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What is Price to Win?

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All right govcons, here’s another fancy schmancy phrase that is pretty common in our industry and yet nobody really knows what this mysterious thing is. Price to Win (PTW)! What? Does anyone truly have a guide to THE winning number? Think about that for a second. The answer is a resounding NO. If someone did, they would be richer than Jeff Bezos. So, what is the number or how can we at least get close? After working on and consulting with the Price to Win gurus in the industry, it’s safe to say that Price to Win isn’t a miracle cure to your pricing problems.

What are pricing problems?

  • You’ve been losing proposals because of the pricing factors involved
  • Your technical and other volumes have been kicking down the door by getting excellent/good ratings, yet no wins.

Now, don’t go blaming your pricing team because of these losses. Trust us, it’s not them, it’s you, the Capture Team. A winning price is achieved by thoroughly analyzing competition, acquisition trends, budgets, price and capabilities tradeoffs. We can’t forget an accurate cost proposal development. (Notice that the cost proposal development is only one part of this process.) This process is essentially the concept of “Price to Win”.  PTW informs your pricing decisions.

A PTW process should begin the minute you identify an opportunity. It should be integrated into your bid/no bid decision.  You must understand the competitive landscape at that time of opportunity, and what it’s likely to be by the time the Request for Proposal (RFP) actually drops.  This can be quite a long window of time (a year to two in some cases). This is why Price to win is an iterative process. You must keep an eye on the ball because the landscape changes quite a bit in our industry. A current competitor might be your teammate and a current teammate might suddenly become a competitor if there is M&A activity (which is a huge trend).

What does PTW entail?

As we’ve highlighted in our Circle of Pricing before;

Price to Win – this is a bottom-up build based on the draft RFP documents and final RFP documents. The end result is to model the Total Evaluated Price (TEP).

The inputs into the TEP (for example, the technical solution), are determined during the Competitive Analysis. The outputs of the Price to Win analysis are to recommend specific strategies identified in competitors that can be incorporated into your internal pricing strategy. Price to Win should provide you with a comparison of labor categories, location, etc. that are being priced by your competitors. You can use this information against your approach and make adjustments to your solution and to your pricing.

The smartest way to conduct a thorough Price to Win analysis (that includes competitive assessments, buying trends, market cost estimation) is to hire the experts.  Hiring industry experts provide a very good lens to obtain a robust view.  You can have your internal team conduct this, but you may want to consider outsourcing.  A subject matter expert will have a better finger on the pulse of the market.  It’s worth the investment to use these experts and outsource your Price to Win function to capture the market analysis with an unbiased view.

If you’d like to learn more about how this looks for your business, contact BOOST! [email protected]

Top 3 Pricing Mistakes

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The govcon industry has its own sub-industry – the govcon proposal industry.  There are many companies, and thousands of professionals (if not more) dedicated to this profession of proposals and business development in the govcon sector.  It’s an intense career path, and it challenges professional sanity to quite an extent. This is not due to the difficulty of putting a proposal together, but because the government (yes we’re going there), makes the entire process extremely cumbersome and unnecessarily complicated. You can debate the necessity of providing cost data in 5 different formats all you want. There are brilliant proposal writers, managers and growth executives that are often caught in frustrating proposal hell because their product, aka the proposal, isn’t a function of their actual talent. Instead, it is a collection of documents that are much less of a sales pitch with compliance matrices and solutions weaved in.  Sometimes things can be made a bit easier.

There is hope! Some easy pitfalls to avoid, at least when it comes to the pricing volumes include:

  1. Incumbent bias (very common): If you’re an incumbent on a contract, your first instinct might be to bid existing contract rates.  We highly recommend against using that approach. No matter what the evaluation criteria are, whether cost is an important factor or not, the bottom line is that you must bid like a competitor. You must be very smart and understand the market landscape. The government is a buyer, their decision-making processes are rarely set up to award to incumbents without much justification. If your competitors develop an excellent solution including the best value and bid the fair market price/value, the government will need a lot of justification to award to the incumbent.
  2. Inaccurate calculations: Believe it or not, this happens a lot.  You must make sure that your actual pricing calculations are in sync with your accounting policies and procedures.  If your overhead base includes direct labor and fringe, then you must bid it that way.  If your G&A is total cost input, then you must apply it to all costs in the proposal.  Often small calculation mistakes can magnify a pricing error and it can cost you the entire bid.  Enough time for reviews and quality checks must be built into the pricing schedules, and executives must be coached about the impact of last minute changes and cascading effects on final pricing models.
  3. Non-compliance: Nothing gets you kicked out faster than a non-compliant proposal. This applies to all volumes, but particularly to the cost/price volume. This trips people up because often the instructions in section L of the RFP in regard to the cost volume are confusing and contradicting.

