In these days of tight government budgets, price is an even more important factor now than ever. Whether the acquisition specifies best value or Low Technically Acceptable Price (LPTA), doing your homework and sharpening your pencil for the most competitive price will likely make the difference between a profit and loss on a major competitive acquisition.
Many companies have excellent technical solutions, but achieving a competitive acquisition requires a winning price, as well as an excellent technical proposal. In today’s environment of tight budgets and low-cost premiums, price matters more than ever. The winning price may or may not necessarily be the lowest price. But more often these days, it’s the low price. We seem to get involved in the mechanics of filling out forms and spreadsheets without giving much thought to what constitutes a winning price. You need to get information in advance, do the analysis and look at it in the price mirror objectively.
What makes price matter so much these days is that technically you can win but lose on price. We hear this so often these days. What makes the difference? Without waiting for you to guess what the price should be. Hope doesn’t give you a victory, but knowing your customer, your company, and your competition will bring you closer. You need to make it a priority to figure out what your target price range should be.
What most companies still do today is rack up costs, impose a reasonable (or competitive) fee on the cost, and present the price. Most of the time, pricing is achieved at the last minute without thinking about what it takes to win. There are three parts to Price Matters: data collection, analysis, and real price decision making. This process continues throughout the proposal process (prerequisite stage, proposal stage and post-proposal, but before the final proposal review) and, more importantly, the process begins before what you believe. Developing and implementing a pricing strategy as part of the winning strategy is essential to achieve this; it cannot be achieved at the last minute.
Most people believe that the only way to get the “right” price is to take a price to win (PWIN) that will generate a target price. Let’s get things straight here: PWIN creates a winning range instead of an exact number that translates to the winning price. PWIN activities are intended for you to create a variety of winning goals along with thoughtful actions to assess risk and capabilities; it is not an exact science or number. It is a myth that PWIN is an exact magic number that can be calculated and used as a winning price. You weigh the prices you develop against the capabilities of the company and the risks that your company is willing to take. The components of the winning price are determined from objective data and subjective data (objective examples: current employment data, customer budget or independent cost estimate generated by the government, D&B reports on competitors, past and current contracts, bases of Competitor data and subjective examples: Internet searches, investigations, projections of indirect and labor rates of the competition, interviews with current and former employees, your evaluation of your company, your evaluation of the strengths and weaknesses of your competitor).
While PWIN is not about developing an exact number, and should be seen as a required activity to develop a winning pricing strategy, it is a process that instructs you to consider variables such as fees, risk, capabilities, and creative pricing techniques. . When you “choose” a rate instead of building a target range, you are playing darts; you may not get close to the target or consider the variables that will make your price a winning price. Wrapping fees aren’t the only cost driver; Consider the need for technically compliant labor rates, escalation / de-escalation, and rate. Your best homework and analysis will consider the price along with many other variables. Be serious about the process.
To develop a PWIN process that provides the data you need, you must know your customer, your business, and your competitors. Without all three knowledge bases, you will lose everything you need to develop a winning pricing strategy. Most people only focus on competitive analysis and skip the other two steps. Therefore, you would be dealing with partial information and probably incomplete results.
1. Knowledge of the client. “Must-have” customer information includes synopsis, draft and final RFP, anticipated RFP release date and contract start date, contract length, previous purchase history, authorized program funding, funding deductions for program support government, customer staff and reserves, and customer. independent cost estimate. Other questions could be: Are they experiencing budget pressure? What is your award history? Who are your favorites? Are they sensitive to the price of a single item? Are they price or performance oriented? Is the customer interested in more than just the requirement, such as a lower risk approach? Are they interested in the relative value of value-added features? Are the gee-wiz-bang things going to add high or low value to the customer? How much would they be willing to pay for them in a better value acquisition?
2. Knowledge of your company. Be realistic about your direct and indirect fees. What you did in the story is not something you should repeat. Break the habit of saying “this is how we’ve always done it.” Take an honest self-assessment – how others see you, including your clients, other companies, and outside consultants. Learn about their win-loss history and why. Resist the urge to overemphasize your strengths, but be realistic about your weaknesses. Take a top-down view knowing the past price behavior of your competitors and current market conditions. Find out what the target range is. Do a bottom-up analysis so you know what your costs really are. Challenge cost areas that are not hitting the target. Note that a bottom-up analysis generally results in projections higher than the target range. That’s because estimators put in everything they can think of. Give the estimator guidelines so you don’t waste a lot of time cutting back where a clear timeline and resource definition would help. In developing bidding strategies, include new or creative cost centers, consider downscaling, seek quotes through competitive bidding for the lowest vendor costs, design offsets, and seek corporate investments to show your commitment to the program. Teammate prices can get you in trouble. Know ahead of time what they are likely to bid on, as their prices may increase the bid.
3. Knowledge of the competition. Most of the time, a PWIN only focuses on a competitor analysis. This is shortsighted and only gives you some of the information you need. GSA Advantage, D&B, Internet searches, and FOIA requests will provide you with information about competing companies and their contracts. Find out who your teammates are and how they are likely to bid. Gather information on the corporate investments that competitors can make in the project and what their likely approaches to bidding are. Find the little tricks that competitors have used in the past to get lower prices and their aggressive bidding. Do you intend to use a new work location to reduce costs or infuse your workforce with improved productivity tools? Businesses tend to do the same over time. Consider whether they are the headlines because headlines tend to take less risk and think less “outside the box.” Consider using search services such as GovWin (amalgamation of Input, FedSources, and Deltek) and Tech America. Remember that competitive intelligence is 80% data collection, 15% creative research, and 5% instinct or luck.
The following are the key points to consider when developing a winning pricing strategy:
1. PWIN is not an exact number, but a process to derive price + capabilities + risk
2. Costs don’t set the price, the market does
3. Get to know the customer
4. The likely price of the competitor includes the history and aggressiveness of the offer.
5. Be creative!
6. Timely decision making on pricing strategies
7. Work out your own costs ahead of time
8. Resist the technical temptation to exaggerate the scope.
9. It’s not just about printing fees
10. Are there certain prices that matter more? What is the customer focus button?
11. Teammates can screw up your price
12. Focus on the outside – price matters!
When you set out to price a project to win, developing your strategy that encompasses ALL factors will bring you closer to making your winning bids. That means considering your customer, your business information, and your competitor’s information. Without all three continually reviewed throughout the process, you are probably guessing, rather than focusing your attention on the price range you need. Consider if lower price is a factor and if your value-added items mean a lot to your customer.