Finance and Accounting

Choosing wisely: Quote to cash vs CPQ for your businesses

Understanding Quote to Cash

Imagine you have a lemonade stand and someone approaches you to buy a drink. Before you hand over their lemonade, there's a whole process:

1. You tell them the price (the "quote").
2. They agree to your price and decide they want it (the "order").
3. You prepare their drink and hand it over to the person (fulfilling the order).
4. You get paid for the order (payment).
5. You write down the order and payment in your notebook (recording the transaction).

Quote to cash is like this lemonade stand process for businesses and it involves these stages:

1. Quoting:

• Requires the generation of accurate quotes based on customer needs and product or service specifications.
• Involves negotiation and revisions based on customer feedback.

2. Contracting:

• Includes the process of drawing up drafts, conducting reviews, and executing legally binding contracts.

3. Ordering:

• Includes receiving and processing the customer's order confirmation.
• Involves order verification and credit checks.

4. Fulfilment:

• Includes preparing and delivering the product or service as per the order specifications.
• Involves inventory management, resource allocation, manufacturing, shipping, or providing the agreed-upon service.

5. Billing:

• Includes the collection of payment from the customer according to the agreed-upon terms.
• Involves handling various billing scenarios (fixed charges, recurring subscriptions, dynamic pricing, etc.), invoicing, payment processing (integration with payment gateways), and managing different payment methods.

6. Recording/Revenue recognition:

• Includes recording the transaction data accurately and securely in financial systems.
• Ensures accurate reporting and analysis of sales performance.

In short, Quote to Cash covers everything from generating the quote for a product or service till the sale is recorded (the cash).

Understanding configure, price, quote (CPQ)

Let us briefly bring our lemonade stand back! Now imagine someone wants a lemonade with berries and basil, and a quantity larger than your regular sizes. You need to:

1. Configure: Figure out how large a size, how many berries, how many basil leaves, etc. (the "configure" part.)
2. Price: Based on the size, extras, and your costs, you calculate the price (the "price" part).
3. Quote: You put it all together, including the options and the price, and tell them the price (the "quote" part).

CPQ lays out all the relevant details to the customer that help the customer decide whether or not to place the order. It helps businesses sell customisable products or services efficiently by:

1. Understanding exactly what the customer wants.
2. Calculating the right price based on their choices (so you don't undercharge or overcharge for the fancy add-ons).
3. Creating a clear and professional offer that outlines everything (so the customer knows exactly what they're getting).

CPQ helps businesses streamline creating customised quotes accurately for configured products or services. It allows customers to select desired features, calculates the corresponding price based on pre-defined rules, and automatically generates a professional quote document.

Quote to Cash vs. CPQ — A comparative study

While both Quote to Cash (Q2C) and CPQ play crucial roles in sales and revenue generation, they address different aspects of the process. Here's a comparative study to highlight their key differences and how they work together:

Focus:

• Q2C: Converts a potential customer's interest into revenue. The process includes generating quotes, receiving orders, fulfilling them, collecting payments, and recording transactions.
• CPQ: Specifically focuses on creating customised quotes for custom-specific products or services. It helps configure features, calculate prices, and generate quotes. Have you noticed how the price changes based on the size, base, and toppings chosen when ordering pizza? That's CPQ in action.

Scope:

• Q2C: Broader scope, encompassing the entire sales cycle from lead generation to post-sale activities.
• CPQ: Narrower scope, focusing on the initial stage of generating quotes before handing off to other functionalities within the Q2C process.

Benefits:

• Q2C: Improved sales efficiency, faster deal cycles, increased revenue capture, better customer experience, and enhanced visibility into performance.
• CPQ: More accurate and consistent quotes, faster quote turnaround time, improved win rates, better price transparency, and increased upselling and cross-selling opportunities.

Implementation:

• Q2C: Often complex and involves integrating various systems like CRM, ERP, and payment gateways.
• CPQ: Standalone software or integrated module within a larger salesforce automation platform. Easier to implement and manage.

Relationship:

• Complementary: CPQ is often considered the first step in the Q2C process, providing accurate quotes that set the stage for successful order fulfilment, payment, and revenue collection.

Q2C and CPQ are teammates. Both play crucial roles in boosting sales effectiveness. But which one's your most valuable player? Here are some pointers to help you decide:

• If you need a comprehensive solution to manage the entire sales cycle, Q2C is ideal.
• If your primary concern is creating accurate and efficient quotes, CPQ is a valuable tool.
• Many businesses benefit from both: Q2C for overall process management and CPQ for streamlined quoting.

Some additional considerations that might help make the right choice:

• Industry: Industry needs drive Q2C vs. CPQ choices. ️Retailers need Q2C for quick & simple purchase flows. ️ Insurance relies on CPQ for generating complex risk-based quotes. Manufacturers use both: CPQ for configurable product quotes and Q2C for production & delivery.
• Business size: Bigger businesses might need the broader scope of Q2C, while smaller companies might find CPQ sufficient.
• Budget: Implementing Q2C is generally more complex and expensive than CPQ.

In short, your business needs, goals and product complexity decide what’s best for you — Q2C or CPQ or both. With the right tool, you can score big by streamlining sales and maximising efficiency.

How Infosys BPM can help?

Don't let financial process constraints hold you back. Infosys BPM’s tech-powered, all-in-one Order to Cash solution helps with early revenue recognition, improved DSO (day’s sales outstanding) and enhanced user satisfaction. Take control of money matters, accelerate growth, and unlock the full potential of your business.