PivotalCRM - Managing quotes contracts and pricing


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Managing Quotes, Contracts, distributed to the right people at the right time. Both these steps are critical to manufacturing industries, and Pricing for Higher Profits particularly life sciences, consumer products, high-tech manufacturing, transportation, and distribution.

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PivotalCRM - Managing quotes contracts and pricing

  1. 1. W H I T E P A P E RManaging Quotes, Contracts, andPricing for Higher ProfitsA Guide for Manufacturers 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.
  2. 2. Managing Quotes, Contracts, distributed to the right people at the right time. Both these steps are critical to manufacturing industries, and Pricing for Higher Profits particularly life sciences, consumer products, high-tech manufacturing, transportation, and distribution. As these Are you capturing all the revenue that you can? manufacturing industries evolve, the pressure to improve process, technology, or both will continue to build. Organizations often do not realize they are leaking revenue until they review their business processes and • Managing complicated contractual agreements— discover that errors and missed opportunities are costing Contract management is the execution of contracts them significant amounts. The good news is you can and the building of contract compliance across recover this lost revenue channels; this challenge ties directly to pricing as by identifying the causes, well. Many companies are now realizing they areCompanies need to look more closely refining processes, and leaving a lot of money on the table by not managingat their quoting, contract, and pricing becoming a customer-driven their contracts well.practices and implement tools to organization. • Dealing with complex sales channels—Manyimprove their process efficiency if theywish to maximize revenue opportunities. companies are adding a web sales channel and This white paper addresses increasing reliance on indirect sales channels to grow the challenges companies market share. These increasingly complex multi-tiered face in managing quotes, distribution networks mean that the channel mix is contracts, and pricing and discusses how customer constantly in flux, which makes it difficult to manage relationship management (CRM) software can assist you and track pricing and contract information. in running your business productively, efficiently, and profitably, capitalizing on all revenue opportunities. • Improving sales-forecasting accuracy—Sales forecasts are often inaccurate due to an inability to In particular, this paper will focus on the value that can be capture a true reflection of sales probability. derived from: • Reconciling customer data across systems and . Automating the quote-to-order process business units—Many manufacturers struggle to get a single view of customers across a fragmented business, . Ensuring contract compliance which can be especially difficult for companies built on . Providing accurate, competitive pricing mergers and acquisitions or with a number of different plants and entities. When companies have customer This paper will demonstrate, using real examples from data spread across multiple systems, it is difficult to Pivotal CRM customers, how manufacturers can use CRM track buying behavior, capitalize on trends, manage tools to automate these processes, increasing efficiency maintenance and contracts, and see which products and maximizing revenue opportunities, while also gaining customers own. This leads to lost revenue opportunities valuable insight into their customer base that can help and poor customer service. them become customer-driven business leaders. • Customer segmentation—Dividing the customer base according to criteria such as demographics and The Current Manufacturing Landscape spending habits allows companies to market and sell to Many manufacturers’ focus on profit management is these groups more effectively. How to better segment hampered today because business processes that one’s customers and create the most profitable impact revenues are managed manually or are only customer experience across those segments is an partially automated, leading to significant inefficiencies. important topic for manufacturers right now. Companies need to look more closely at their quoting, • Dealing with the increased frequency of new contract, and pricing practices and implement tools to product introductions—This is particularly acute for improve their process efficiency if they wish to maximize high-tech manufacturing, consumer electronics, and revenue opportunities. consumer products, where capturing market share Many daily challenges make an impact on a means getting a better product out the door faster manufacturing organization’s ability to run efficiently: than the competition. Constantly increasing the rate of new product development puts a strain on existing • Improving perfect-order performance—A “perfect processes and technologies. order” is one that is delivered on time and in full with • Managing regulatory compliance issues— no product-quality issues. This is a key lever to driving Pharmaceutical manufacturers must comply with FDA effective growth and results within organizations as a regulations; all public companies must comply with whole. Sarbanes-Oxley regulations. Today, there is a much • Managing price execution and compliance—“Price higher standard of accountability for transactions execution” is rolling out optimized prices across throughout an organization. various channels and customer segments, while “price compliance” involves ensuring those prices are being Pivotal CRM | White Paper