 

To mitigate these common mistakes we suggest that you should:

  • Shred the RFP thoroughly. No part left unturned.
  • Review all the instructions in Section L for all volumes (because there are overlaps and connections you may not even know between the cost volume and the tech volumes)
  • Note any and all questions as you review the first, second, third time. You must do this to capture every intent of the instructions.
  • Create a thorough compliance matrix for the cost volume. This step really helps flush out interdependencies on other volumes, and confusing instructions.

 

This process will give you enough time to prepare and submit questions to the government to help clarify issues ahead of time.  These 4 steps will help you to create the shell of the cost volume early on and the pieces will fit in better as you coordinate and facilitate the volume development.

As an understatement, pricing is difficult. Luckily you have BOOST GovCon pricing specialists in your corner. Let’s connect today and get ahead of these common mistakes so you can win more work! [email protected]

What is Strategic Pricing?

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Over the past decade or so, we’ve all been whacked by this beast of a trend called “Low Price Technically Acceptable” (LPTA) evaluation criterion.  It’s where the government looks at one thing and one thing only. Namely, your price.  The lowest price to be clear.  As long as all of your other volumes meet the basic criteria to “pass” the gates, the evaluation comes down to who has the lowest price proposal.  Yes, ladies and gentlemen, we are now talking about a government that has and is acquiring national security services/items by trying to shop at “Walmart” or “Amazon” (whichever is cheaper).  Let that sit for a minute.

It is unlikely that this trend is going to change quickly, in fact, it will probably be around for a few more years.  It’s smart to start bidding and optimizing your pricing strategy in a holistic way. The best approach isn’t to cut rates across the board), but also to understand what happens to your business and to the market when everyone finds themselves in the same boat.

Let’s dive in to the term “strategic”.  This means you need to approach each and every bid, whether it’s an LPTA or a best value or other type of evaluation, with a healthy amount of preparation.  You must review all of your contracts, your pipeline, your teammate rates, your teaming commitments, your HR policies, recruiting capabilities, and your mission and strategy in whole.  Is going after low price contracts going to keep you in line with your corporate strategy? Are you going after these bids to increase revenue so that you have a great top line figure, and perhaps aim for an acquisition? Are you bidding for past performance?  Depending on your intent to bid, you should shape your pricing approach accordingly.

Strategic pricing should be a very integrated and well thought out function of your organization that involves smart capture practices to smart financial planning.  Your pricing team should be a part of your bid/no bid decision phase, and they should also be advisors to your financial and executive teams to submit smart, effective, and winning proposals.

Various approaches to lower your rates can include:

  1. The Easy One: lower all of your rates, across the board. If you’re the incumbent, don’t bid your existing employee rates. Why? Because your competitors aren’t going to do that, they’re going to bid at or below market rates.
  2. The Difficult One: lower your indirect rates. This is a hard one to do quickly. How do you lower an existing General and Administrative (G&A) rate? It’s a part of your business costs, you can’t suddenly drop your G&A.  Or can you? Consider the impact of adding new revenue to your existing contracts, project out new budgets and forecasts and update your bid G&A rate.  Remember, this is just to bid. First you bid, then you win. Is your corporate G&A overloaded? Are there functions in your company, such as Accounting/HR/Recruiting that you can outsource and make your backbone leaner?
  3. The Good One: Overhead rates. For every new contract, create a new contract overhead rate.  Try to bid as many costs direct.  Keep the overhead rate to 4-6% of the total contract revenue.
  4. Escalation rates: research various sources, such as GSA rates, government data as Bureau of Labor Statistics. Don’t just bid your existing policy rates, or incumbent contract raises. That might not be a competitive approach anymore.

These are some quick and dirty ways to start sharpening your pencils for the next few bids.  As you build your strategic pricing capabilities for the long term, keep simple strategies in mind, but also know that it takes a while to actually become a smart bidder.  It’s not just about the mechanics of preparing a cost volume, but a multitude of factors. Your pipeline strategy, new cost centers, perhaps new divisions, new targets for M&A activity, new bids that might diversify your portfolio, all of these impact the growth of your business.  If you bid with the right intent, your strategy should follow as such.

If you’re questioning your current strategic pricing strategies, connect with those in the know. BOOST LLC has experts to assist you in managing this part of your proposal routine. Connect today at [email protected].