Managing Quotes, Contracts, And Pricing For Higher Profits
Executive Summary
Executive Summary
Manufacturers often do not realize they are leaking revenue until they review their business processes and discover that errors and missed opportunities are costing them significant amounts. The good news is that you can recover this lost revenue by identifying the causes, refining processes, and becoming a customer-driven organization.
This white paper addresses the challenges manufacturers face in managing quotes, contracts, and pricing and discusses how customer relationship management (CRM) software can assist you in running your business productively, efficiently, and profitably, capitalizing on all revenue opportunities.
Managing Quotes, Contracts, and Pricing for Higher Profits
Are you capturing all the revenue that you can?
Organizations often do not realize they are leaking revenue until they review their business processes and discover that errors and missed opportunities are costing them significant amounts. The good news is you can recover this lost revenue by identifying the causes, refining processes, and becoming a customer-driven organization.
This white paper addresses the challenges companies face in managing quotes, contracts, and pricing and discusses how customer relationship management (CRM) software can assist you in running your business productively, efficiently, and profitably, capitalizing on all revenue opportunities.
In particular, this paper will focus on the value that can be derived from:
Automating the quote-to-order process
Ensuring contract compliance
Providing accurate, competitive pricing
The Current Manufacturing Landscape
Many manufacturers focus on profit management is hampered today because business processes that impact revenues are managed manually or are only partially automated, leading to significant inefficiencies. Companies need to look more closely at their quoting, contract, and pricing practices and implement tools to improve their process efficiency if they wish to maximize revenue opportunities.
Many daily challenges make an impact on a manufacturing organizations ability to run efficiently:
Improving perfect-order performance
Managing price execution and compliance
Managing complicated contractual agreements
Dealing with complex sales channels
Improving sales-forecasting accuracy
Reconciling customer data across systems and business units
Customer segmentation
Dealing with the increased frequency of new product introductions
Managing regulatory compliance issues
Handling increasing sales to government and public-sector organizations
The Importance of Becoming a Customer-Driven Enterprise
Historically, many manufacturers have differentiated their companies based on price. But in todays dynamic environment, industry experts say it is becoming increasingly important to differentiate not solely on price, but also on the quality of customer service, the quality of products, and the quality of customer interactions. This more "customer-driven" approach ultimately results in brand equity and the solid reputation that is needed to secure a competitive edge.
Becoming customer driven is not an easy change for some companies to make, because they are accustomed to operating in a particular way. And becoming customer focused can represent a significant shift in business strategy for many organizations.
But ultimately, being customer driven is a simple concept: it is a strategy to get to know customers well and share this knowledge across the company wherever it can
bring value, as well as with distributors and other third-party partners.
For example, tracking which products customers own and which additional products they may or may not be interested in, then applying this knowledge to all sales, service, and marketing interactions, helps increase
Profitability by highlighting opportunities for cross-selling and up-selling. Even more importantly, though, it also helps cultivate loyal, life-long relationships with customers by reflecting deeper knowledge of their businesses and needs in all interactions.
In the long term, better customer knowledge results in faster transactions, better targeting of resources, higher customer satisfaction and loyalty, and greater profitability. But becoming customer driven is difficult without the right tools to collect, disseminate, and apply this customer knowledge.
The Evolution of Manufacturing CRM Initiatives Toward Perfect-Order Performance
In the beginning stages of CRM technology adoption, many organizations start with a departmental, tactical approach to solve a single pressing issue and move toward company-wide, strategic deployments over time. While it is advisable to work out a full corporate CRM strategy before commencing a CRM initiative, using a phased approach is a good way to roll out the project in manageable stages.
The first step for many firms is a sales force automation (SFA) initiative or a focus on improving contract and opportunity management, as these are common challenge areas for manufacturers.
The next area of focus is often the management of the inquiry-to-order process, which spans from the entry of a prospect or suspect into the sales pipeline all the way through order capture. In streamlining this process, companies can potentially realize a 10 percent improvement in what Rob Bois, research director of customer management strategies for AMR Research, calls perfect order performance: the ability to deliver an order on time and in full with no product-quality issues.
Order management is a process that pervades an entire manufacturing company; it is not unique to a single area or piece of technology. Nonetheless, its key data and workflows reside within a CRM system at most companies. Once an order is captured in the CRM system, it is typically handed off to order processing and fulfillment, which is usually managed within an enterprise resource planning (ERP) application and may then be passed through a supply-chain application.
The challenge to building the perfect order is to align all these departments, software applications, and processes. A tight integration between all these elements is a critical component to getting to the perfect order.