  3. 3. • Handling increasing sales to government and profitability by highlighting opportunities for cross-selling public-sector organizations—More contracts are and up-selling. Even more importantly, though, it also being created, compliance issues are rising, and price helps cultivate loyal, life-long relationships with customers management problems are increasing because pricing by reflecting deeper knowledge of their businesses and changes when selling to government organizations. needs in all interactions. Poor tracking of expired contracts, discount profitability, In the long term, better customer knowledge results in and out-of-contract pricing, as well as poor reconciliation faster transactions, better targeting of resources, higher of charge-backs, leads to a great deal of revenue customer satisfaction and loyalty, and greater profitability. leakage within manufacturing organizations. In most But becoming customer driven is difficult without the right cases, the spreadsheets tools to collect, disseminate, and apply this customer and departmental database knowledge. The solution? CRM.Being customer driven is a simple applications currently in useconcept: it is a strategy to get to know simply cannot scale and willcustomers well and share this knowledge not be agile enough to meet The Evolution of Manufacturing CRMacross the company wherever it canbring value. the needs of manufacturing Initiatives Toward Perfect-Order organizations as they evolve to meet these challenges. Performance In the beginning stages of CRM technology adoption, These are some of the challenges that manufacturers many organizations start with a departmental, tactical face today while trying to grow their businesses; they approach to solve a single pressing issue and move are also the causes of many of the inefficiencies that toward company-wide, strategic deployments over time. cost manufacturers revenues. Identifying these causes While it is advisable to work out a full corporate CRM of revenue leakage is just the first step; the next is to strategy before commencing a CRM initiative, using a determine how to better address these problem areas. phased approach is a good way to roll out the project in This is where technology tools, especially CRM, can play manageable stages. a role in helping manufacturers move toward greater efficiency and better profit management—while also The first step for many firms is a sales force automation helping them become customer driven. (SFA) initiative or a focus on improving contract and opportunity management, as these are common challenge areas for manufacturers. The Importance of Becoming a Customer-Driven Enterprise The next area of focus is often the management of the inquiry-to-order process, which spans from the Historically, many manufacturers have differentiated entry of a prospect or suspect into the sales pipeline their companies based on price. But in today’s dynamic all the way through order capture. In streamlining this environment, industry experts say it is becoming process, companies can potentially realize a 0 percent increasingly important to differentiate not solely on price, improvement in what Rob Bois, research director of but also on the quality of customer service, the quality of customer management strategies for AMR Research, calls products, and the quality of customer interactions. This “perfect order performance:” the ability to deliver an order more customer-driven approach ultimately results in on time and in full with no product-quality issues. brand equity and the solid reputation that is needed to secure a competitive edge. Order management is a process that pervades an entire manufacturing company; it is not unique to a single Becoming customer driven is not an easy change for area or piece of technology. Nonetheless, its key data some companies to make, because they are accustomed and workflows reside within a CRM system at most to operating in a particular way. And becoming customer companies. Once an order is captured in the CRM focused can represent a significant shift in business system, it is typically handed off to order processing and strategy for many organizations. fulfillment, which is usually managed within an enterprise But ultimately, being customer driven is a simple concept: resource planning (ERP) application and may then be it is a strategy to get to know customers well and share passed through a supply-chain application. this knowledge across the company wherever it can The challenge to building the perfect order is to align all bring value, as well as with distributors and other third- these departments, software applications, and processes. party partners. A tight integration between all these elements is a critical For example, tracking which products customers own component to getting to the perfect order. and which additional products they may or may not be In Bois’s experience, a higher order-performance rate interested in, then applying this knowledge to all sales, correlates directly to higher earnings per share for service, and marketing interactions, helps increase companies, equivalent to approximately 50 cents higher Pivotal CRM | White Paper
