Rising costs, global competition and supply chain strains, increasing product complexity, and higher customer expectations are just the tip of the iceberg for manufacturers. A depleted labor market puts additional stress on the industry — by 2030, the widening skills gap in manufacturing professions will create an estimated 2.1 million unfilled roles.
While obviously nuanced, there’s one solution to these challenges: efficiency.
As of 2022, the global CPQ software market is valued at $2.2 billion. And, by 2030, it’s set to more than triple to $7.2 billion.
While it’s a crucial automation solution for any type of contract- or subscription-based business, CPQ for manufacturing has shown some of the greatest potential for positive impact.
To become more efficient and make up for today’s lack of human resources and production challenges, manufacturers need to embrace its power.
Selling configurable products is incredibly challenging…
…for buyers and sellers.
- Communicating a product’s value in a meaningful way is tough for sales teams.
- Without clear, accurate technical specs and visualizations on hand, buyers can’t choose properly between variants.
- A misquoted price or delivery time because of human error could lose a deal and hurt future customer relationships.
- The more line items, packages, and configurations involved, the greater the margin for error.
In the contract manufacturing industry, you’re basically tightrope walking. You have to balance customer expectations, your own margins, and capability constraints.
There’s also equal pressure to move deals through the pipeline quickly and nurture your prospects over time. Complex products often require multiple rounds of iterations and approvals before settling on a final design. Each change demands product reconfiguration, new cost estimates, and a reevaluation of delivery times.
On the backend, you’ve got the constant back-and-forth between manufacturing, engineering, and sales departments. It’s a lot of juggling, and any misstep could result in costly mistakes, tainted customer relationships, and, ultimately, lower sales revenue.
Long story short, the sales process in contract manufacturing isn’t just about selling a product — it’s about managing a multitude of variables with precision and speed.
CPQ has transformed manufacturing (for the better).
CPQ takes care of all the grunt work. On the buyer’s side, they can feel more confident their configuration is accurate, will fit their needs, and aligns with their budget. On the seller’s side, CPQ automatically creates technical spec sheets and bills of materials and visualizes products in real-time.
With CPQ software, manufacturers can…
- streamline order processing by eliminating opportunities for human error or misunderstandings
- build accurate quotes every time thanks to product rules and guided selling workflows
- reduce quote creation time from days to minutes
- help sellers iterate on quotes in real-time
- generate standardized proposals and contracts with built-in pricing, discounting, and configurability rules
- align product, pricing, and discounts with upsell and cross-sell opportunities
- enable customers to order and reorder complex products on their own
- automatically send specifications to the production team through ERP integration
Advanced, manufacturing-oriented CPQ platforms take CPQ’s capabilities to the next level. With vendor and supplier integrations, 3D visualization capabilities, real-time pricing/profitability estimates, and CAD automation, CPQ software now accelerates the entire manufacturing sales process — from lead to contract signed to production launch.
The power of CPQ for manufacturing businesses
Now, let’s take a closer look at the specifics. Here’s why CPQ is so powerful for manufacturers:
The average company has 2,000+ data silos. When data is siloed, processes are siloed. For manufacturers, this means misconstrued product specs, incorrect inventory amounts, and inaccurate pricing.
Advanced manufacturing CPQ software enables workflow automation and data centralization through:
- Bi-directional CRM integration — CPQ auto-populates contact data from CRM for faster quoting. CRM uses CPQ insights to reflect each deal’s status in the sales pipeline, store data on prospects’ and customers’ purchases and preferences, and create better sales forecasts.
- ERP connectors — ERP data syncs with CPQ to help sellers configure products based on real-time product availability and manufacturing capacity. That way, they don’t have to worry about selling products on backorder or proposing a product the company can’t actually produce.
- Engineering systems integration — CPQ connects with your CAD and PDM software to automatically generate production drawings, bills of materials, and routings (and use them in quotes/proposals). As soon as a quote is approved, your engineering team receives the blueprint.
- B2B ecommerce integration — With the ability to compare current products, options, and pricing, manufacturers can optimize their supply chain, choose the most profitable supplier, and accurately communicate lead times to customers.
