Identify Value through Key Performance Indicators
In part 1 of this series, we characterized the value of CPQ. We referenced an article that appeared in Forbes magazine, which did a great job of identifying the functional and operational benefits that a company could gain from CPQ.
However, we wanted to drill into this subject further and translate these benefits into specific metrics. As the expression asserts … “you can’t manage what you can’t measure.”
To do this, we have identified five key performance indicators (KPIs) that we believe represent the essence of CPQ. Each is readily accessible and can be extended to develop an ROI.
1. Number of Quotes
As you will read in the interview with Mark Keenan, companies have been able to significantly increase the number of quotes by leveraging CPQ capabilities. Assuming the “close ratio” remains the same, generating more quotes will generate more revenue.
For this KPI, consider looking at historical data assembled over various periods. We suggest varied time spans to account for seasonal trends and activities in your industries.
2. Average Quoting Cycle Time
This metric might include the activities in engineering, manufacturing, planning, purchasing, etc. It is somewhat related to the first KPI. The focus here is on helping you understand what’s taking place within the various functional areas that contribute to preparing a quote.
Consider a KPI that is comprised of the individual processing periods consumed by the various functional areas.
3. Quote Accuracy
At first glance, you might ask how such a KPI is assembled. There are several ways to do this.
In the quoting process, the KPI could be related to the number of revisions needed before a prospect makes a buying decision.
The other end of the process is the actual manufacturing and shipment of the order and the resultant scrap, rework and additional technical support/infield service remediation work required. You would expect CPQ to enhance accuracy. Hence, the measure would be improvements in these areas.
4. Conversion Rates
Do quality and completeness drive conversion improvements? We think so. Thus, this KPI is a vital counterpart to the first KPI. Producing more quotes isn’t necessarily better if the conversion rate suffers.
It’s reasonable to assume that to produce a quote as quickly as possible, the quality and depth of detail have room for improvement. By leveraging CPQ functionality, pre-developed and recurring content associated with each product option and the variant is “cut and paste” as needed. Thus, data reuse is optimized, and insights derived from lessons learned can be readily incorporated in each quote created, thereby improving the quality.
We contend that this KPI coupled with KPI #3, Accurate Quotes, goes hand-in-hand. As the cost and pricing attributes are being developed and refined during the setup of a CPQ solution, an opportunity exists to structure product configurations that reflect consistency and repeatability in the way they are manufactured and shipped.
This metric can help drive the quality of the data being used to support the quoting process.
We like these five KPIs because they all have a direct and noticeable impact on the P&L statement. They are driving both improving revenues and reducing the cost-of-goods-sold. And, of course, they ultimately contribute to profitability in no ambiguous terms.
Why then would you not implement a CPQ solution? Someone … argue with us!