The importance of quoting accurately for new business
The award-winning keynote speaker, business presentation expert, and in-demand executive coach Patricia Fripp once said of successful business deals: “You don’t close a sale; you open a relationship…” These words are never truer when starting a new business relationship between two companies, as anybody can do a bad deal for someone, once.
But if you want repeat business, the deal you strike must be a mutually successful arrangement, which is profitable for both parties. For that to happen, it’s essential that the supplier of a product or service is not working for next to nothing, but the price they offer the new prospect is advantageous enough for that party to become a returning, satisfied customer.
The best way of doing this is to provide accurate quotes, using Configure Price Quote or CPQ software. CPQ software uses a rules-based architecture powered by artificial intelligence (AI) to provide a simple interface for human beings to control and understand the extremely complex interrelationships between all the factors that must be considered when quoting for new business.
Do you suppose that Google’s CEO threw a coin in the air to decide how much to charge for Pay Per Click advertising? Of course not, nothing happens in successful businesses by accident.
Leaving on a jet plane…
As an example, perhaps one of the most complicated things to build in the world might well be a jet airliner; these things sell for tens of millions of dollars apiece from manufacturers to the airlines that purchase and operate them. Unlike buying a household appliance or even a small car, you don’t just look in the back of a magazine’s classified advertisements to buy a jet airplane!
Clearly, a contract for the supply of an aircraft worth, say USD$90 million must be as accurate as it can get; but as each aircraft is assembled from many thousands of very expensive components, what happens if the specification of one thing changes, thus causing the need to make many other changes down the production line?
CPQ software considers these hundreds of thousands of variables using a simple rules-based behavior that dictates the nature of interrelationships between components, and interprets the consequences of such changes, not least in terms of manufacturing costs and assembly time. This process involves using a set of pre-defined rules to make decisions or perform tasks by following a series of steps based on the concept of a decision tree; thereby automating processes and making decisions dependent on specific predefined criteria.
CPQ software can process large amounts of data quickly and accurately in this way. Let’s take a fictitious but relevant example: Imagine that Air India approaches JetMaker Inc for the supply of 10 passenger aircraft. JetMaker calculates that the parts, labor and associated activities dictate a retail price for each aircraft of USD$95m apiece.
Air India signs the contract for those jets to be produced over a given timeframe. In the meantime, before assembly of the first aircraft commences, a supplier of fuel pumps to JetMaker goes bankrupt. Obviously, all aircraft components must be quality certified rigorously, and the only other manufacturer of fuel pumps that can supply a similar part is demanding twice the price for its component than the now defunct supplier.
Fuel for thought
However, the problem isn’t just that of a couple of hundred dollars for the amended cost of a pump. That’s because the new fuel pump needs to have an adapter fitted to match with JetMaker’s current fuel lines, or the fuel lines themselves would have to be completely re-configured. Not only that, but the electrical connections also supplying the fuel pump are of a lower heat resistance standard than JetMaker will countenance, so extra insulation must be fitted between pump and fuel tank. But there is precious little room for insulation, so the fuel tank needs reinstalling six inches lower as a result.
By now, the combined labor costs and component price changes to account for a seemingly tiny adaptation have gone through the roof. Careful use of CPQ software would have obviated this whole incident because every component or even labor time install has its own place in the regime of interrelationships. A field on the software’s screen would be populated at the outset of preparing the quote something like this:
Fuel pump A cost $500 [from manufacturer X] = compatible with fuel lines 10mm bore [from manufacturer Y] + insulation 50mm thickness [from manufacturer Z]. Fitting cost 1 hour [$200 per hour] = net quote contribution $700.
However, if fuel pump A changes to fuel pump B, all the above is thrown into disarray as the inter-related costs also change. This massive knock-on of consequence is known in computing terms as ‘combinatorial explosion’. $700 might turn into $70,000 if a fuel tank has to be moved by a couple of inches within a wing. However, CPQ software can recalculate the new fuel pump costs, together with the associated collateral changes in an instant, allowing sales managers and senior personnel to make informed, accurate commercial decisions
Don’t set contract terms in stone
That might be a complex example; another business might be, say, a concrete plant that closes down, because its quotes and supply contract prices were set in stone, but materials costs kept increasing. Likewise, a CPQ platform could have accurately predicted the likely outcomes of such fiscal events and management may have been able to act accordingly.
No matter what size or nature of your business, one thing is certain: professionalism is created by absolute control of accurate quoting to customers, and the loss of business caused by getting it wrong will cost a lot more than the subscription to a CPQ software package.
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