Cost of a product, as you see it, is derived from aggregating direct, indirect and variable costs. These costs could be manufacturing, Sales, Administrative, volume-based or any other miscellaneous cost.

For example, the Cost of a Drilling Machine is an amalgamation of costs from various sources incurred during the life cycle of the product - such as raw material, production, labor, time, taxes and other marginal costs. While some of these costs remain stable, some vary depending on the volume, availability or other market conditions.

To cite another example, the price of a watch is derived from the summation of the cost of designing, manufacturing, packaging and shipping. Similarly, if your product is a service, cost can be derived from several dependent factors such as infrastructure, security, fulfillment and others. In a nutshell, for all products, such finer cost elements that are associated with the product life-cycle, together constitute the final cost.

As a Sales Rep, when you are adding products to the cart during the Quote generation process, adding margins and reaching the profitability of the deal will become easy if you can see the cost elements which is precisely the cost break-down of a product.

Visibility of the cost hierarchy for a product that captures every granular cost will empower you to prepare a profitable Quote that leaves no room for generalization and approximation.

When you know the key cost drivers and can see how what other costs contribute to the key cost, you know which costs should be tweaked or modified for arriving at an optimum cost.

The cost models, as you can see in the above illustration, are nothing but the structure of cost elements and sub-elements participating in deriving the final cost. The cost hierarchy gives you the granular level of details regarding the various aspects of product costing.

With CPQ, you can create complex Cost Models that give insights into the true profitability of a product price. During the quotation process, this transparency of costs can provide accurate deal margin decisions that are critical for thriving in the competitive market.

Start implementing the cost model for your products to

• Achieve Effective Deal Guidance,
• Eliminate the need for an external Cost Management application, and
• See the price breakdown and assess the profitability of your quote.