Why Your Pricing Strategy Is Costing You
Drafting a compliant response to a Request for Proposal (RFP) is hard enough. But, it can be even more difficult to determine the right pricing strategy when looking to win your next proposal. No one wants to bid too high and miss out on a potentially transformative opportunity. By the same token, no one wants to bid too low either and risk leaving money on the table. Winning a contract with an artificially low estimate won’t do your company any good in the long run. While winning may give your team and revenue a temporary boost, it will also lead to major problems with implementation, sustainability and client satisfaction.
To ensure you’re striking gold rather than striking out, avoid these common mistakes when it comes to your bid pricing strategy.
Don’t Ignore Your Competitors
Ignorance is not bliss when it comes to competitive bidding. To make sure your pricing strategy is not harming your bottom line, begin with a basic competitor analysis. Find out as much as you can about what other comparable actors in your field are providing. Then use that information to contextualize your own bid. If specific prices are not publicly available, do your best to draw conclusions from other indicators. Perhaps a company’s price per unit is not readily available, but their annual growth, production scale or overall revenues are.
Use news searches to identify articles or news releases for contract award announcements. You can also search periodicals (Google News is free and comprehensive) or the bid offeror’s website itself for information on contracts they’ve closed in the past.
Importantly, state, local and federal government RFPs usually adhere to fairly stringent transparency requirements, which you can use to your bid’s advantage.
Don’t Rely on Best-Case Scenarios for Your Pricing Strategy
Thinking holistically is often necessary, but when determining your specific bid price it’s important to start with the basics. Identify every single aspect of work you believe will be required to fulfill your proposal’s commitment, and place them in a centralized hierarchy. Break down your steps to the most basic components, and build upwards from there. The desire to estimate costs conservatively is tempting, but be honest with yourself and your team’s needs.
Ensure you’re using empirical data and past experiences as much as possible. When estimates are needed, make sure they’re done in a range that protects your organization’s current and future growth. Take the time to build out your entire process in detail. That way, you can arrive at your final number with confidence that your accounting is comprehensive and accurate.
Don’t Forfeit the Opportunity to Ask Clarifying Questions
The majority of RFP processes include opportunities for bidders to submit questions. Some RFPs include a pre-proposal conference, while others provide a contact person available to respond to inquiries. In either case, this is your chance to gain clarity for your bid. Of course, you cannot simply ask what your pricing bid should be. But you can ask clarifying questions about the requesting organization that will inform your proposed cost.
It’s usually appropriate to ask the bid offeror about past experiences with similar work or contracts. You can also request feedback on the specific breakdowns of tasks in your proposal. This will help illuminate their priorities for you. For example, asking the RFP’s contact person whether remote or in-person conferencing is preferable. This can help you better tailor your cost proposal to what the evaluators value.
Don’t Oversimplify Your Pricing Option
If you’re worried about bidding the right price for your proposal, leveraging a pricing strategy with multiple options can make all the difference. A three-tiered proposal — Silver, Gold and Platinum, for example — gives your potential client added flexibility. At the same time, such a multitiered approach can also help demonstrate your own company’s flexibility and breadth of service options available.
In fact, a recent analysis of more than 25,000 proposals found that 32% more revenue was won with one (1) or two (2) additional options presented to the client. By giving your target multiple options, you’re also giving them an additional choice to make beyond a simple yes, or no.
You can also consider potential discounted options as part of your pricing strategy. In many instances, these discounts can be mutually beneficial. Trading a discounted rate for longer-term work is a great way to increase your firm’s sustainability, and the bid’s likelihood of success at the same time!
When discounts are designed thoughtfully (don’t negotiate against yourself!), they can demonstrate how much you value the potential relationship and help differentiate your bid.
By avoiding the pitfalls listed above, you can rest assured that you put your best foot forward after submitting your bid. Sometimes, even with the best of preparation, the odds may not be in your favor. If you don’t win, it isn’t a lost cause. It’s always worthwhile to contact the bid issuer and ask questions about what you could have done better.
You may learn that they were simply comfortable with the incumbent, or that they valued an ancillary service that your company didn’t offer. Whatever the reason, this feedback may help you win your next bid after all!
Need More Direct Help With Your Pricing Strategy?
At The Bid Lab, we not only assist our clients in finding RFPs that strategically align with their business needs, but we also help manage their RFP process to ensure a win-worthy response. We’re happy to connect and help you determine your optimal pricing strategy. Contact us today for a complimentary consultation.