In Boiss experience, a higher order-performance rate correlates directly to higher earnings per share for companies, equivalent to approximately 50 cents higher
Achieving better perfect-order performance is a complex set of steps involving multiple software systems, departments, and processes, but given the front office's important role in this workflow, CRM is a great place to start. CRM systems can automate all of the key processes that affect order performance: pricing, contracts, and the quote-to-order process.
Managing Pricing, Contracts, and Quotes
Pricing and contract compliance are two prime areas in which manufacturers can improve profitability and perfect-order performance by taking advantage of the automation capabilities of flexible CRM solutions. Price management comprises three steps:
Price optimization: Determining the highest price the market will bear
Price execution: Rolling out optimized pricing across various channels
Price enforcement: Making sure that the right prices are quoted to the right people at the right time, across channels, products, and company tiers
Contract management comprises two general stages:
Executing the contracts
Enforcing contract compliance across channels
By this definition, contract management emphasizes not only the establishment of the contract, but also the management of its expiry, renewal, and renegotiation.
Provide Accurate, Competitive Pricing
Sales managers often have the ability to discount pricing based on a variety of parameters, and they may also be able to apply an overall discount to the sale at their discretion. Unfortunately, typically these discounting procedures are inconsistent and poorly managed. And since there is often little visibility into this process, it can result in excessive discounting that cuts into profit margins and the companys bottom line.
Using a flexible CRM system to implement an approval process for pricing and discounting of complex products can ensure that only profitable quotes are extended to customers. These processes make sure salespeople quote the most appropriate price for each product, while keeping on top of price breaks and volume discounts, ensuring accuracy and competitive pricing while ultimately preventing margin erosion.
All this happens in an automated fashion within the CRM application.
For example, prior to implementing a CRM solution, one of Pivotal CRMs high-technology manufacturing customers used to store its product catalog and pricing information in a Microsoft Word template. Whenever salespeople created a quote, they would have to refer to that document, enter details into a separate quote document, and then calculate totals by hand, including factoring in any discounts. This was obviously a very time-consuming process that was also prone to error.
Using Pivotal CRM, the company automated its quoting process, and it now takes less than five minutes for sales representatives to create a quote, plus they do not have to go through the administrator or an engineer to help put the quote together. Even in the case of complicated, customized quotes, 1-3hours is now the typical timeframe for getting quotes to customers, rather than several days.
Automate the Quote-to-Order Process to Save Time and Money
Automating the quote-to-order process from end to end ensures accuracy and unimpeded workflows. Beyond that, it
The importance of accuracy in quoting and order processing cannot be overstated. In the case of a computer and electronics manufacturer that handled the quote-to-order process manually prior to implementing Pivotal CRM, this lesson was learned the hard way. As the result of a typing error and a misplaced decimal point, the companys revenue expectations were off by $500,000. Unfortunately, this error was not caught by the company, but by a Sarbanes-Oxley auditor. With a CRM system in place, the chances of such an error occurring are dramatically reduced.
Some companies are surprised to discover what they are overlooking due to lack of visibility into their processes. One Pivotal CRM customer found that it had shipped a number of orders for which it had not yet invoiced customers, meaning money was being left on the table. The company only realized this after automating its order capture, order processing, and order fulfillment systems, and also integrating CRM, ERP, and supply-chain systems. Pivotal CRM helped the company gain an additional four percent in revenue by following up on un-issued invoices.
Avoid Evergreen Contracts by Ensuring Compliance
Pivotal CRM research shows that almost 60 percent of active contracts are extended by default and almost half of them are in their second extension. What this results in is undesirable evergreen contracts because enterprises lack visibility into contract expirations dates, which prevents them from renewing or revising contracts in a timely manner that pre-empts unnecessary extensions. Staff needs to be alerted in advance of contract expirations so they can proactively renegotiate the terms of the contracts and renew expiring contracts.
Using a CRM solution allows companies to track the start and end dates of contracts, as well as revenue events. Using this information, the system automatically creates a new opportunity a few months before the contract expiration date and assigns it to an account manager for follow-up. The account manager can then either renew the existing contract or negotiate a new one, and in the process, he or she can also up-sell and cross-sell additional products, obtaining extra revenue and profit. Commencing this months before the contract expiry date ensures there is adequate time to troubleshoot problems and pursue opportunities in time to meet the existing contract deadline.
Not only is it important to use your CRM system to manage contract compliance and contract expiration, but sometimes there are also other revenue-generating events that take place over the lifespan of a contract that need to be managed. For example, many manufacturers have contract stipulations that give them the right to increase the unit price by five percent per annum on the condition that they inform the client 30 days in advance. Managing such a process with a system such as Pivotal CRM can help companies earn additional revenue with very little effort.
