A 3 step process to winning profitable tenders

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 differentiator of any tender, even when other considerations are evaluated. Getting the price right is not easy, too low and you could lose money, too high and you will not win the work. Winning work at the highest price the market will bear, and avoiding the “race to the bottom” can be achieved if you follow the steps recommended below. 

Step 1 – Know your overheads. 

Unfortunately, most SME businesses are not clear what their actual overheads are. In the financial accounts the calculation of the operating profit is required and is shown. “Total money in” less “total money out” is all that is required to do the calculation. As a result, many SME businesses have an array of headings for expenses, and the true overheads are not known. Every business has a different overhead, but they are a key component of calculating your tender price. Recasting and adjusting the overheads so they reflect just the cost of running the business with market rate salaries, when a project is live, is the first step in sorting the pricing. 

Step 2 – Estimate the actual cost of doing the project.

Most SME businesses have a good idea of the actual cost of doing the work in terms of time it will take, and the materials required. This statement holds true for most businesses regularly working in a segment of the market. Being able to define that segment is important, as it then establishes the types of tenders to bid and those to avoid. Segmentation criteria include location, type of client, value of the projects, the type of work, duration, and any specific accreditations required of the work. Target any bids that closely match your ideal segment. The closer the match the more likely you are to win. Managing your pipeline of work is critical if your estimating resources are to be the most effective. More about managing the pipeline can be found in this blog. https://www.profitablecontractor.co.uk/post/managing-your-pipeline-of-work  

Step 3 – Turn the estimate into a tender by knowing the state of 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 to be added. Overheads are an important differentiator in deciding what profit can be added. 

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: 

• Recasting your overheads 

• 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