All of these missteps affect the price – sometimes resulting in your proposal being out of the competitive range. You risk proposal elimination even before you have an opportunity to respond to questions your customer may have about your price.
The best way to deal with these pitfalls is to address them before you start putting your first fingers to the keyboard, rather than side-stepping them. When you try to evade the pricing hazards, you fall into the trap of simply avoiding the problems instead of fixing them or leading your way through them.
What do companies do wrong in their price volume given todays challenging contracting environment? Here are the top pitfalls.
- Customer intelligence. Companies eliminate or gloss over the customer intelligence gathering step. This makes for cavernous critical information holes about the customer, the budget/Government independent cost estimate, the competition and the price to win. Companies rely on hearsay or what puzzle pieces they can put together to guess about the customer. That means you might as well take out a dart board, close your eyes, and hope you get the right price. More than likely, you will not. Do you know what price you are aiming for? If not, you will not get to the winning price. Often, there is little or gratuitous competitive information and it ends up being hearsay, rumors, or information put out by your competitors to set you off the track of winning. Your steadfastness in assembling customer intelligence data from reliable sources and in an organized fashion will give you the information you need to get to the winning price.
Best practices would have you develop that information in the capture plan and carry those data gathering activities into the proposal strategy plan and throughout the proposal process, even past the time that you submit the proposal so you can refine your approach, if need be, in subsequent responses. Get input from public sources like GovWin or EZGovOpps as well as your own company data, subcontractors and consultants.
- Pricing Strategy. Developing a pricing strategy is basic to any of your proposal efforts. Without it you are just slapping together costs and tacking a profit margin on the costs to arrive at price. This is not a pricing strategy – it is a costing mentality. Organizations which do not develop a specific pricing strategy for each opportunity are destined to lose.
Best practices incorporate your overall proposal technical strategy along with those pricing considerations that are critical to getting to the winning price. Pricing is cost plus your strategy. The winning price is market driven, not cost driven. The pricing strategy is developed throughout the lifecycle of the opportunity. You estimate your price to win during all phases of the opportunity and refine your focus as you get more information – customer, competitors, and your company. Your strategy ought to respect and reflect your organization’s investments (development, facilities, and training, for example). It also should incorporate your level of risk as well as your mindfulness about the profit margins you need and can live with. Covering your cost of borrowing money is important to your profit concerns as well as your level of unallowable costs. You would also want to be mindful of the contracting environment you are working with to know if they are open to change orders, if any.
- Subcontractors. Subcontractor data flow, pricing, target rates, and profit margin expectations is managed at a minimum level or not at all. You can drive so much of the pricing process to a win when you manage it well. Likewise, you will lose you are your subcontractors hold you as a prime hostage for the prices they want. True teammates will cooperate and strong prime contractors, like you, will lead the process with target rate expectations and guidance which involves the subcontractor during the capture phase. You can drive the outcome from your subcontractors when you act like a prime contractor who knows what they are doing with a formal RFP with schedule, data call items, requirements, and compilation of what has been discussed.
Best practices would include your engagement in advance pricing strategy discussions with your subcontractors before the opportunity hits the street. Do you have a common vision about the price you will need to bid? If not, don’t engage with the teammate. Make sure you have clear lines of authority about who is making the pricing decisions for the prime and the subcontractors. Get agreement on price targets and how and when the data will flow. Be sure you have a strong teaming agreement clause on price which allows you to readjust the work share if the subcontractor cannot agree on getting to your targets. Potentially have your subcontractors share in the B&P costs so they are invested in the proposal and its outcome.
- Technical Volume Alignment. The price volume lead doesn’t make time to read the technical volume or is told it’s not important to review the technical volume. Wow…imagine that! Seems so simple a step that almost doesn’t need to be listed. But it does because the price volume activity is usually lagging behind the technical solution. Moreover, you are likely to be running so fast at the end that there just doesn’t seem to be enough time to do this step. It’s an important step that will bear fruit when you read the technical volume and find out the writers promised many things that never got priced. Worse yet, the services or products you priced were not the same as those talked about in the technical solution. There are some evaluators who read both volumes and look for these inconsistencies.
Best practices would have the price volume lead review the technical volume before pink and red team as well as at gold team. Get the price volume lead to sit in on technical strategy development and the technical volume lead to sit in on pricing strategy development sessions. Regular tag up meetings between both of these people is essential to congruent stories and pricing.
- Direct Costs. Prime contractors fail to put enough emphasis on direct cost data analysis. Companies erroneously presume that the wrap rate is the driving factor in pricing. It’s not. You can make a bigger difference in your price by closely examining the salary labor, direct material, and other direct cost data to meet the requirements in the performance work statement. These costs are the biggest price driver. Often you carelessly leave this step to last or fail to examine direct costs in light of what you are proposing in the technical volume. Then you have an out-of-sync technical and price volume. When you over think the solution you tend to get more “bells” into your solution than what was asked for in the performance work statement. Sometimes the salary you have chosen doesn’t match the education and experience requirements. Or you propose a highly talented person(s) only to find out the customer did not need or want them. Other times, you have great latitude in matching the requirements to the position and salary you need to win. When bidding direct materials and other direct costs you can get cornered into bidding higher prices by basing your estimates on history alone rather than challenging your past experience with new trends. Your metrics are important but they are only a guide.
Best practices would include you diving into salary, direct material, and other direct costs with an eye towards a price to win driven solution. Obtain reliable salary data and establish your methodology for matching the requirements to your choices – whether it is your data or survey data. Modify your methodology on a case by case basis to weed out non-essential features the customer doesn’t need. For direct materials and other direct costs, you should obtain competitive bids and ask vendors to vie for your business with discounts. Team with trusted partners if you cannot do all of the work yourself and adjust the work share to accommodate pricing value to the team member who best suits the requirement and has the best price. Consider turning management positions into task leads so you get less management load on the pricing – a consideration that is viewed favorably by the customer for technical and price reasons.
Why risk losing because the price proposal did not stack up? If you lose because your price was too high, it’s likely you did not gain the customer intelligence information you needed to make an informed price to win target or you missed knowing the customer’s hot buttons. Don’t miss the chance to develop your pricing strategy to begin with. Leave behind your cost-buildup-only mentality and take the opportunity to tout your own investments in the program. Make sure your subcontractors are truly devoted to making the price competitive. Pricing lead technical proposal reviews are a must to make sure you get the approach consistently priced. Give sufficient emphasis and sharpen your thinking on developing your direct costs to precisely what you are responding to…and no more.