WHITE PAPER By Jane Labyer, Mrinal (MG) Gurbaxani and Jeff Robinson THE ULTIMATE KPI LIBRARY FOR TRACKING CPQ PERFORMANCE Realize Your Potential
THE ULTIMATE KPI LIBRARY FOR TRACKING CPQ PERFORMANCE JANE LABYER, MRINAL (MG) GURBAXANI AND JEFF ROBINSON Your company just bought a Configure, Price, Quote (CPQ) software solution. To get to this point, you cleared many hurdles, including developing a business case that accurately reflects the value you expect from your CPQ project. Now it s time to deliver on your business case, which means staying on top of key performance indicators (KPIs) that quantify your progress toward achieving your goals. To help you keep your project on track, we have compiled a library of KPIs that measure the overall success of CPQ projects. This extensive list is the result of years of performance management studies done hand-inhand with PROS customers. Some of the KPIs in this list are also key value drivers in PROS pricing projects, since success in pricing has positive spillover effects in sales efficiency and sales effectiveness. Some, such as Average Sales Cycle Length, are industry-accepted standards for measuring overall CPQ project impact. Other KPIs in this list address more targeted areas of focus. No business will use every KPI in this library for the same project; many of them are specific to certain situations. However, PROS uses the KPI library as a starting point for determining which metrics best reflect a customer s priorities for their CPQ project. KPI LIBRARY THE KPI LIBRARY HAS THREE SECTIONS: Sales Effectiveness Sales Efficiency Customer Satisfaction and Retention These sections address commonly desired results of CPQ projects. Each KPI includes information on how it is calculated, why it is useful, and what circumstances are required to use it. 2
SALES EFFECTIVENESS Sales effectiveness metrics measure your sales organization s ability to sell higher product volumes, negotiate better margins, and execute on strategic decisions such as product mix. For many organizations, these metrics are key components of the business case for buying a CPQ solution. KPI Formula Insight When Applicable Average Sales Cycle Length Average time from lead to close. This aggregate metric reflects all listed sales efficiency metrics. Win/Loss Rate Percentage of quotes won. Reflects improvements to customer experience and sales processes. Discount Guidance Compliance Percent of deals outside of discount guidance envelope. Reflects adoption of discounting guidelines designed to counteract runaway discounting. Has a direct impact on deal margin. When discounting guidelines are in place Time-to-Market for New Products Time from product release to full availability in all target markets. Indicates the ability to quickly target customer segments with new offerings. Lost Revenue From Missing Cross-Sell, Up-Sell (Number of deals without cross-sell, up-sell)*(estimated value of an average crosssell, upsell). This metric reflects product relationship information available to sales reps. Can track the number of deals missing cross-sell, up-sell when missing value estimates. Sales Rep Quota Attainment % Percentage of sales reps who met quota during the measured time period. Reflects removal of obstacles to the sales cycle. Total % of Quota Met Ratio of total revenue to total quota goal. Some reps improve without meeting quota; this metric captures improvements across all reps. Average Order Size Average revenue per deal. Reflects improvements to sales cycle length and sales rep negotiation position. Average Order Margin Deal revenue- deal costs; Margin is calculated for each deal before aggregation. Captures improvements in overall deal quality. 3
N SALES EFFICIENCY Automating and streamlining your sales organization s processes can result in huge efficiency gains for your organization. This is a win from several perspectives: you save money by wasting fewer work hours, you win more deals by getting quotes out faster, and you increase customer satisfaction by reducing purchasing time. These metrics often contribute to metrics in the Sales Effectiveness and Customer Satisfaction and Retention categories. KPI Formula Insight When Applicable Average Monthly Quotes per Sales Rep Average number of quotes generated per sales rep during one month. This is an aggregate metric for sales productivity. Consider also tracking total quotes delivered across the entire sales organization. Average Customer Interactions Per Deal Mean number of conversations per successful deal. Having less contact with a customer may sound bad, but this often reflects a reduction in quote errors and miscommunications. Tracking this requires a large amount of administrative overhead due to the effort involved in driving sales compliance with tracking interactions accurately. Time to Quote Average time from quote submitted to quote approved. Can be aggregated over the sales force to calculate sales hours saved. Specific steps in the quoting process, such as approvals, can be tracked separately if those steps are targeted for improvement. Quote Approval Automation % Percentage of quotes approved without human intervention. Approval automation drastically cuts quote approval time as soon as it is implemented. This metric can be used to communicate sales efficiency gains very soon after go-live. 4
CUSTOMER SATISFACTION AND RETENTION Customer motivations for leaving an established business relationship often begin with minor dissatisfactions before a customer service failure finalizes the customer s decision to leave.however, a successful CPQ project can drastically cut down on avoidable customer service failures by automating error-prone, time-consuming processes. The following KPIs quantify improvements from CPQ projects that affect your customers satisfaction, and thus their likelihood to continue doing business with you. KPI Formula Insight When Applicable Quote Accuracy Change in quantity of quotes per month rejected as bad configurations. This metric quantifies the soft benefits of automating product dependencies and affects average quote production. time. When quote rejection reasons are tracked Clean Order Rate Change in number of order error complaints from customers. Increased order accuracy reduces costs from faulty orders while removing a source of reasons to leave for customers. ; particularly for complex sales models Cross-Channel Pricing Consistency Change in frequency of reported pricing differences between channels. Centralization of pricing via the CPQ solution is the primary driver for this metric. In multi-channel environments when consistency between channels is desirable Net Promoter Score Average response on a scale of 1 to 10 to the question would you recommend this business to a friend? Provides a measure of customer satisfaction in the customer s words. When Net Promoter Scores are already in use Customer Attrition Rate Change in voluntary churn over a given time period. This metric measures improvements to the customer experience at a high level. When subscription models or long-term contracts are in use Revenue from New Business Change in revenue from new customers. Improvements in this number can reflect reduced barriers to doing business. Revenue from Existing Customers Change in total revenue from purchases made by existing customers. Improvements in this number can reflect better targeted offerings and improved customer experience. 5