- Contract management — Most CPQ doubles as a document management system. You may also have your own CLM system for processing legal terms, payment options, and other paperwork. By connecting CPQ and CLM, manufacturers simplify their contracting and negotiation processes.
So, CPQ is a lot more than just quoting software. It’s the core of your operational processes. It keeps everything moving in one fluid motion.
While CPQ can supercharge your B2B sales process, it’s also a way to make your customers’ buying experience more convenient. Manufacturing-oriented platforms like PROS CPQ allow you to integrate your product configurator into your website.
Believe it or not, this is a concept you’re already familiar with. You’ve probably used it, too.
Let’s say you’re shopping for a new car. You visit the manufacturer’s website and use their car configurator. You change exterior colors, add on leather seats, upgrade to a larger engine, etc.
Each time you make a selection, the image of the car and its running total updates immediately. Based on previous selections and current stock levels, certain elements show up as unavailable.
Once you’re finished, you submit your configured vehicle for a quote. You can then decide to order it right then and there — no sales rep or in-person communication required.
In B2B manufacturing, it’s practically the same.
For your sales representatives, arguably, the hardest part of selling configurable products is getting customers to envision them.
- Key decision-makers won’t know exactly what they’re buying (or whether you can deliver what they actually need).
- For the non-technical stakeholders, imagining how different features will fit together based on descriptions and basic mockup drawings creates more confusion, not less.
- Engineering teams can use native CAD files for production, but CAD software isn’t user-friendly for sales.
You can’t hand over a tablet with CAD and expect your buyers to understand it. They need a visual that’s easy to interact with and understand.
With realistic, web-based previews, your sales team can use your product configurator to see how their configuration comes together in real-time. They can rotate the product, zoom in and out of details, swap options on the fly, and test how different configurations affect production costs, profit margins, and lead times.
During CPQ implementation, you’ll input all your product data. You’ll tell it exactly which components belong in each parent product, and when they’re supposed to be used. With that information, your CPQ platform creates a dynamic catalog.
- Up-to-date products — Your product team may never update the hard copies of their catalogs. With CPQ, the entire sales force can access an up-to-date product and component list anytime.
- Product data sheets right under the product name — Product data sheets include a description, image, and any important notes regarding safety, warranties, or care. You can also include links to related products (up-sell/cross-sell opportunities).
- Product recommendations/bundles/optionality — CPQ software makes automated recommendations based on what’s in your catalog. When you’re selling highly configurable products, you’ll have endless product bundles available for different applications. With CPQ, your sales team can easily navigate through product options and make the best recommendations for each customer.
With accurate depictions of what goes into each product, your sellers can explain what makes up a product, how it’s supposed to function, and what their prospects’ options are.
Configuration rules and guided selling
When a buyer or sales rep uses your product configurator, they’ll only see products that are possible to make. That’s because you can pre-program your software with engineering and manufacturing rules.
Briefly, there are four types of product rules in CPQ:
- Alert rules let your team members know when they make an invalid product selection. For these selections, the quote will require approval.
- Validation rules prevent them from moving forward with the quote until they correct an invalid selection.
- Selection rules automatically select, deselect, present, or hide certain product features and options based on previous choices.
- Filtering rules determine which options are required, upgradable, or omittable for each of your CPQ bundles.
Let’s consider a practical example in the manufacturing world.
Suppose your company manufactures customizable bicycles. Certain components, like frame type/size, handlebar style, and wheel type, should all be compatible for a successful configuration.
Configuration rules could then limit the range of compatible handlebars and wheels based on the frame type and size. Without these rules in place, a salesperson could accidentally configure an impossible product configuration. Or, in an ecommerce interface, the website would allow customers to choose incompatible options and submit their order.
Pricing and discounting
Pricing rules are just as important as product rules for manufacturing companies. You can’t assign accurate prices to configured products without automating that process. With CPQ, your engineering and/or finance teams can set rules for how prices are determined.
- Base pricing — For example, the base price of a lab instrument might include all standard components plus customer-selected options.
- Per-feature or per-component pricing — You can assign additional costs based on the number of features selected (like burner knobs on a stove) or based on selected components (like different types of handlebars).
- Formula-based pricing — Some customers may require custom formulas for their quotes. For example, an exclusive customer group might receive a 20% discount on all configured products.