  4. 4. earnings-per-share—a metric AMR Research has seen Contract management comprises two general stages: borne out in a number of different organizations. The • Executing the contracts benefits can quickly add up: for one million shares, 50 cents a share translates to $500,000. • Enforcing contract compliance across channels Achieving better perfect- By this definition, contract management emphasizes order performance is not only the establishment of the contract, but also theMetrics for Evaluating management of its expiry, renewal, and renegotiation. a complex set of stepsCustomer Management involving multiple softwarePerformance systems, departments, and Provide Accurate, Competitive PricingAccording to Rob Bois of AMR processes, but given the Sales managers often have the ability to discount pricingResearch, the top metrics used front offices important roleto measure sales and contract based on a variety of parameters, and they may also in this workflow, CRM is aperformance include: be able to apply an overall discount to the sale at their great place to start. CRM discretion. Unfortunately, typically these discounting• Contract renewal rate systems can automate all of procedures are inconsistent and poorly managed. And• Compliance with contracted pricing the key processes that affect since there is often little visibility into this process, it can order performance: pricing,• Number or % of evergreen contracts result in excessive discounting that cuts into profit margins contracts, and the quote-to- and the company’s bottom line.• % reduction in Days Sales order process. Outstanding (DSO) The impact of inefficiencies in price management isSavvy enterprises are adopting Managing Pricing, larger than many manufacturers realize. AMR’s Rob Boisstrategies to drive improvements in notes that only three percent of companies currentlyareas that offer the greatest opportunity Contracts, and manage price effectively. But adding just a one-percentfor increased revenue and profitability:existing customer relationships. Quotes margin increase based on optimized pricing can increaseOptimizing the value of customer a company’s earnings by 0 percent. Bois’ figures Pricing and contractrelationships requires enterprises demonstrate the value and the potential for manufacturers compliance are two primeto streamline and improve the to realize greater profit in this area. areas in which manufacturersmonitoring, management, andanalysis of customer contracts. can improve profitability and Using a flexible CRM system to implement an approval perfect-order performance process for pricing and discounting of complex productsCompanies that are doing this have by taking advantage of therealized the following benefits: can ensure that only profitable quotes are extended to automation capabilities of customers. These processes make sure salespeople• Reduced cost of sales (by ~5%) flexible CRM solutions. quote the most appropriate price for each product, while• Increased renewals and revenues This process includes price keeping on top of price breaks and volume discounts, (by ~5%) and contract management, ensuring accuracy and competitive pricing while ultimately which is another key area preventing margin erosion.• Improved customer satisfaction that impacts profit and• Faster order-to-cash cycles revenue directly within an organization. All this happens in an automated fashion• Enhanced compliance (by ~55%) within the CRM application.• Elimination of evergreen contracts Price management comprises For example, prior to implementing a CRM solution, three steps: one of Pivotal CRM’s high-technology manufacturing • Price optimization: Determining the highest price the customers used to store its product catalog and pricing market will bear information in a Microsoft® Word template. Whenever salespeople created a quote, they would have to refer • Price execution: Rolling out optimized pricing across to that document, enter details into a separate quote various channels document, and then calculate totals by hand, including • Price enforcement: Making sure that the right prices factoring in any discounts. This was obviously a very time- are quoted to the right people at the right time, across consuming process that was also prone to error. channels, products, and company tiers Since implementing Pivotal CRM, the company has Even if an organization optimizes prices effectively at the price variant books, and their product and price lists are back end, it will not make a difference to the business if automatically updated and distributed within the CRM these prices are not accurately applied by the people who system, so the sales force is confident it is providing the are creating quotes in the field. most appropriate and accurate pricing in its quotes. The company is now able to effectively manage its discount thresholds, and it has implemented a discount-approval process to ensure it is maximizing the value of each quote while maintaining quote accuracy. Pivotal CRM | White Paper
