Achieving Margin Improvement with CPQ: TEI Part 6

profit margin growth 

Thus far in our initialism series, also known as the FPX CPQ TEI series, we’ve covered:

  1. Why we commissioned a study of the Total Economic Impact (TEI) of FPX CPQ by Forrester Consulting.
  2. The major challenges organizations faced before implementing FPX CPQ.
  3. Results these organizations saw after FPX CPQ implementation.
  4. Benefits, costs, NPV, ROI, and payback period based on Forrester Consulting’s composite organization.
  5. The topline growth actual FPX customers enjoyed and what prospective customers could expect.

In this post, we’re going to look at margin improvement experienced by FPX customers as well as the benefits and risks calculated by Forrester Consulting’s composite organization.

Increasing Margins with CPQ

In addition to increasing revenue, Forrester Consulting found that organizations also increased their margins using FPX CPQ.

Margins are improved by reducing over-discounting with pricing rules and reducing the incidence of misquoting and the resulting concessions. Let’s take a closer look at each.

Creation & Enforcement of Pricing Rules

Several organizations were able to improve margin through the creation and enforcement of pricing rules. As one FPX customer put it:

FPX allows us to define all the price levels, controls, and triggers that we’re capable of defining. FPX also enables the enforcement of those types of pricing policies. We can also trigger different pricing and strategies based on the type of customer and the type of products that are being purchased. [Not only does] FPX give us the platform to write and execute those rules, we can also control the maximum discounts that could be provided without seeking higher-level approvals.

Rolling Out New Pricing Strategies

Another organization mentioned the impact of effectively rolling out new pricing strategies with FPX CPQ compared to the prior environment. The ability to quickly and easily roll out pricing changes across teams allowed this organization to better protect its margins.

Speaking of its prior processes:

When things are changed, does that mean that every guy who had a spreadsheet with the pricing of that particular item on the spreadsheet [had] that updated? Did they all get the memo? The answer is no.

Reduction in Quoting Errors

Yet another FPX customer improved their margins through a reduction in quoting errors. As they described it:

When we would deliver a quote or proposal to a customer and then had to add on more things for the solution to work, it usually ended up costing more. But they would come back and say, ‘No, no, you gave me a valid quote before.’ So you’ve got to eat that difference. We achieved better gross margin because we weren’t discounting as heavily to make it right. [Now] we’re quoting it right the first time.

Findings Based on the Composite Organization

fpx cpq margin improvement

For the composite organization, Forrester Consulting made the following assumptions:

  • The composite organization’s operating margin increases initially by 0.5%, up to a 1% increase in Year 3.
  • The margin improvement applies to revenue transacted through FPX CPQ each year, calculated in the previous benefit.

However, the following risks can affect the realization of this benefit:

  • Previous quote accuracy varied significantly from organization to organization, affecting the magnitude of the benefit delivered through reduced concessions.
  • Organizations had different levels of business process maturity around price setting, discounting, and approvals that could affect the magnitude of improvement in this area.

To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $20.7 million. This means that margin improvement accounts for 41% of total FPX CPQ benefits.


Ready for more? Our next post in the series will cover improvements to order accuracy.

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Jake Brown
ABOUT:

Jake Brown

Jake is Digital Marketing Manager at FPX and works to establish FPX as a thought leader and enabler of experience-driven business strategies for B2B organizations.


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