How Much Money are Quoting Errors Costing You?

CPQ-ROI-error-costThe demand for Configure Price Quote (CPQ) solutions is growing and expanding to new industries and into businesses that are smaller than had been traditional in the past. That’s because business is changing: companies are selling more complex mixes of products to meet customer demands, and pressures on sales department for greater productivity (and more time spent selling rather than on administrative tasks, like quote creation) make them attractive tools for boosting revenue.

But there’s another area where CPQ can add to the bottom line: by eliminating errors in quotes and proposals. These mistakes can have grave implications for your sales. You may find yourself having to withdraw a quote because its pricing was incorrect, and that may cost you the deal. And that’s the best-case scenario for a quoting error.

The worst-case scenario is that the error isn’t spotted until the deal is done. That may mean you end up losing money on the deal because of discounts that cut too deep. It may also mean the error isn’t detected until the product is shipped and arrives with the wrong configuration or other problems that make it useless to the customer. It then needs to be shipped back to your company for modification; you may instead dispatch a replacement with the right configuration, and then deal with the flawed initial product when it reaches your business. If it’s the product of custom manufacturing you may have to eat the cost of making the original attempt entirely.

In any event, the customer can’t use what he’s purchased until you get it right – a scenario that represents a terrible customer experience and may bring the customer’s relationship with you to an end if you can’t manage it. Quotes can take a long time to prepare manually; add to that the time spent remedying customer complaints stemming from flaws in manually-prepared quotes, and it’s easy to see why demand for CPQ is building.

If you’re trying to muddle by with an old quoting process using product and pricing books and spreadsheets, consider this: Market research firm F1F9 studied spreadsheets, and they discovered that 88 percent of them contained errors. Manual data entry combined with the focus needed to research solutions through product and pricing books turns spreadsheets into a breeding ground for mistakes. And even if you enter the data correctly, it’s still difficult to match the right products and accessories without some kind of assistance from technology. One of the customer presenters at this year’s C3 event has almost 8000 products, and these products must be sold in specific groupings to ensure they function as they are supposed to. Is it possible for everyone on your sales team to hold that volume of information in their heads?

The manual approach also causes sales to commit unwitting errors. As customers demand new products, custom manufacturing and fresh combinations of products as solutions, the books you use to develop quotes are becoming outdated faster than ever. For many companies, managing these changes takes the full-time attention of one or more administrators, and even with their work it can take time to get updates into the field. That means that, despite the best efforts of multiple people in sales and sales ops, salespeople are developing nearly every quote with partially outdated information, which inevitably leads to more errors.

So what are the real costs of quoting errors? No one’s eager to expose their history of quoting errors and their costs, so it has to be something of a thought exercise, but we can think through it.

Let’s envision a scenario in which a large equipment manufacturer signs a deal to sell a major piece of equipment for $1 million, and the salesman gains an additional $200,000 in upsell in accessories. The margin on the deal is negotiated down to about 32 percent, meaning $336,000 in profit. But, after it’s shipped across country, it becomes apparent that the customer can’t use it because of configuration errors stemming from the quoting process. Shipping this order costs $3000; now, the equipment must be shipped back to the factory, and a new piece of equipment must be configured and shipped back. There’s $6000 off the profit of the deal immediately. The original equipment arrives and must be inspected and moved back into inventory – perhaps another $5000. If the customer contract had a penalty for late delivery, that clause may kick in and penalize the vendors on a daily basis – let’s say, $750 per day for two weeks until the replacement arrives. That’s another $10,500. The hits to margin just keep on coming.

Worse yet are the hits to reputation. Especially when you sell expensive or mission-critical equipment, mistakes that take place during the seemingly mundane process of quoting are hazardous to your customer and to your customer’s faith in you. Again, few companies volunteer how much opportunity cost they lose from quoting errors, but let’s take the above case as an example. Imagine the buyer was in the market for several similar purchases. After fouling up the first one, you’re discarded by the customer in favor of his second-choice vendor, one he’s heard can deliver the right product with the right configuration. What’s the cost? Take that profit number and multiply it by two or three or four. Now, we’re talking about million-dollar mistakes.

Errors happen even with CPQ, to be fair. But as you ponder the productivity and customer experience gains CPQ can bring your company, think of the price you’re paying because of errors in the process. Eliminating them will bring you an immediate return on your CPQ investment.

By Chris Bucholtz | April 14th, 2016 | CPQ

About the Author: Chris Bucholtz

Chris Bucholtz

Chris Bucholtz is the content marketing director at CallidusCloud and writes on a host of topics, including sales, marketing and customer experience. The former editor of InsideCRM, his weekly column has run in CRM Buyer since 2009. When he's not pondering ways to acquire and keep customers, Chris is also an avid builder of scale model airplanes.