  5. 5. Another example of a manufacturer benefiting from using All of the company’s orders and project-related data a CRM solution for pricing management is a full-service are documented within the CRM system. As a result, OEM and contract manufacturer that serves the medical- employees can now identify the source of order delays device industry. Prior to and deal with them accordingly. This has brought implementing Pivotal CRM, tremendous value to the organization and demonstratesBest Practices for CRM all the company’s quotes the benefits and importance of automating the conversionInitiatives were manually processed of a quote to an order and minimizing the need for manual and routed through an interaction.Executive Sponsorship administrator for typing.Successful CRM deployments are The end result? Higher productivity. The company hastypically driven by the CIO, the CEO, These were then printed, sent for approval, and finally increased the number of order transactions it processesor someone else at the executive orsenior management level within the sent on to the customer. by more than 5 percent, while maintaining the sameorganization who has the influence to This process would often staffing levels.effect a cultural change. The adoption of take several days before thea CRM culture has to come from the top; The importance of accuracy in quoting and order customer saw the quote.if it is left to a “grassroots campaign” processing cannot be overstated. In the case of ato roll out CRM in a single department, Using Pivotal CRM, the computer and electronics manufacturer that handled thethe deployment will likely fail to have quote-to-order process manually prior to implementinga significant impact on the company company automated its quoting process, and it now Pivotal CRM, this lesson was learned the hard way. As theoverall. An central facet of CRM is thecentralization of processes and data takes less than five minutes result of a typing error and a misplaced decimal point, thewithin a single system; this requires for sales representatives to company’s revenue expectations were off by $500,000.a company-wide initiative that is best create a quote, plus they do Unfortunately, this error was not caught by the company,promoted by a top company official. not have to go through the but by a Sarbanes-Oxley auditor. With a CRM systemProcess Review administrator or an engineer in place, the chances of such an error occurring areAutomation is only as good as the to help put the quote dramatically reduced.processes it automates. Applying together. Even in the casetechnology to poor business processes Some companies are surprised to discover what they are of complicated, customizedsimply amplifies the problems and overlooking due to lack of visibility into their processes. quotes, - hours is now themakes them more visible to customers One Pivotal CRM customer found that it had shippedand partners. Any successful CRM typical timeframe for getting a number of orders for which it had not yet invoicedimplementation must incorporate a quotes to customers, rather customers, meaning money was being left on the table.careful review of the underlying business than several days.processes to ensure that problems are The company only realized this after automating itsavoided, not replicated, in the CRM order capture, order processing, and order fulfillmentworkflow. Automate the Quote- systems, and also integrating CRM, ERP, and supply- to-Order Process to chain systems. Pivotal CRM helped the company gainUser Adoption InitiativesEmployees can be resistant to change, Save Time and Money an additional four percent in revenue by following up onbut it’s the users that make a CRM un-issued invoices. Automating the quote-to-implementation successful. Involving order process from endrepresentative employees in the Avoid Evergreen Contracts by Ensuringprocess right from the selection stage to end ensures accuracycan help give them ownership of the and unimpeded workflows. Complianceproject and encourage user adoption. Beyond that, it cuts down Pivotal CRM research shows that almost 60 percent ofMany manufacturers also alter sales on the time spent entering, active contracts are extended by default and almost halfand incentive structures to encourage approving, and processingthe adoption of CRM applications— of them are in their second extension. What this results in quotes and orders. is undesirable evergreen contracts because enterprisesparticularly those that include salesforce automation functionality. lack visibility into contract expirations dates, which For example, a company prevents them from renewing or revising contracts in aGoal Definition and Tracking in the lighting industry thatManufacturers that clearly define their timely manner that pre-empts unnecessary extensions. implemented Pivotal CRMCRM goals and determine in advance Staff needs to be alerted in advance of contract has successfully decreasedhow they are going to track performance expirations so they can proactively renegotiate the terms its time-to-order by 60against those goals are best able to of the contracts and renew expiring contracts.measure the value of their CRM projects percent through automatingand make adjustments where needed to its order-capture process. This challenge is common across many kinds ofensure success. In addition, automating manufacturing firms, and it has a distinct impact on the system has reduced revenues. For example, prior to deploying Pivotal CRM, error and wasted time, an exercise equipment manufacturer experienced difficulty experiencing a 5-percent decrease in dirty orders and managing its contract expirations—especially government a -percent reduction in change orders. contracts, which often receive greater discounts. The problem was compounded because the company was Pivotal CRM | White Paper
