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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.