you will always have the need for a configurator tool, right?

So some form of configurator, not the most complex, not the simplest. So it always depends what industry you’re in, what your use case is and stuff like that. But it helps you to get access to these customers because you can offer these tools to them. You can also offer that in combination with something like guided selling, right? So when I just ask you questions, I show you 10 products at the end, you pick one and the one that you pick, you can additionally configure, right?

So, I think what people want increasingly is that they want to do it themselves. You don’t want to just talk to a salesperson who gives you these things. I want to do this myself. Then you have the typical classical benefits, right? So it’s increased the margin. So that’s again looking at it from the point of view of a salesperson, because I want to get a higher margin.

I want to get more money out of this product from you, right? That’s a typical benefit that you would see, right? So if you want to sell more, you want to sell the correct product because especially as you have more complex products, there’s a good chance something is missing because I guess you’ve seen in that too, when folks have Excel spreadsheets, they have worked on these for 10, 15, 20 years. You have a guru in the company who knows every formula in that spreadsheet, nobody else gets it.

You may also be interested in: 4 Reasons CPQ Outperforms Excel Configurators

Basically, you have different versions of the spreadsheet potentially flying around, right? So even though it has worked, it has saved them quite some money over time. At one point, you have to make a decision to switch because it’s just no longer manageable. So in the worst case, the person who maintained the Excel spreadsheet is going to retire. In that case, you have to do something ahead of time. Anyway, so you have more sales, you have higher margins. Oh, one thing which is very important to a lot of customers also these, the cross and upsell functionality cross-sell meaning I have an idea if I sell you a computer and I sell you a hand back with that, where I sell you a mouse with that, that would be cross-sell, right? And upsell would be something like I sell you the MacBook pro 13 Inch, and I could upsell it to the 17 Inch or whatever it is.

So these capabilities actually add considerably to the bottom line. And what’s increasingly playing a bigger role now, as it helps your channel partners to sell as well, you can do that in an aligned manner, right? So without having these channel partners needing to spend lots of time learning every little detail, it also saves them quite a lot of work, right? Because, think about this, if you would’ve sold via a channel partner 20 years ago, then you would be the one who manufactures these products, right? Could also be a software company. You produce the code, you developed this, you’re not selling it directly to your end customer. So you sell via a channel partner. So there’s a good chance for them. They don’t just want to buy your products, right? So if I sell computers, I might buy from HP, Dell, or Apple.

And I don’t want you to see my prices, right? Or I don’t want you to see how much business I do with others. Also, HP wouldn’t want you to sell a Dell mouse with the HP computer, right? So in this case, they have to set up all this stuff themself. So we’re just fairly complex because now you need the resources to do that. There’s not a ton of them out there.

And even if they’re out there, they’re pretty expensive. It introduces additional possibilities for error, because you’re getting the guidelines from whoever you’re working with. They can change that on a very short notice. So you may have to jump into your production system five times a day to make the adjustments. They may, but only tell you two weeks later. So that’s really making a big difference as well.

CPQ for E-commerce

Frank: And right now, especially with the pandemic, there’s a large increase in E-commerce sales. So because now I give you a completely different experience online, where you would now expect online, if I let you a product configure, I need to give you help, maybe visual or audio support, but maybe a little video that I show; ‘Hey, nobody thought about this stuff with product configurators, more or less, Hey, I train you, I have you a week in the room, I show you everything that needs to happen. You don’t get any help beside the help you got in the beginning.’ So all that has changed and it makes a difference in the bottom line for these companies. And right now there’s even more. And then I stopped because I could probably mention five more, but one other thing, which is important now is data that’s flowing into these solutions.

So I can give you the internal data that I collected. If I collect enough data, I could integrate data from other vendors that’s potentially helpful for you if you want to configure something. And that will play an even more important role going forward.

Now you could again, analyze this data two different ways. You can do it in the application while you obviously buy something. I give you some guidance based on the data that I got, or I give you reports afterwards, so that you have a high-level picture at the end of the month, what’s working, what’s not. So tons of opportunities. It could get even more. I think right now it’s important, you don’t want to oversell CPQ too much, because that seems to happen right now anyway, which I think honestly, I truly believe that these tools are very powerful. They can do a lot of very good things, but it has to be installed correctly.

So the implementation is very important and you have to do it right. If you just skip a bunch of steps, there’s a very good chance, you’re going through a lot of pain and still don’t see the results you’re looking for. So just as a little warning note, I didn’t want to sound too enthusiastic. I love the solutions, they’re great, but lots of things have to go right, to see all the benefits I mentioned.

Does CPQ Help Retain Sales Reps? 

Barry: Frank, you have a wealth of information. It’s a shame that we can’t go for another hour on this. So I really appreciate it. Let me ask you a specific question. Maybe a benefit that would be part of your top five that wasn’t listed, because the list was too many, something that I’ve been noticing, I guess a trend in the workspaces that people are talking about, The Great Resignation.

And you touched a bit about this on employees, adapting it more and that the CPQ is more adaptable than it was obviously much more than in ‘95. How do you see CPQ playing in the world of employee satisfaction and helping retain salespeople and helping onboard employees? Do you have any thoughts on that topic?

