April 6, 2023
Configure Price Quote (CPQ) vs. Contract Lifecycle Management (CLM): Similarities and Differences
For revenue teams at high-growth companies, Configure, Price, Quote (CPQ) software is an absolutely essential part of your tech stack.
Companies that do a high volume of business, have expanded their product offerings, or have a complex product suite need CPQ. They are most suited to take advantage of CPQ’s ability to perform complex calculations so their sales reps can accurately quote the right price without having to depend on a price sheet, or worse, their memory.
Just as no department operates in a silo, your tools shouldn’t either. While CPQ software works well enough on its own, integrating it with contract lifecycle management (CLM) software opens revenue teams up to increased productivity, improved operational efficiency, and scalable revenue generation. It connects a generated sales proposal to the contract creation step in the contract process, leading to enhanced consistency, compliance, and customer satisfaction.
This blog informs Sales and RevOps leaders about what they need to know about CPQ software: what it is, benefits of using it, how it’s different from CLM, and why CLM and CPQ work well together.
What Is Configure, Price, Quote (CPQ)?
Configure, Price, Quote (CPQ) is sales automation software that helps businesses with more unique product offerings to provide customized and accurate pricing to customers. It allows sales teams to be more sophisticated in the ways they quote prices to potential customers without depending on manual, error-prone methods.
Specifically, growing B2B SaaS companies whose product offerings are subject to complicated pricing due to variations in available features would benefit the most from CPQ. For example, the number of seats, the term length of the deal, or add ons that might increase or decrease the price can be programmatically calculated using CPQ without your sales rep having to constantly check a (probably out of date) spreadsheet, or do math on their own to figure out what price to quote.
Here is a breakdown of the individual aspects of CPQ:
In this leg of the race, reps learn all the moving parts of what the customer wants. How many seats or licenses? Do they need any customized features? How many add ons are they adding on? This is essentially when you configure the needs of the customer based on what they want so that you can calculate how much it will cost, all told.
As you set up CPQ, you associate each feature or ask with a price, so the software just does the complex math behind the scenes to spit out an accurate price point based on ask. After you’ve configured the product to the liking of the prospect, the CPQ solution calculates the price based on the data your rep input.
Then, once the price has been determined, CPQ generates a proposal that reps can automatically send to the customer, which outlines their requested configuration and the price. This isn’t necessarily final, as prospects might choose to add or remove features, but it is a good place to start negotiations.
Benefits of Using CPQ
CPQ can provide a huge lift for overburdened sales teams. Research shows that reps spend almost 10% of their time generating quotes for prospects, causing them to dedicate less time to actually selling. Here are a few more benefits of including CPQ in your tech stack:
Reduces Risk of Error
Without CPQ, sales reps have to perform complex calculations based on a spreadsheet located somewhere in the bowels of Google Drive. As your company expands and adds more products or features, the pricing sheet can quickly become out of date, causing reps to inaccurately quote prices.
Rather than leave complex pricing in the hands of sales reps (who were hired for their skillful selling and not their math skills), use CPQ to automatically calculate accurate pricing based on standardized and established pricing structures, giving sales reps time back in their day to do actual selling.
Stops You From Selling Unfeasible or Illegal Products
Sometimes, sales reps may unwittingly sell products that don’t exist or aren’t even legal to sell. This isn’t necessarily their fault — sometimes they’re just super eager to close a deal, meet quota, and collect comp and don’t realize that they sold a non-existent product until it’s too late. CPQ allows you to define the parameters of your product offerings and customize restraints so that what they buy is what you sell.
Improves Forecasting Accuracy
When sales reps miscalculate pricing, they may end up quoting a price way below (or way above) the going rate for a specific product configuration. Even worse, in an effort to close the deal, they might offer a discount on top of their low price, so your company ends up taking home less money than you’ve forecasted. CPQ eliminates this potential error by standardizing pricing, thereby making your bottom line earnings more predictable.
Sales reps spend less than 30% of their time selling; the other 70% is divided among various administrative tasks. By implementing CPQ, you help put some of that time back into your sales reps’ day. It also gives time back to the entire revenue generation team who would have to spend valuable time undoing the miscalculation and regenerating a quote for the potential customer.
CPQ vs CLM: What’s the Difference
CPQ and CLM work well together to streamline the sales process and close deals faster, but one cannot replace the other.
Whereas CPQ is sales automation software for calculating the price of complex, customized software offerings, contract lifecycle management (CLM) is a contract automation tool that streamlines the contract process, from creation to execution.
While CPQ calculates the price of a product, the contract reflects that price and outlines the terms of your contract with the customer. That is, while CPQ software uses the configuration of your solution to determine a price, CLM comes in after all the math is done and formalizes your agreement with the customer, which includes other key pieces of business data like the renewal date, liability clause, forum selection clause, and more.
Lastly, whereas CLM helps you create legally binding contracts, CPQ outputs aren’t legally binding and can actually be negotiated and changed at any point before the contract is finalized.
CPQ and CLM: Why Integration Is A Good Idea
Together, these tools can improve collaboration between your legal function and revenue generation teams, speeding up the process of calculating pricing and removing the bottlenecks that contracts typically cause. CPQ and CLM together help Sales and Legal on the same page, so that Legal knows what prices Sales quotes to prospects, and Sales is aware of what the contract promises the customer. Here are some other benefits of integration:
Having all your data in one place is never a bad idea. This way, you won’t have to constantly toggle back and forth between CLM, CRM, and CPQ to see account information, deal specifics, and contract terms, and instead, see everything in one place. An integration between these tools also bridges the gap between quoting a price and creating a contract, enabling automated contract generation based on accurate data.
Reduces Risk of Entering the Wrong Price in Your Contract
Even if your sales reps are good at complex math and accurately calculate the correct pricing for the product, the contract still has to reflect that. But when CPQ and CLM operate separately, your teams face an increased chance for data entry errors, like entering the wrong price into the contract. Then, because the contract is legally binding, you will be beholden to the price quoted in the signed agreement, no matter what the CPQ says. Integrating these two systems means the data in one is also reflected in the other.
Improves Customer Satisfaction
Nothing makes for an unhappy customer quicker than overpromising and underdelivering. This includes quoting a price that isn’t reflected in the contract, which then requires extra negotiation. Worse, if your customer signs a contract with one price, but then you have to rescind the offer to start the contract process all over again. Your customers are just as busy as your sales team, and integrating CLM and CPQ can ensure that you honor their time and their willingness to do business with you.
CPQ and CLM are two distinct pieces of software that are equally integral to the sales process. In many organizations, the sales process and contract process are seen as separate, but that can lead to costly errors, burnt out sales reps, and risky contracts. Separately, CPQ and CLM help streamline specific functions related to the sales process; but together, they bridge the gap between the sales and contract processes, enabling better visibility, contract compliance, and customer relationships.
Interested in learning more about contract management software? Check out our detailed guide, or do a self-guided walkthrough of the Contractbook platform.
Delivered to your inbox every month
What’s a Rich Text element?
The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.
Static and dynamic content editing
A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the ssadettings panel. Voila!
How to customize formatting for each rich text
Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.