Quote-to-cash guide
The goal of quote-to-cash (Q2C) is to make your sales team’s process of transforming a customer’s quote into cash as efficient as possible.
In this quote-to-cash guide, we’ll cover:
- What is quote-to-cash (Q2C)?
- The quote-to-cash process
- Identifying common challenges in the quote-to-cash process
- How is quote-to-cash different from order-to-cash?
- Resolving these challenges through automation
- Optimize your quote-to-cash process flow with the right tools
What is quote-to-cash (Q2C)?
Quote-to-cash (Q2C) is the process between a business’s initial customer quote and the actual cash collected. This process includes customer quotes, orders, and invoices, meticulously tracking sales from initiation to fulfillment.
In the past, reliance on paper-based documentation and manual data entry led to inefficiencies and inaccuracies in Q2C.
Without an optimized Q2C process, how will your business accurately determine owed amounts, anticipate payment receipts, and ensure prompt invoice settlements?
Quote-to-cash example
In a typical quote-to-cash process, the sales team configures an offer or solution based on the customer’s needs, selecting the appropriate pricing model (e.g., tiered or usage-based) and generating a quote for approval. Once approved, the contract is created, and the subscription is activated, with the system managing billing, invoicing, and any usage tracking automatically. Invoices are sent to the customer, payments are processed, and if necessary, dunning procedures are initiated for failed payments. Throughout this process, revenue recognition is automated to ensure compliance with accounting standards, and real-time analytics provide insights into key metrics like recurring revenue and churn, helping optimize the overall monetization strategy.
The quote-to-cash process
The following steps explain the crucial workflow of the quote-to-cash process.
1. Offer configuration
This is the first step of the quote-to-cash process. Businesses use product configuration to offer customized solutions to their customers. This involves tailoring products and services by selecting desired combinations, features, and components.
Research shows that configure, price, quote (CPQ) software significantly reduces the time required for product configuration by 28%. Tools like CPQ allow sales reps to specify features and component combinations for complex configurations — for example, which features complement each other, can be combined, or bundled. It also makes accessory selection with components easier and less error-prone.
2. Pricing
When the desired offer configuration is finalized, the sales team then ensures they have the best, accurate, and error-free pricing for the offer as quickly as possible. This includes the necessary approvals on discounts or promotions and special offers.
CPQ is helpful in ensuring that pricing is flexible and reflects the specific deal’s details, considering product features, discounts, and contractual agreements.
This pricing phase can be challenging, as the sales team needs to secure the optimal value in terms of price while also successfully closing the customer. Having a deal desk can also be helpful at this stage.
3. Quoting
After configuring products, services, and pricing, the quote is created, which includes crucial details like pricing, delivery dates, and terms.
4. Contract management
This includes contract creation, negotiation, and extension. Usually, contract management happens when the customer is satisfied with the quotes and the proposal sent. The contract and agreement are formalized and set the framework for the transaction.
CPQ software enables sales to streamline the deal approval process by eliminating delays and friction due to manual processes—it sends automated approval notifications to the necessary stakeholders, providing comprehensive deal details, and ensuring compliance and audit readiness.
5. Orders
Your company might manage orders in several different ways, such as through a CRM system integrated with CPQ, through direct sales representatives, online storefronts, self-service portals, third-party marketplaces, or partner networks.
Each new order placement triggers a cascade of activities, spanning order tracking, billing, and payment collection.
6. Payment and collections
Is your system equipped to handle diverse global currencies seamlessly? Ensuring worldwide order fulfillment, from Texas to New Zealand, is imperative for business success.
Managing currency conversion across regions is essential, as is staying compliant with tax regulations to uphold your brand’s reputation.
7. Billing
Accurate billing can be challenging, particularly concerning cross-channel invoicing, data consolidation, and aggregating invoices for various offerings – be it physical goods, one-time charges, services, or subscriptions. It’s crucial to ensure accuracy while avoiding errors in financial transaction data.
8. Revenue recognition
With growth comes complexities in billing and invoicing, but also in recognizing revenue. Monetizing offerings requires adaptability and avoiding the pitfalls of outdated strategies that are laborious and costly.
9. Renewal
Depending on which team is in charge of your monthly recurring revenue (MRR) expansion, your sales or customer success teams look for opportunities to upsell or cross-sell customers with the objective to improve the business customer lifetime value.
The experience your customer gets throughout the order-to-cash process and how well orchestrated your upsell strategy is can play an important role in their decision to renew their contract.
Quote-to-cash vs order to-cash
Quote-to-cash and order-to-cash (O2C) are closely related business processes, but they cover different sales cycle stages. In terms of processes involved, Q2C includes quoting, negotiation, contract or agreement creation, order placement, fulfillment, invoicing, and payment. O2C, on the other hand, involves order entry, order fulfillment, invoicing, accounts receivable, payment, and cash application.
Common quote-to-cash challenges
With so many moving parts in the Q2C process, challenges often arise, potentially impeding your sales team’s momentum. Addressing these challenges is vital not only for your finance and IT departments’ success, but also for sustaining the business agility needed to go to market with the right offers at the right time.
Some of the most common problems include:
Inaccurate data
Data entered incorrectly into your quote-to-cash system can lead to delays and errors, incurring financial losses. Manual errors are a big concern. If sales representatives enter data inaccurately, it can lead to the system generating inaccurate quotes.