Frank: Yeah. So in this one, I think there is still room for improvement. Let’s put it this way, Because, I think they’ve gotten much better considering where the solutions came from. I think the skills you need with CPQ solutions are a little bit of a mix between art and science. So I want to make something interesting for you as I mentioned earlier. So one example of this would be, if I’m selling you a car, I could sell it to you in a neutral background. So you have no connection to it. I could also go ahead and first let you choose a character, right? And via your IP address I know where you’re located. So you can select the character. I put the background, I put that in the back and get you much more engaged in this, right?

So when you sell, I could also say; ‘Hey, you can download this configuration and bring it to any vendor and they could start their pricing options from there,’ and stuff like that, where I get you much more engaged. I could send you, even when I took the car example, I will show you how the car is built. I sent you pictures from the manufacturing line. I’ll show you when it’s shipped actually, and so on. So I think usage wise there’s much to be done because still it has improved it. You also have more users who adopt it. I think it is still something where I think sales enablement teams, product development teams can do more, have to do more especially as the tools get more widespread, they’re getting more used, right? There are more things you could do to A, simplify the usage and that’s subjective, right?

So that’s when I say; ‘Hey, what’s a good user experience for one is not a good user experience for another.’ I think there’s still room for that. And then also a good number of customers still make the mistake that you think everyone will use it anywhere. There’s not much of a choice. We already bought it. We have the licenses, we went through the project and now you go through it and you don’t prepare the users. So in this case, I think then you shouldn’t be surprised if they are enthusiastic to use this because there’s lots of these little tools everywhere. Nobody is getting paid for using these tools. So I’m not excited if you sent me a new tool, right? And hence I think it’s really a big task for sales enablement teams to say, Hey, what’s in it for me when I use this tool, why is it good to use?

And what are the benefits and how can I learn this without trying to get certified in three weeks for all kinds of stuff that I almost never use. And where do I get more help? Do I need to offer online help as well? So yes, we’ve come a long way. From my perspective, there’s still a long way to go before they can get more widely adopted because it’s still too much.

You see, you have the mobile solutions on the iPhones, on the iPads or tablets and smartphones in general, but who’s using that, right? And how can I get more people access to it by not hiding it in three menus and stuff like this. So I think vendors spent more effort on it. They also get external teams involved and stuff like that. But I would say if that’s getting considerable improvement, they will be used even wider. So I don’t see any way to stop CPQ at this time.

Barry: CPQ is still very interesting and things are changing and there are even more ways to improve for the industry as a whole?

Frank: Yep, absolutely.

Lessons from the CPQ Podcast

Barry: So you’ve done 211 podcasts. You’ve been doing your podcast since 2017. So it’s mostly about CPQ. What is something you learned during these podcasts that really stays with you, whether it be information about CPQ? Whether it be a life lesson? Take it however you want to take it.

Frank: So the one thing I learned is since I had worked so long with CPQ before I even started the podcast, it was over 20 years. Not everyone is so excited about CPQ as I am, or wants to be so excited about it and that’s fine. I think it’s good to have a wider perspective. If using CPQ is less important, then look at it from a sales perspective and see if CPQ is part of the solution, or maybe it shouldn’t be there. So I think that was one thing I really learned. So to take a step back and not just go with my enthusiasm about the topic into everything.

The second one was that there are many different solutions which serve different purposes so let me compare it with something everyone understands. If I could show you a very nice and sexy sports car, right? So 95% of the people would probably say, Hey, that’s probably a great car or the best car, right? And it’s like, it’s relative. If you have to transport stuff, the Lamborghini may not be your best bet. So if you want to drive really fast again, a pickup truck is probably not your choice. 

So you have to look at it from different perspectives. So I think when you see ratings evaluations of these solutions, they are always made with a certain preconception on what you consider good or what you consider helpful. And that can be very different for different customers. So it’s hard to really come make everything, look at it from one point of view. So I think that was another one. What else could I tell you?

I mean, right now, what I realize is there are more, many more people working on CPQ than there used to be. It still takes time. And I think that’s one thing that you can also see, even though the topic is hot, it sees lots of investment and lots of other very positive things. The number of people in the area is fairly low, you have lots of people who come in there and fill roles and you may get good salaries and everything, but it’s still, the experience takes quite some time. So I expect that will improve considerably over the next two to three years. But I think right now that’s hampering progress a little bit because you have all the excitement, but a very limited pool of people who can actually do that and do it well. So you may find people who do it, right? But it’s a question. Does it work well enough that you have the benefits you were expecting? So yeah, if I would have these three things, I guess that’s what I would say. 

Barry: Thank you for sharing that. So if someone wants to listen to your podcast, which I think everyone will after listening to this interview, where can they find it? What’s it called?

Frank: So, you can find it on Apple podcast, Spotify, Amazon everywhere you go, you will probably see it just type in CPQ podcast on Google and you will see a couple of places. You can also go to my website. Here’s a link to the CPQ podcast. So just go on to one of these places and you should find what you’re looking for.

Barry: Perfect. Well with that, I want to say thank you for your time and thank you to our listeners for checking in and listening today. If you have any questions, reach out to Frank, visit his website, listen to his podcast and speak to you guys next week. Thanks again, Frank and thanks again to our listeners.

Frank: Thanks, bye.