  6. 6. unable to re-evaluate the product—price agreement of $ million to $6 million in annual revenue leakage for when the government contracts expired due to a lack of a billion-dollar company due to a combination of poor visibility. So government customers continued to receive contract and price compliance, while stressing that for over-discounted prices while the company lost money. even bigger firms, the impact can be exponentially larger. The manufacturer also struggled to manage its lease expirations, leaving lease managers to track expirations manually and creating enormous administrative effort and Using CRM to Its Full Potential overhead. Similar scenarios Pricing, quoting, and contract management are key areas are found across the industry. in which manufacturers can see benefits from CRM. ButThe truth is that for many manufacturers, the full potential of CRM extends far beyond these areas.the question should not be whether Using a CRM solution allows As manufacturers begin to see the benefits of using CRMthey can afford to think about CRM, butwhether they can afford not to. companies to track the start to automate these processes, they can also begin to and end dates of contracts, explore the many other areas in which CRM can have an as well as revenue events. impact and to look at the next steps needed to implement Using this information, the system automatically creates a holistic CRM strategy. a new opportunity a few months before the contract expiration date and assigns it to an account manager for Being customer driven is not only about streamlining follow-up. The account manager can then either renew the fulfillment process, it is also about personalizing and the existing contract or negotiate a new one, and in optimizing every contact you make with your customers the process, he or she can also up-sell and cross-sell at each stage in the sales and service cycle. Any kind additional products, obtaining extra revenue and profit. of touch-point you have with customers—whether it is Commencing this months before the contract expiry date over the telephone, through a website, by e-mail, or in ensures there is adequate time to troubleshoot problems person—has the potential to deepen your relationship and pursue opportunities in time to meet the existing with them and extend their loyalty to your company. contract deadline. Many CRM systems offer marketing automation Not only is it important to use your CRM system to solutions that help manufacturers reach out to prospects manage contract compliance and contract expiration, but and customers, delivering personalized, relevant sometimes there are also other revenue-generating events communications that build on the information collected that take place over the lifespan of a contract that need about their needs and preferences over time. These to be managed. For example, many manufacturers have systems help manufacturers generate and qualify sales contract stipulations that give them the right to increase leads and distribute them to the sales force for follow-up. the unit price by five percent per annum on the condition that they inform the client 0 days in advance. Managing CRM also helps manufacturers capture the unique such a process with a system such as Pivotal CRM attributes of individual customers, enabling them to can help companies earn additional revenue with very develop the customer intimacy required to build long- little effort. lasting relationships. At the same time, the CRM solution helps them determine the group trends and similarities The costs of not managing contracts effectively can add between customers, allowing manufacturers to segment up. One manufacturing firm that had not yet adopted and target both customer and prospect groups more a CRM solution worked with the Pivotal CRM team to effectively. This dual insight—on both the individual- quantify this amount. This company signs approximately customer and group-trend levels—helps drive additional ,500 contracts per year, and the average contract has revenue and profit opportunities from both existing a value of $0,000 and a duration of five years. The customers and potential ones. company also has the aforementioned clause regarding annual price increases with 0 days notice. But because Manufacturers also often have multiple sales teams, with the company was not tracking contract stipulations or his some salespeople focused on specific products, some 0-day mark, it was not alerting the appropriate people on specific markets, and some on specific geographic within the organization to follow up with the customer, areas. This can lead to complex territory management and the price increases were not being applied. issues for sales managers. CRM systems offer territory Once calculated, it was determined that this process management tools that allow managers to effectively inefficiency was costing the company $.8 million in assign their salespeople to the right accounts and track potential annual revenue. their activities in those accounts over time, leading to better visibility into salesperson performance and the This underlines the importance of effective contract probability of each deals successful closure. In turn, this management—and the significant impact that can be leads to more reliable sales forecasting and gives sales made through automation. In fact, AMR’s Bois notes that managers the ability to take a more proactive approach to this sort of figure is not uncommon and cites examples stalled accounts. Pivotal CRM | White Paper 5
