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BOOST Strategic Pricing

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Introducing BOOST LLC

BOOST was founded to support GovCons as they get to the next level. After reinventing the wheel many times and banging our heads against numerous walls, we have learned what works and what doesn’t. We love working with executives who want to see their organization grow and who value advice from those who have “been there, done that.” We want our small clients to outgrow us. We want our large clients to use us when they need us and then call us back for the next project. We want you to sell your business for the multiplier you want. We want you to be successful.

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Smart Tips for Pricing Labor Rates

If you’re bidding on any government contract these days, whether it’s a Firm Fixed Price or Cost Plus, there is almost always a requirement to demonstrate and justify how your labor rates were developed.  Many companies may end up bidding existing employee rates (that’s fine, but may not be the smartest approach), or using free online sources such as salary.com.  We recommend a few better approaches to refine and really sharpen the bid rates. Note here that there is, of course, a cost to obtain good data.  Good data paves the way for good analysis.

Here are BOOST’s top three tips to develop and bid smart labor rates (that you can justify to the government and intelligently execute):

  1. Access: Get access to labor survey databases. This can be costly, but there are options for buying reports or gaining access. Options include: using cost-sharing with other partners buying a license directly with companies such as Economic Research Institute (ERI), Mercer, Western Management Group, proprietary survey tools from BOOST etc,. These depend on their cost and your usage.  Do not rely on free sites such as salary.com or LinkedIn. It’s possible to review them and perhaps use them as a way to triangulate, but they should not be used as primary sources of information to justify your rates.
  2. Research: Use government sources such as the Department of Labor Bureau of Labor Statistics data tables. This isn’t the most accurate way to define your rates, but it can provide a good range to compare to the other data sources and provide fidelity. Additionally, peruse GS Pay rates and add them into your analysis.  Use these resources with caution. They’re not as refined as the commercially developed salary databases mentioned above, but sometimes the government does require you to bid within these ranges.
  3. Collaborate: Get your subcontractors on data calls. When developing labor rates, you’re often required to request rate data calls from your subcontractors.
    This does two things –

1. Ensures that you’re performing a proper subcontractor rate analysis as a part of the FAR requirements.

2. Provides actual data points from various companies in the scope of the contract/work to be performed.

In a way, this is actual live market data, that you can use to compare and refine your rates.  This is an often-overlooked strategy because it’s very time-sensitive. Furthermore, you don’t usually get the data in enough time to make actual pricing comparisons and decisions on your rates.  This is why a proper timeline and pricing schedule must be implemented. That’s a story for another day!

Pricing is a monster all on its own, but with these smart tips you can start to tame the beast. The pricing experts at BOOST are experienced in helping to support your strategic pricing needs. Contact us today to better prepare and price your proposals.

What is Strategic Pricing?

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]

 

5 Pricing Tips for the New Year

As we enter a new calendar year, we begin the madness of sharpening our budgets and pipelines.  Some of the focus ends up being on managing expenses and headcount, as it should, but often some quick and easy planning can help you to optimize your pricing strategy for the next year.

To get you started, here are five pricing tips for the new year:

  1. Contract Labor Bill Rate Review
    Have you had any staff turnover on your firm fixed price or time and materials contracts? If so, you may be able to capture some labor efficiencies by “greening” those positions and/or consolidating functions under higher bill rate positions. BONUS TIP: This is especially helpful if the contract is up for a re-competition and you’re the incumbent.
  2. Cost-Plus Contracts
    If your Cost-Plus contract is coming up for a re-compete, review all of the direct labor rates, and examine them against market rates (such as a survey or government rate data such as Bureau of Labor Statistics).  Bid market rates, NOT current employee rates.
  3. Subcontract Review
    Are there opportunities to bring in new subcontractors of the same quality/scope, but with better rates? This might be dependent on teaming agreements and workshare commitments. If the contract allows it, develop an active strategy around subcontractor selection and rates every year.
  4. Overhead & Infrastructure Review
    Facilities – this is a big one. Are there opportunities to renew different types of leases/facilities?  You may want to explore the trend of shared/co-working spaces. This solution can provide a lot of cost efficiencies if your contract/company policy allows it. Telecom expenses are also a major player. There are a multitude of new options that minimize the telecom costs for entire companies through third-party vendors and resellers, or cost sharing with other companies. Do your homework and save your company money in the long run.
  5. Beef Up Your Back Office Support
    Can you outsource major functions such as accounting, HR, recruiting, contracts? Believe it or not, this is becoming a good option for many mid-tier contractors. Use this opportunity to get lean without sacrificing quality and compliance standards.

The tips above are not a one-and-done type of deal. You should be reviewing internally each year as you plan operations and execution of contracts for the new year.  While much of this is common sense, seldom is it applied to affect pricing strategy/updates.  Use this information to bid sharper and smarter than your competitors and get the edge in pricing!

Circle of Pricing

Pricing terminology is confusing! Everyone uses the language differently – with different philosophies on pricing, different terms for the stages of pricing and a lack of consistency for terms. All further complicated by which government agency you serve.

Here is the circle of life as it pertains to pricing in a nutshell:

Before the RFP Drops

Competitive Analysis/Price to Compete–this is looking at all external factors to understand your competition and determine what the competitive landscape will be. Think of this as coming up with a range of what would be competitive. This includes taking the following into consideration:

  • Competition and assessing your competitor’s rates
  • Government customer’s budget – current funding and projected forecasted spending
  • Customer’s previous history and buying decisions

This is normally done well in advance of the RFP dropping and can be critical to the bid/no-bid decision. It also serves as a guide for strategic planning and vision. Are you looking at opportunities that make sense for your company?

Draft RFP/Initial RFP 

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 to compare to your own approach and make adjustments to your solution and to your pricing.

Strategic Pricing/Internal Focus – this is the bottom up and top down approach towards pricing out your technical solution. When done right, this is in lockstep with the technical team from the beginning. Factors taken into consideration:

  • Lines of code, widgets required
  • Hours and labor categories associated with each task, level of expertise required, labor rate
  • Travel/ODCs, subcontractors as required
  • Geographical location
  • Quality Assurance/Testing process
  • Certifications required
  • Multipliers/Wrap-rates used
  • Fee analysis
  • Assumptions documented

Depending on available information, relationship with the agency and when the technical solution is developed, this should be done in advance of the final RFP hitting the street (in a perfect world).

After the RFP Drops

Proposal Pricing/Cost Volume/RFP Based – the actual cost volume, narrative and documentation for the audit file. This is the hard-core spreadsheet work, section B, documentation for the cost volume, and everything associated with the proposal as it relates to cost. Ideally, this is done with as much lead time as possible. In reality, it is always one of the last items to be complete as the pricer is waiting on subcontractor submissions, final verification of the staffing plan and any other shenanigans that come up in a color review. The goal is always to have it done in time for a thorough review. The key here is compliance, compliance, compliance. Follow the RFP to the T, focus on checking boxes and keep it simple.

If you need any help with the above, please reach out to BOOST. We have SME’s who focus on each of the above areas and can support any phase of the pricing lifecycle.