Manufacturing Sales and Software Sales are NOT the same!

Configure-Price-Quote (CPQ) Solutions are in increasingly high demand among businesses today because CPQ can play a major role in their digital transformation efforts. But business requirements and processes, including sales processes, are very different across industries; hence, not every CPQ Solution is suitable for every industry. This is something that many prospective CPQ customers do not sufficiently consider when they begin their CPQ solution search. In order to increase the likelihood that CPQ projects will succeed, this issue is critical. That said, not even firms like Gartner, Forrester and IDC address this in their various CPQ Analyst Reports, nor do online Review Sites like G2 and Capterra. The bottom line is this:  Not every CPQ Solution is right for every industry!   

Potential CPQ customers can save considerable time and money when they consider industry specific attributes of CPQ solutions; for example, the features sales reps need to sell physical products versus sales reps who sell digital products. CPQ solutions are not interchangeable! The following three examples clearly illustrate  the differences between the manufacturing sales process and the digital sales process. Before you look for a new CPQ solution, you would be well-advised to consider these differences.

Example 1: Required Functionalities for Manufacturing CPQ vs Software CPQ

A potential CPQ customer that manufactures and sells physical products, such as cars, machines, or computers, has to not only manufacture, sell (and probably service) these products, but also manage product inventories. Beyond that, the manufacturer needs to decide which materials to buy or build, and which machines, equipment, and labor they’ll need to meet customer demand, without accumulating excess stock. To do this, they need to determine if ordered items are in stock, where in their supply chain they can be obtained, or if the items have to be manufactured from scratch. They will also have to determine how much it will cost to get the products to the buyers, as well as shipment methods and arrival times. A suitable CPQ solution for this type of manufacturer needs to support all these steps. This requires close integration of the CPQ solution with the manufacturer’s ERP (in some cases, ERPs), as well as the CPQ solution’s ability to access all the necessary manufacturing and supply chain information. For sales, it also requires close integration with the sales CRM so that all concerned parties have a comprehensive view of customer activity and are working with a single version of the truth.

In contrast, a CPQ customer that is selling digital products like a software package, faces few, if any of these challenges. The product (software package) is already available, because it was coded by the company’s developers before it went to market. There is no manufacturing process, so the CPQ solution does not need to support one. There is also no physical shipment of the product since today’s software (even on-premise software) is typically downloaded via the internet. Therefore, inventory management is not required. But the software package probably requires a license key to be fully functional, and it will probably also include a support package (i.e., 24/7 support, 9-5 5 days per week) and possibly ongoing development work. Clearly, the software sales process is distinct from the manufacturing sales process, and requires different solutions. A suitable CPQ solution for the software CPQ customer needs to be integrated with the software license key generator, and the support contract (which includes the recurring revenue information), and potentially other systems. Managing inventory, logistics and supply chain management are not a concern for software companies. That’s why software companies often utilize a non-integrated CRM to manage their sales processes. This does not work for manufacturers, whose sales process is governed by multiple interdependencies (design, engineer, sourcing, materials, logistics etc.)

Example 2: Different Payment Timeframes

Most manufacturing customers expect to pay for the products they purchase after they receive them and confirm that they perform as expected.  This means there is an interval between the sale and the payment received.

Note: This describes one payment scenario. There are others, but this scenario was chosen for its prevalence in the manufacturing industry.

A suitable CPQ solution for this potential CPQ customer needs to support close integration of the CPQ solution with an (existing) billing solution. Since most manufacturers have one or more ERP Solutions, this close integration enables them to use their existing ERPs’ billing solution(s), which saves both implementation time and money.

In contrast, a CPQ customer that is buying software online expects that the software is available immediately after purchase.

Note: Freeware, Freemium or on-premise Software Licenses here are not covered, though many of the same distinctions may apply. 

So, instead of paying after n-days or n-weeks, the user is paying upfront, and the product/software is available right away. A suitable CPQ solution for this software CPQ customer needs to enable the download of the selected software and license key and issue the upfront payment. The payment could be made via credit card or online payment methods like PayPal, Stripe and so on.

Example 3: Manufactured Products have an Environmental Impact

Manufactured products have an environmental impact, and this issue is gaining importance among today’s manufacturers. Being good corporate citizens is a way to not only be socially responsible, but also to improve their bottom line.  For example, in the first section of this article we referred to cars, machines, and computers. They are built, maintained, and at the end of their useful lives, discarded. Manufacturers can conserve energy, reduce toxic emissions and waste during the lifecycle of these products with the help of CPQ solutions built for manufacturing. That’s because the CPQ can streamline the manufacturing process, more accurately aid in material forecasting, and greatly reduce the waste resulting from over-procurement or over production (not to mention poor logistical planning.).

Now contrast that with a customer that is buying software online. Software has no (direct) environmental impact and hence CPQ solutions for software customers do not need to address the environmental challenges that are faced by manufacturers. As such, a suitable CPQ solution for a software development company would be wholly inadequate for addressing the environmental needs of manufacturers.

Conclusion

These are just three of many examples that show why manufacturing companies and software companies require very different CPQ solutions. Manufacturers who are considering a CPQ solution should definitely take this into account when they look for a CPQ solution. The right choice will lead to a streamlined operation, increased sales and lower costs, while the wrong choice can lead to a less efficient and less profitable enterprise.