Lack of visibility
If you can’t see what’s happening at each stage of the quote-to-cash process, then you’re unlikely to be able to identify and fix any issues that arise. This lack of visibility can also lead to customer frustration if they’re not updated on their quote or order status.
While visibility into quote-to-cash is crucial, visibility into your recognized data stream is equally vital and has dependencies on all of the upstream financial processes taking place. Live financial positions are critical in informing business decisions throughout a quarter and rely on real-time reporting and analytics from all of your financial systems.
Manual processes
Quote-to-cash processes laden with manual tasks, such as data entry or manual invoice creation, tend to be error-prone and time-consuming. This hinders not only efficiency but also misses opportunities for upselling or cross-selling.
Complex pricing
Modern pricing strategies encompass a variety of offerings, from subscriptions to usage-based models, hardware products, professional services, and bundled packages, which adds complexity.
Effectively deploying and automating these pricing strategies, along with managing associated billing implications, is critical.
Lack of integration
Integration gaps within the quote-to-cash process result in inconsistent reporting, data duplication, and other inefficiencies. Seamless integration across your systems, from CRM to backend financial platforms, is essential for optimal outcomes.
Why is the quote-to-cash process crucial?
Businesses now offer diverse digital services, incorporating varied pricing structures, provisions, and usage tracking. Crafting service bundles across multiple channels, encompassing e-commerce, in-app, sales, partners, and marketplaces, helps to improve customer engagement and fuels growth.
To stay aligned with evolving markets and dynamic customer preferences, businesses must reevaluate their conventional approach to managing the quote-to-cash process. Investing in a robust monetization platform that supports the complete quote-to-revenue lifecycle is imperative.
Related: How to retain subscribers in any economy
Considerations for a monetization platform supporting quote-to-cash
Here’s what to prioritize when selecting a monetization platform that comprehensively supports the entire quote-to-cash process. You need a technology foundation that features automation tools that empower sales teams by streamlining labor-intensive tasks, enabling them to focus on core selling activities.
Introducing new revenue streams
The platform should effortlessly accommodate various pricing models, from subscription-based to usage-based, one-time and recurring transactions. As businesses innovate to remain competitive, a flexible platform is crucial for pricing and packaging digital services, hardware, bundles, and promotions.
Related: How to accelerate iteration on pricing, bundles, and promotions
Agility and flexibility in market engagement
In today’s rapidly evolving market landscape, businesses must swiftly introduce new offerings, adjust pricing, and create promotional deals within hours, not months.
Legacy systems and rigid integrations impede agility and hamper business responsiveness.
End-to-end monetization support
Quote-to-cash operations serve as the backbone for monetization strategies. A comprehensive platform should streamline processes spanning quoting, ordering, billing, payments, and revenue recognition, adapting seamlessly to changing demands.
Dynamic response to customer needs
Adapting to diverse customer preferences and behaviors is essential. Companies must orchestrate tailored experiences across various systems, including provisioning and communication platforms.
Understanding the subscriber lifecycle and delivering a dynamic experience within the application ecosystem is critical.
Integration capabilities
Seamless integration with existing software applications is pivotal. Businesses should seek pre-built connectors and APIs that enable easy integration with various systems, such as general ledger, data warehouses, taxation systems, payment gateways, and more.
Optimize your quote-to-cash process with the right tools
The following tools play a strategic role in different stages of the Q2C process, ensuring a smooth and optimized workflow.
CPQ solution
Arguably the most important software in the Q2C process, CPQ manages and automates the configuration, pricing, and quoting process. This is crucial for creating accurate quotes based on complex pricing models, bundling products, and managing subscriptions.
Related: The evolution of CPQ software for modern business
Order management solution
Another must-have software in the quote-to-cash process — a comprehensive order management solution streamlines the entire workflow, from creation to renewal. This solution maintains detailed audit trails, documenting all changes made to contracts.
Billing solution
Modern billing software manages and automates invoicing, payments, and subscription changes. It supports various charge models (e.g., flat fees, per unit, volume, and usage-based pricing), which is essential for generating correct billing for customers and enabling future growth and scalability for the company.
Payment solution
Enables the processing of payments, integrating with multiple payment gateways to handle transactions securely and efficiently. It also supports multiple payment methods such as credit cards, bank transfers, and digital wallets. A payment solution also automates the dunning process and manages collections. It helps reduce churn by automating retries for failed payments and optimizing collection strategies.
Revenue recognition solution
Revenue recognition software is essential to ensure financial accuracy and compliance with accounting standards and regulations such as ASC 606 and IFRS. This software provides automation, precision, and efficiency to the revenue recognition process within your Q2C workflow.
Analytics solution
Provides actionable insights with real-time analytics, allowing businesses to track key metrics such as churn rates, customer lifetime value, and revenue forecasts.
Integration and extensibility solutions
Modern Q2C software must be more than just a tool for generating invoices. It needs to seamlessly integrate with a wide range of other systems across your Q2C workstream — such as CRM, ERP, CPQ, and payment gateways — to streamline operations and provide a cohesive experience across your organization. The right platform, with strong integration and extensibility capabilities, becomes a central hub for your business operations, enabling real-time data exchange, improved decision-making, and enhanced customer experiences.
Discover why Zuora is the complete quote-to-cash solution
With a true end-to-end Q2C process, your business can improve quotes, speed up order processing, make it easier for customers to pay their invoices, and even identify opportunities to sell additional services. Discover how Zuora can help automate not only your quote-to-cash process but all your subscription order-to-revenue operations.