After establishing a business, work often tends to be gained from those you know, referral or recommendation. To grow the business and break into new markets, tendering for work is an option. By its nature, price is a significant element of any tender, even when other considerations are evaluated. Getting the price right and still making a profit is not easy, but if you follow the steps recommended below, you will improve your chances.
Step 1 – Only bid what you can win.
Every tender is different but what you are tendering for will have attributes. Those attributes will be the same as the segment of the market you are established in. Being able to define that segment is important, as it then establishes the types of tenders to bid and those to avoid. Segment the market. Know the location, type of client, value range of the projects, the type of work, duration, any specific accreditations required of the work which you are most suited to. Target any bids that closely match your ideal segment. The closer the match the more likely you are to win.
Step 2 – Estimate the real cost to you, of doing the work.
Estimate the real cost of doing the work and add your expected overheads as a percentage to it. This ensures that you know what your break-even cost will be. The estimated costs should be detailed and kept as a record. The record can be used later to compare planned and actual costs, from which learnings for future bids can be taken or measures implemented sooner to address losses.
The more accurate the estimate, the less likely you are to lose money or waste your time by putting in an inflated bid which gets rejected and gives you a reputation of being “too expensive”.
Step 3 – Turn the estimate into a tender by knowing the market.
In theory, your direct costs should be identical to a competitor who is working in the same segment if you have done your Bid-no-bid qualification. You will then add different overheads. The break-even point, i.e. the direct costs plus overheads is different for all companies. The difference between break even and what the market will bear as the tendered price is made up by the amount of profit added. A business might have a large overhead percentage, as it does not have much work on to spread the overhead over. This business can only add a small profit before it exceeds what the market will bear. However, a business with a lot of work on will have a lower overhead percentage so it can add more profit before it reaches the same market ceiling. Overheads are an important differentiator in deciding what profit can be added.
What dictates the amount of profit which can be added to an estimate, (including overheads) is what the market will bear. It’s a classic case of supply and demand. By keeping records of tenders submitted, won and lost, it is possible to predict what the market will bear and adjust the profit you add. By benchmarking the wins and losses against your ideal OH&P, you can adjust the profit to minimise the profit left on the table and still win a project when you want to. Of course, you could leave more profit on the table if you have a reason to be sure of securing a project, but this is not sustainable if repeated often.
If you would like help with:
Determining your bid-no-bid criteria
Maximising mark-up without compromising the number of wins
Then please contact me. Peter.Searle@ba4cs.co.uk www.ba4cs.co.uk
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