  7. 7. A manufacturer’s obligations to the customer truly begin The good news is that becoming more customer drivenonce the sale is complete. Providing high-quality customer and achieving greater efficiency in the processesservice and support in a timely manner is essential to manufacturers grapple with every day can come handcustomer retention and a major competitive differentiator. in hand. Using a customer relationship managementCustomer satisfaction and loyalty directly impact future solution to manage the full customer lifecycle—from therevenue potential, given the relative costs of attracting first touch-point through the sales process and post-salea new customer versus retaining an existing one. CRM service; from quote to order through ongoing contractsystems provide tools to help manage customer service management—can help manufacturers realize significantoperations, enabling manufacturers to receive service process efficiencies while also developing deeperrequests through a variety of channels and track their customer knowledge and delivering better service. It’s aresolution. Managing this process within the CRM system classic win-win situation for both the manufacturer and theensures that no matter whom a customer speaks with, customer.they receive informed, personalized responses, andautomating the system ensures faster issue resolution. Some manufacturers are unsure where embracing CRMBoth these factors contribute to higher customer and the automation of customer-facing processes shouldsatisfaction and improved relationships. fall within their list of business priorities. The truth is that for many manufacturers, the question should not beCRM solutions help manufacturers manage the full whether they can afford to think about CRM, but whethercustomer lifecycle, collecting customer information and they can afford not to. As many of the real examples frominsight at each stage. Companies can then effectively Pivotal CRM manufacturing customers presented in thismonitor customer-satisfaction levels and respond to paper reveal, failing to effectively manage front-officeissues quickly, delivering additional value to customers processes will not just hurt customer relationships—it canand building stronger customer relationships that result leech millions of dollars from a manufacturer’s bottomin more customer referrals and repeat sales. line.All of these features and more are at the disposal of Manufacturing organizations that deploy CRM solutionsmanufacturers who choose to implement a robust, flexible are able to better manage pricing, quoting, orders, andCRM system. Manufacturers looking at using CRM to contracts, giving them the greatest opportunities forenhance their pricing, quoting, and contract processes increased revenue and profitability. Automating theseshould also develop a long-term strategy for leveraging processes results in faster, more accurate execution ofthe full value of CRM. the quote-to-order process, contributing significantly to “perfect order” performance. Improved pricing management eliminates over-discounting and ensuresConclusion every customer is quoted the most appropriate price.In today’s evolving business environment, manufacturers Better contract management increases renewal rates,need to compete on more than just price. They need decreases “evergreen” contracts, and takes advantage ofto differentiate on the quality of their products, their contract-term opportunities.processes, and their customer service—in fact, on thewhole of the customer experience. Becoming customerdriven is an imperative for manufacturing businesses thatwant to retain existing customers and attract new ones.The concept of a “customer-driven” manufacturing firmis not about sinking higher costs into customer service.Rather, it entails weaving a more strategic approach tothe collection and use of customer intelligence into thefull lifecycle of customer interaction.Many manufacturers resist the idea of bringing morecustomer focus to their companies because they haveenough difficulty managing their existing processes.Product pricing, quote and order management, contractmanagement, and other daily processes already involveenough complexity to challenge the company, withoutadding new concerns. Pivotal CRM | White Paper 6
  8. 8. For more information or a complete list of our worldwide offices, please visit www.pivotal.com.Copyright © CDC Software 007. All rights reserved.The CDC Software logo and Pivotal CRM logo are registered trademarks and/or trademarks of CDC Software.