How the Winners Win Big with CPQ Implementation
Learn how to structure IT investments like CPQ to capture sustainable reductions in SG&A. We use Model N’s Revvy CPQ as a best-of-breed case.
The person responsible for the Sales budget has a tough job. He/she has watched SG&A rise as a percentage of total spending over the last two decades. To be fair, Sales is not becoming less efficient, but other business functions have been better at capturing efficiencies from back-office and operational activities. The 2000s saw production efficiencies reduce COGS (Cost of Goods Sold) of the average S&P 500 firm by 2.5%, for example (Agrawal, 2010). By comparison, 0% change looks like recession.
Averages can be deceiving, however. The average of a big winner who has shaved off 5% costs and a big loser whose costs have increased by 5% is a 0% average. This is exactly what is occurring in the middle market. According to the National Center for the Mid-Market, the top 20% are pulling away from the pack at an impressive rate. These top performers not only grew at an average annual rate of 26%, they posted 17% lower SG&A as a percentage of sales than the bottom quintile (“The Market that Moves America,” 2011). The average in this case covers up the fact that some are winning big with sales, while many others are losing ground.
The same is true in the case of implementing sales technology. Some projects result in double-digit ROIs, whereas others start strong and then fizzle out. How can a CSO or CIO better ensure successful Sales Force Automation projects over the long haul? This blog focuses on CPQ implementation as an example case to show how the top quintile achieves and more importantly sustains competitive advantage with sales.
Use Total Cost of Ownership (TCO) for CPQ Implementation
The challenge is present; a successful solution will span the present and the future. For example, our clients who opt for Revvy CPQ chose to do so because their quoting process was causing significant expense, and they needed a sales force automation tool to decrease expense and time-to-quote. But many businesses neglect long-term appraisal. The real questions are: How will the tool perform in 6 months, 1 year, 2 years, and beyond? How expensive will the tool be to update and maintain? The word for these calculations is Total Cost of Ownership, or TCO.
Gartner applied TCO to the software implementation space in 1987, coopting the term to help provide businesses a real benchmark for appraising their technology investments and all the unexpected costs over the technology lifecycle, including:
- Hardware and software acquisition
- Management and support
- End-user expenses
- Opportunity cost of downtime, training, and other productivity losses
In short, TCO is a more realistic way of discussing what happens after CPQ implementation.
Applying TCO to CPQ Implementation and Support
Think for a second about how often Microsoft updated Office from 2000 to 2010 — approximately as many times as it has updated Office 365 in the last month or two. It is time to face the truth. Remaining competitive (and secure) in a software market means constant updates. The same holds in CRM and CPQ: great software companies will continue to make impactful refinements and improvements, or they will lose market share.
As a purchaser, your advantage will be maintained by choosing the winners and exploiting their updates. Let’s take Model N as a best-of-breed example.
The mid-market client mentioned earlier could not initially make changes to its quoting template because no one knew VisualForce. When we implemented Revvy CPQ, the tool only supported quoting templates in VisualForce, which meant that every time they wanted to make a change to the template, ALTAVI would make the changes they needed. This is a fairly typical maintenance cost we considered in the TCO for Revvy CPQ.
A recent Model N update enabled Revvy CPQ to quote in Microsoft Word format. The client is comfortable with Microsoft Office, so the update would allow them to make all template changes internally — a dramatic improvement in execution. It was a quick job to help them implement the new feature. Their TCO has decreased because they chose a competitive CPQ vendor and had an ongoing relationship with a strategic partner in sales force automation.
3 Key Takeaways
CSOs and CIOs that want to lower SG&A sustainably should consider TCO in their decisions regarding software vendors and software implementation companies.
- Use ROI and TCO to compare CPQ vendors
- Find a strategic partner who will stick around to take care of maintenance and updates when necessary and is also aligned with your corporate vision
- Look for software vendors with a vested interest in staying competitive over the long-term