This underlines the importance of effective contract managementand the significant impact that can be made through automation. In fact, AMRs Bois notes that this sort of figure is not uncommon and cites examples of $2million to $6 million in annual revenue leakage for a billion-dollar company due to a combination of poor contract and price compliance, while stressing that for even bigger firms, the impact can be exponentially larger.
Using CRM to Its Full Potential
Pricing, quoting, and contract management are key areas in which manufacturers can see benefits from CRM. But the full potential of CRM extends far beyond these areas. As manufacturers begin to see the benefits of using CRM to automate these processes, they can also begin to explore the many other areas in which CRM can have an impact and to look at the next steps needed to implement a holistic CRM strategy.
Being customer driven is not only about streamlining the fulfillment process, it is also about personalizing and optimizing every contact you make with your customers at each stage in the sales and service cycle. Any kind of touch-point you have with customerswhether it is over the telephone, through a website, by e-mail, or in personhas the potential to deepen your relationship with them and extend their loyalty to your company.
Many CRM systems offer marketing automation solutions that help manufacturers reach out to prospects and customers, delivering personalized, relevant communications that build on the information collected about their needs and preferences over time. These systems help manufacturers generate and qualify sales leads and distribute them to the sales force for follow-up.
CRM also helps manufacturers capture the unique attributes of individual customers, enabling them to develop the customer intimacy required to build long-lasting relationships. At the same time, the CRM solution helps them determine the group trends and similarities between customers, allowing manufacturers to segment and target both customer and prospect groups more effectively. This dual insighton both the individual-customer and group-trend levelshelps drive additional revenue and profit opportunities from both existing customers and potential ones.
Manufacturers also often have multiple sales teams, with some salespeople focused on specific products, some on specific markets, and some on specific geographic areas. This can lead to complex territory management issues for sales managers. CRM systems offer territory management tools that allow managers to effectively assign their salespeople to the right accounts and track their activities in those accounts over time, leading to better visibility into salesperson performance and the probability of each deal's successful closure. In turn, this leads to more reliable sales forecasting and gives sales managers the ability to take a more proactive approach to stalled accounts.
The truth is that for many manufacturers, the question should not be whether they can afford to think about CRM, but whether they can afford not to.
A manufacturers obligations to the customer truly begin once the sale is complete. Providing high-quality customer service and support in a timely manner is essential to customer retention and a major competitive differentiator. Customer satisfaction and loyalty directly impact future revenue potential, given the relative costs of attracting a new customer versus retaining an existing one. CRM systems provide tools to help manage customer service operations, enabling manufacturers to receive service requests through a variety of channels and track their resolution. Managing this process within the CRM system ensures that no matter whom a customer speaks with, they receive informed, personalized responses, and automating the system ensures faster issue resolution. Both these factors contribute to higher customer satisfaction and improved relationships.
CRM solutions help manufacturers manage the full customer lifecycle, collecting customer information and insight at each stage. Companies can then effectively monitor customer-satisfaction levels and respond to issues quickly, delivering additional value to customers and building stronger customer relationships that result in more customer referrals and repeat sales.
All of these features and more are at the disposal of manufacturers who choose to implement a robust, flexible CRM system. Manufacturers looking at using CRM to enhance their pricing, quoting, and contract processes should also develop a long-term strategy for leveraging the full value of CRM.
Conclusion
In todays evolving business environment, manufacturers need to compete on more than just price. They need to differentiate on the quality of their products, their processes, and their customer servicein fact, on the whole of the customer experience. Becoming customer driven is an imperative for manufacturing businesses that want to retain existing customers and attract new ones.
The concept of a customer-driven manufacturing firm is not about sinking higher costs into customer service. Rather, it entails weaving a more strategic approach to the collection and use of customer intelligence into the full lifecycle of customer interaction.
Many manufacturers resist the idea of bringing more customer focus to their companies because they have enough difficulty managing their existing processes. Product pricing, quote and order management, contract management, and other daily processes already involve enough complexity to challenge the company, without adding new concerns.
The good news is that becoming more customer driven and achieving greater efficiency in the processes manufacturers grapple with every day can come hand in hand. Using a customer relationship management solution to manage the full customer lifecyclefrom the first touch-point through the sales process and post-sale service; from quote to order through ongoing contract managementcan help manufacturers realize significant process efficiencies while also developing deeper customer knowledge and delivering better service. Its a classic win-win situation for both the manufacturer and the customer.
Some manufacturers are unsure where embracing CRM and the automation of customer-facing processes should fall within their list of business priorities. The truth is that for many manufacturers, the
by: CDC Pivotal CRM
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