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Automating Services Quote-to-Cash: Emergence of CPQ for Services

John RagsdaleGuest post by John Ragsdale, the distinguished vice president of technology research for the Technology Services & Industry Association (TSIA). John’s expertise is in assisting enterprise technology firms with the selection and value realization of tools and platforms, with a constant focus on the customer experience.


According to TSIA’s 2021 Professional Services Tech Stack Survey, B2B tech companies saw a significant increase in adoption of two technologies by professional services organizations over the last year: professional services automation (PSA), and configure price quote (CPQ). Adoption of PSA rose from 75% in 2020, to 83% in 2021, and adoption of CPQ rose from 44% in 2020 to 54% in 2021. In addition, both technologies have high planned spending for 2021-2022, with 54% of PS groups planning an additional investment in PSA, and 41% planning an additional investment in CPQ. Why are professional services teams allocating budget for CPQ tools, which we typically think of in the realm of sales and product teams?

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Although the adoption of PSA technology, which automates PS revenue and resource forecasting, resource management, project management, and project accounting, is high, we still see a lack of automation in the creation of PS proposals. On average, it takes 32.6 business days, over 6 weeks, to deliver a proposal. Why is PS proposal generation so complicated?

  • No single source of truth. Proposals are often created in Excel spreadsheets or Word documents, with a lot of manual reviews and approvals, usually done via email, which not only lengthens the process but makes it difficult to track where proposals are in the process.
  • Disconnected systems and teams involved in quoting. Only about a third of the time, 37%, does the PS group determine pricing for a project. Pricing is often determined by a product or service sales rep, a sales support group, or even the finance department.
  • No pricing controls or standardization in the offering. Nearly a quarter of companies, 23%, say they have no guidelines to limit discounting on PS projects.

We are also seeing the time it takes customers to approve a proposal lengthening. The average days for a proposal to go from quote to close rose from 57.8 days in 2020, to 63.3 days in 2021—that’s more than 12 weeks. How to reduce quote to close time? Digitize and standardize workflows to allow for accuracy, interconnectivity, and scalability, which introduces more visibility and transparency for both PS execs and customers.

For PS to be more responsive to customers, turn around proposals faster, and provide more accurate proposals that customers are more willing to approve, automation is required. But despite the move to more sales automation and self-service selling being embraced by companies for subscription technology, services are often an outlier.

Why Traditional CPQ Tools Don’t Work for Professional Services

I have talked to many PS execs who say their product and sales teams bringing XaaS offers to the market are investing in new CPQ, eCommerce, and billing platforms that enable subscription selling. But PS rarely has a seat at the table for these discussions. And when the platforms go live, they are very product-centric, with little or no ability to quote services projects.

It is fairly straightforward to create standard bundles, configurations, and price books for products. CPQ platforms allow salespeople (or customers purchasing using self-service) to select the right mix of products and licenses to fit a particular request. Especially for cloud software, there are no physical product assets or fixed inventory to consider. But services are much more complicated. The complexity of implementation, integration, and customization can vary dramatically by industry, geography, current IT environment, level of customization of existing systems, and the business goals for the project. Plus, services projects can’t be sold without resources attached, meaning skills, experience, location, and availability of consultants must be factored into every proposal. Product-centric CPQ platforms simply weren’t built to accommodate this level of complexity.

Particularly for larger enterprise deals, the product quote may change and evolve as negotiations with the customer progresses. And every change to the product bundle or configuration can require a complete recreation of a services proposal. Without automation, as products are easier and faster to quote with CPQ tools, PS becomes even a bigger bottleneck in the eyes of the customer. When requesting what appears to be a simple change to the product bundle by the customer, they then have to wait for a month or more to receive an updated services proposal.

A New Breed of Services-Centric CPQ

Why are we seeing budget being allocated for CPQ technology by professional services? The reason is there are now service-centric CPQ platforms entering the market, which can streamline and automate the creation and approvals of PS proposals, cutting the time to create a proposal from weeks to hours. And since I have yet to find a traditional product-centric CPQ platform that fully supports services, PS is very likely to be driving and funding this project.

Services CPQ picks up where the product pricing and configuration leave off. It takes all of the bill rates, price books, project templates, discount tables, etc., available, and allows a salesperson to select a predefined services project. They can then identify any variables to create a proposal, including proposal and statement of work (SOW) generation, and workflow to move a proposal through your approvals process. The Services CPQ engine also integrates with the PSA platform to identify available resources, and ultimately to schedule the project when the customer approves the proposal.

Depending on how mature the current approach to proposals, pricing, and discounts may be, there are likely to be some processes to iron out as part of this project. As an example, only 20% of TSIA members say they have a service catalog for PS today, so implementing Services CPQ will likely force standardizing aspects of the services business which have been handled via email and spreadsheets in the past.

Here are a few recommendations to consider if automating PS proposals and Services CPQ is on your 2022 roadmap:

  • Mature your pricing and discount structure. If you are moving off manual processes and spreadsheets for all or part of the proposal process, you likely have some work to do on solidifying project definitions, templates for proposals and statements of work, and pricing and discount structures.  Spend the time to get this right before the move to automation, which may take some cross-department collaboration with sales, offer creation, and finance.
  • Focus on fixed price, repeatable offers. If you are primarily delivering custom projects today, making the shift toward more fixed price, predefined, repeatable projects will allow more accurate proposal automation. While there will always be some variables depending on the customer’s requirements and their IT environment, moving toward predefined projects will also encourage more “out of box” implementations, with less customization. This should ultimately enable lower cost of ownership, and less complexity, for the customer.
  • Remember the customer experience. While there are business benefits to automation, including increased velocity and more accurate proposals, remember that a primary driver of eCommerce and Services CPQ is the customer experience. Customers increasingly want to self-serve, and they expect full transparency in pricing and discounting. If your sales and product teams are focused on product-centric automation for subscription offers, demand a seat at the table for these conversations, and make sure services are part of the automation roadmap. Customers will notice if only part of the process is automated, and it doesn’t speak well of your PS organization if they are still working in spreadsheets in today’s digital world.
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