An Overview of the Quote to Cash Process

An Overview of the Quote to Cash Process

You may have heard of the Quote-to-Cash (QTC) cycle. There are many different interpretations of what steps are involved, and how you should think about the associated processes. In this article, I want to take a look at QTC, explain what it is, what it means for automation, and why it's important for your business.

QTC refers to the entire end-to-end sales process, typically starting with product configuration and pricing, and including quoting, customer acceptance, ordering, data analysis and managing revenue. While there are often sales and marketing activities that occur earlier in the process (or higher up in the buying or sales funnel) delivering a quote is generally seen as the first measured QTC step.

From the quote, the QTC process spans to include the point where cash is collected, and data from all of the components of the process have been analyzed to improve the entire cycle. Note that the moment the customer agrees to place the order, or even the close of the transaction, is not the end of the sales process -- it is only finished when the payment has been applied, and the associated data has been collected and analyzed.

Completing a quote can include discussing initial configurations with the customer to understand the solution they are looking for or the pain point they want to resolve, working to get specifications right and delivering a quote that details the product and total price. But this is just the first part. There could be back and forth negotiations around the product components, the price and post-sale invoicing, as well as payment terms. Some transactions might revolve around re-orders/re-negotiations for repeat or multi-transaction customers.

Managing and improving QTC is pivotal in terms of keeping customers happy, and bringing cash in the door of your business. It pays (literally) to understand the process and ensure it's as efficient as possible.

Here are the six basic components of the QTC process:


Select and Configure

A prospect has turned into an opportunity! We want to help them select and configure a solution and close the sale. Perhaps we have created a need or desire in our prospect from a marketing campaign or cold call, and now we want to help fill that need. Our goal at this stage is to make the process easy by providing the tools, communication and support necessary to understand and configure a solution. If the solution can be "configured" by adding a prepackaged product to the prospect's cart, then this step is truly easy! If not, then we need to understand the potential solution and help with the configuration -- I'll have more to say about this below.

Price and Quote

You now need to move the configured product or solution forward to include a price and deliver a quote to your prospect. If the product is available off-the-shelf, or you are using a Configure, Price, Quotation (CPQ) system, steps 1 and 2 are combined, and the configuration process includes packaging price, product description and terms automatically into a quote. Since you want to reduce friction, errors and omissions, and get the quote into your prospect's hands as quickly as possible, system automation is key. A quotation that must be put together by hand risks introducing errors, slowing the quotation process, and potentially reducing the chance of a sale. Just as it's important to move an eCommerce transaction from cart to checkout as quickly as possible, it's important to get an accurately quoted solution quickly into your prospect's hands.

The goal of this phase is to understand your prospect's requirements, and empower them to select the solution (or components of the overall solution) that will meet those requirements. If the final solution needs hands-on customization from your company, the quote package must be priced with an eye on margins, and you must keep associated inventory levels and production scheduling in mind. No matter how the quotation is created, the configured solution should be the culmination of communication between you and the prospect, allowing both parties to gain a mutual understanding of the prospect's needs.

Your takeaway from this step is that it's important that quotes are created timely and accurately. Manual quote construction introduces risk and increases the likelihood of errors, which can bog down your sales cycle and even compromise the relationship with your prospect. Automating the quotation process by using a CPQ system helps to ensure transaction accuracy, which bolsters the organization's reputation and increases the chance of landing any particular order.

Proposal and Contract

Once the customer accepts the quote, depending on the circumstances of the product and process, you craft the proposal and generate an agreement. Automating the proposal process reduces the likelihood of human error in creating the agreement, and ensures proposals and contracts meet a baseline standard of consistent content, quality and uniformity which helps ensure a completed sale.

We want to make the top part of the QTC cycle as easy and error free as possible, allowing the prospect to accept the order, and moving the transaction forward.

Congratulations, you have a sale!

Order and Renew

You have tapped into an unmet customer need, and created the expectation of meeting that need with your product or service. From here, the smooth and automatic conversion of quote to order is hugely important! You don't want the limited time of your human capital spent re-keying order information between systems to begin order processing. The order should be automatically processed and work orders or notifications created to begin manufacturing/fulfillment and to trigger invoice creation.

Bill and Collect (Invoicing and Payment Cycle)

Now that the order is in process, we need an invoice created, and to request payment against the invoice. Based on the accepted order, automation should ingest the Bill of Materials (BOM) and pricing to the accounting system, generate an invoice, and track payment.

Just as automation of the quote to order conversion process is important to ensure timely fulfillment, automating invoice and collection activity is paramount to maintaining good cash flow management. You want invoicing, collection, fulfillment and data analysis integrated both in terms of systems as well as process. Your system needs to track any order modifications, allowing cross functional business units to stay aligned on resources and scheduling, and ensuring corrective action occurs in a timely manner when needed. Accounts Receivable staff need to move the collection process forward independent of an intricate knowledge of a particular project or details of the transaction. If there are questions, access to the associated live data is important to reduce collection delays and to facilitate accurate forecasting.

Analyze and Forecast (Analysis and Improvement Phase)

The Analysis phase begins with an examination of customer and order data to determine cross-sell, up-sell or renewal opportunities. Automation that analyzes previous or similar transactions to predict the highest potential additional opportunities with the ordering customer can save your sales team time, and increase follow-on revenue. The right software can also help by generating renewal quotes based on existing order data, potentially eliciting a need in the customer's mind, and allowing them to budget for future purchases.

If your product includes a support or license subscription, it is important to use automation to track subscription details and deadlines. Tracking by hand (or spreadsheet) is a recipe for mistakes and customer satisfaction issues.

It is important for any business to analyze quote and order data to understand trends, identify new revenue opportunities, and predict future streams. In my experience, data from the QTC cycle can be a goldmine, and needs to be understood to measure and track the health of the business. From this data, you can understand metrics around things like the average time it takes to convert an order from a quote. It also helps you answer questions such as: how are product quotation and sales trending over time? Does that metric vary by product, by project size or customer segment? Can we correlate sales with competitive products or market conditions, and does that contribute to our understanding of buying trends? How are product margins and order-to-delivery times changing? Examining and understanding your QTC cycle information is key to driving revenue and product growth for your company.

After you’ve taken a look at the QTC process as a whole, you can begin to locate weak points where your company may be spending too much time or effort. Try to understand anything that prevents your potential customer from moving quickly from one stage to the next in the process. Maybe there are technical glitches that prevent consistent order fulfillment. Maybe everything sails along smoothly until the point of invoicing, when incorrect bills slow things down.

As you think more about your QTC cycle, here are some additional questions to consider:

What are your customers’ typical points of resistance or hesitation during the prospect conversion cycle? What are your most common fulfillment errors? What is the escalation process for handling issues, and when does a manager need to get involved to review or approve the resolution? What are your most common billing problems or pain points? Do you track metrics around prospect conversion such as disengagement by step in the cycle? Which single pain point, if properly addressed, would speed up the process?

Understanding the Quote-To-Cash cycle is important for every business. Organizations that automate the QTC process, leverage a CPQ system or ensure integration between any disparate systems and continuously work to improve the cycle will reap improvements and efficiencies that increase prospect engagement, the chances of closing each sale and improve cash flow.