If you’re a growing SaaS company, your pricing model is likely to be straightforward for SMB customers (e.g., $100 a month) but more sophisticated for larger enterprises. For example:
- SMB pricing: No contract: Add seats at $100 each. $2K a year for 20 seats.
- Enterprise pricing: Multi-year contract: 100 seats at $100 each with a 20% discount = $8,000 a year. Discounts and seats could also change year over year.
In today’s world, however, CPQ in action is much more complex with a number of variables to consider, especially as it relates to products and technology.
The very nature of the product or service you are selling requires a complex and ever-changing set of rules to define:
- What the product and service is (and is comprised of) at a given point in time
- What customizations can and cannot be considered, and their impacts
- What opportunities for discounts at scale can be offered
- How products and services scale with the requirements of customers
The Art of the Dynamic Deal
The last point is especially important for sales teams at SaaS companies that deal with customers in high-growth industries where scalability is of utmost importance. A typical scenario known as the dynamic deal involves customers who are ready to sign a contract today with the knowledge that they will need additional seats or quantities of your product or service in subsequent years. What usually happens is customers sign a contract for the seats/users they currently need (e.g., 100) at the current price. Of course, while your sales team can add additional seats in year two and subsequent years as the customer grows, the issue represents a missed revenue opportunity to negotiate a longer-term contract with increasing seats and quantities with built-in discounts.
At its core, this is the type of problem that adaptive CPQ solves but at a much greater scale and on a much shorter timeline. Through rules-based logic, a truly adaptive CPQ solution allows you to create as complex a configurator for your product and service line as you need, going a step further by recommending supplemental services, products, and discounts—things even the best salesperson with the best sales process may overlook at times. With adaptive CPQ, you can instantly reconfigure your customer’s order based on this new request, and new pricing will be created dynamically, with a new quote generated in real time.
The Impact of Billing and Revenue Recognition on Sales
The responsibility of managing billing and revenue recognition usually falls to the CFO or under the finance department. So if you’re a chief revenue officer or the head of sales, and your focus is on generating revenue and driving sales, this presents unique albeit common challenges. For example, the idea of developing and launching new pricing or deal structures can’t come to fruition unless internal financial systems can actually support billing, manage invoicing, and recognize them as revenue. In other words, deal terms—and potentially sales—are subject to the limitations of those systems, affecting the ability of your sales team to structure, customize, price, and package deals based on the specific needs of customers.
This leads into lost sales due to:
- Slow reaction times
- Erroneous pricing
- Overlooked discount opportunities
- Overlooked bundle, add-on sales opportunities
- Unprofessional quotes
The Importance of Adaptive CPQ
For all these reasons, you should ask how adaptive the CPQ is. So what do we mean by adaptive? Adaptive is a combination and adaptive system is one that adapts. An adaptive system is one that naturally can be adapted to support your business, without reinventing the wheel from scratch. For CPQ, we consider adaptive systems that have two characteristics:
- Must be designed to handle the modern deals of today. For SaaS companies, this is the ability to handle dynamic deals.
- Needs to be flexible and agile enough to accommodate changes without the need to reinvent the wheel.
With adaptive CPQ in your sales arsenal, your sales team is empowered to embrace customization requests from customers, without the overhanging fear of pulling all-nighters to make it all "work." More importantly, an adaptive system on Day One is designed to help you save massive amounts of capital and resources, while ensuring your entire quote-to-revenue process is fast and accurate.
Agile SaaS Businesses
If your system isn’t adaptive, then you likely already understand how much work and resources are required in order to meet your changing business needs. From your CPQ and billing system to integrating with your revenue recognition system, the process can take months or even years, which unfortunately, takes time away from running your core business. In a fast-changing climate where agility and flexibility are required, today’s modern SaaS business can ill-afford to be stuck on outdated legacy systems.