CHOOSING METRICS AND GOALS To help you use the KPI library effectively, we have included a framework for selecting and tracking KPIs that will be part of your performance management plan. Your performance management plan should include the following: The financial, operational, and strategic measures you will track. Context for the selected measures, such as past performance or the performance of peer groups. Goals for improving the KPIs relative to the control groups you have selected. Regular reporting cadence to stakeholders on goal progress. Creating and communicating this plan is the first step toward using your metrics to cement buy-in for your project. The following sections will address each plan component. Selecting the Right Metrics for Your CPQ Project The KPIs you select as the backbone of your performance management plan meet these three criteria: Reflect progress on specific challenges that your business will address through the CPQ project. Be based on reliable data. Be KPIs you can reasonably expect to improve. Finally, your list of metrics should be short and reflect the priorities of your project. Accurate Benchmarking The full definition of a KPI includes a control group used to contextualize KPI progress relative to performance by another group or by the same group under different circumstances. Selecting a good control group is critical for making valid assessments of your progress. Most businesses benchmark against either pre-cpq performance from the same business unit, or against KPI performance from other business units that will roll out the product after the business unit is under evaluation. Both control groups have their merits. Comparing against a prior period is easier, but comparisons against a peer group during the same time are less likely to be skewed by macroeconomic trends. Whether you are using a prior period or a peer group for your frame of reference, you will need to control for external factors that affect your comparisons. Common factors to consider include the following: Changes in cost of materials Exchange rates Seasonality Product life-cycle Catalog differences You may have already considered external factors and control groups as part of your business case. If so, these details need to be explicitly included in your performance management plan so you can to maintain credibility with stakeholders in your CPQ project. 6
Setting Goals Improvement goals for your selected KPIs should be relevant and achievable within a stated time that is appropriate relative to project milestones. The numerical targets of goals will likely not increase linearly over time as your project progresses. For instance, there may be upfront sales efficiency gains from assessing and revising sales processes, but those gains will differ in scale and nature from post-implementation results. Additionally, some KPIs will only be relevant during certain phases of the project. For instance, it does not make sense to measure user adoption before go-live because users cannot yet use the system. However, in the six months after go-live, most businesses benefit from proactively monitoring post-implementation user adoption and proficiency, as these metrics provide the business with additional clarity on performance toward the project s organizational and financial goals. Reporting Cadence Your performance management plan should conclude with details on how your team will update the project stakeholders on progress toward the project s goals. This will set expectations for continued communication on the project, and the right cadence can reinforce the urgency of the project. The follow-up portion of your plan should include the following: How often you will report progress toward goals. What methods and channels you will use to communicate updates. Setting clear expectations for how you will follow through on your performance management plan will make delivering your updates easier. Additionally, any actions that result from your updates, such as corrective action in response to at-risk metrics, will be easier to undertake because your stakeholders already expect communication on the project s status. Conclusion Targeted KPIs are an effective tool for driving CPQ project goal realization. The process of selecting your set of KPIs can be a powerful exercise in focusing the CPQ project stakeholders priorities. What s more, a regular reporting cadence on the selected KPIs can reinforce stakeholders support for the project and motivate them to take any corrective action required to keep the project on track. When incorporated into a robust performance management plan, the optimal set of KPIs will keep your CPQ project on track to deliver the value your organization expects from the project. 7
ABOUT THE AUTHORS JANE LABYER Jane Labyer is an enterprise software product expert and trainer with 5 years of experience in business analysis and education. At PROS, Jane develops training programs to drive user adoption and proficiency through discussion of software use cases, collaborative problem-solving, and hands-on exercises. Outside the classroom, Jane researches customer needs and industry trends in pricing and sales-effectiveness to design and develop new courses focused on driving key business results. Jane is an alumna of Rice University. MRINAL (MG) GURBAXANI MG has 12+ years of experience in pricing & commercial excellence, leading analytics teams in implementing data-driven solutions across various B2B and B2C industries. At PROS, MG is a Senior Manager, Strategic Services practice in EMEA helping customers build organizational capabilities in their journey towards commercial excellence. He holds a degree in Mathematics from College of Wooster, OH and an MBA (focused on Decision-Sciences) from INSEAD. JEFF ROBINSON Jeff Robinson serves as PROS Senior Vice President, Product Management and Science. In this role, he leads the vision, strategy and roadmap for PROS entire portfolio of products, including manufacturing, distribution, services, travel and associated vertical markets. His scope of responsibility also includes both science and research, and user experience (UX).
About PROS PROS Holdings, Inc. (NYSE: PRO) is a revenue and profit realization company that helps B2B and B2C customers realize their potential through the blend of simplicity and data science. PROS offers cloud solutions to help accelerate sales, formulate winning pricing strategies and align product, demand and availability. PROS revenue and profit realization solutions are designed to allow customers to experience meaningful revenue growth, sustained profitability and modernized business processes. To learn more, visit pros.com. PROS.com Copyright 2015, PROS Inc. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error -free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission. 110515