- Price breaks and volume discounts — CPQ software makes it easy to manage complex pricing structures. You can set up rules for volume discounts and bundle discounts. And you can require approvals for one-time discounts to sweeten the deal for a valuable customer.
Conditional pricing rules let you change prices based on customer location, order volume, or any other relevant criteria. Global pricing maintenance ensures the customers across all channels (online, in-store, etc.) see the same price. And CPQ will automatically apply discounts once a configuration meets predetermined qualifications.
Automated quote generation
A key element of CPQ software is interactivity. With CPQ, the product selection and quoting process is simple:
- Sales reps or customers choose their desired product options and features.
- With each selection, the price is updated in real-time.
- Once the configuration is complete, it automatically generates a quote with a price breakdown and terms and conditions.
Once a purchase is complete, the quote becomes a contract, complete with deliverables and payment terms. And after the contract is signed, you can set up your CPQ software to trigger a purchase order or other fulfillment process.
In traditional manufacturing, engineering documentation is a tedious process. More often than not, it delays new product releases and increases lead time in customer delivery.
CPQ for manufacturing automates document creation for your engineering and production teams.
- Configuration diagrams
- Bill of materials (BOM)
- Engineering drawings
- Installation instructions
CPQ also stores all this documentation on the cloud, making it easy to track and reference in case of any issues (e.g., a recall or warranty claim).
It’s all about the features.
Some CPQ platforms are more well-suited to subscription businesses. Others fulfill basic needs but don’t offer 3D product configuration or CAD integration. In order to achieve true manufacturing excellence, manufacturers need a CPQ solution purpose-built for contract manufacturing.
Here’s what to look for when evaluating CPQ vendors:
Most importantly, you want a product that’s built for manufacturers. Subscription management is cool, but you probably won’t use it.
You need a tool with these specific capabilities:
- 3D visualization
- Real-time pricing and availability updates
- Rules-based configuration for 1,000s of product combinations
- Dynamic BOM, proposal, quote, and contract generation
- E-signature, document management, and editing
- Integration with CAM, CAD, PDM, ERP, and other key systems
- Advanced pricing rules and multi-dimensional pricing models
- Contract renewal and order management
- Deal desk collaboration
If you’re a larger manufacturer, also look for AI-driven pricing recommendations, churn detection, and upsell/cross-sell recommendations.
I come across a lot of CPQ platforms that look like they’re stuck in 2005. It’s not just the aesthetics that bother me. A counterintuitive, clunky interface is a sign that this tool isn’t built for manufacturers (or it’s an afterthought).
Look for a user-friendly CPQ solution with:
- Intuitive and modern UI
- Easy integration with existing systems and processes
- Fast response times when updating configurations
The reality is, your team won’t adopt a tool that slows them down or makes their jobs more difficult. When evaluating vendors, let different members of your sales, engineering, and production teams test the product. Before buying, get a consensus.
Implementation times kind of depend on how big your company is and what its needs are.
If you’re a bespoke manufacturer in a complicated industry like medical devices or industrial machinery, it’ll take several months. If you’re a smaller company, a few weeks to get the tool up and running might be realistic.
Before signing on with a vendor, ask them about their implementation process. You can even request case studies or references from manufacturers in similar industries to see how they approached implementation and what benefits they have seen since using the CPQ solution.
Software fails. That’s just a fact of life. The important thing is how fast you can get it back up and running. If your CPQ solution goes down, that means no quotes for customers and an increased chance of churn.
Ask vendors what their average response time for fixing issues is. Look at their track record for uptime. And inquire about the level of support they provide during implementation and after.
You want a vendor that’s invested in your success, not just selling you a tool. This is where references, case studies, and G2 reviews can come in handy again.
You can’t do without these integrations:
- Document management
Beyond integration capabilities, your CPQ needs to integrate with your tech stack.
Some platforms integrate with a few CRM systems, but they don’t offer open APIs or integrations with specialized manufacturing tools. Others might not work with one of your tools. Carefully examine each product’s configuration library when making your purchase decision.
For more general tips about choosing a CPQ vendor, check out my article on smart tips for selecting CPQ software.