Sacrificing Yourself to Win: The Hidden Costs of Bidding

I’d like to focus on the person “running the numbers” to generate a price to the customer. Let’s call them the “Pricer”. For me, the most significant hidden costs in this role is in the need to reconcile the resultant price for Sales (needing sufficiently low prices to win) and Finance (needing sufficiently high prices to make money).

A good Pricer is conscientious and wants to get things right within the time available. Also, pricing is one of the last tasks that is done in the bid cycle. The Pricer is likely to run a spreadsheet to collect all cost / price elements and submit in the compliant customer format. This means they have jurisdiction on what the price will be upon submission (subject to being correct and approved, of course).

The Pricer has to align two (potentially conflicting) agendas:

  1. The Sales Directorate who are very aware that competitors may win on price. The Pricer therefore has to keep the price low, maybe even lower than may seem practicable, especially to beat competitors who are notoriously cheap.
  2. The Finance Directorate who focus on the company’s P&L account and want a sufficient gross margi n /profit. The Pricer needs to ensure sufficient overhead recoveries, profit margins, operational costs, and operational / financial / contractual risks are covered in the price. Cashflow analysis and the cost of capital are also factors.

The Pricer needs to keep both Sales and Finance happy.

I have been in the middle of a number of tenders where this can be mathematically impossible. It has nothing to do with who I may agree or disagree with as it is simply a case of inputs, calculations and results that end in one being content and the other not. If the price is competitive but the gross margins are too low (or even at risk of being negative) then Finance are not happy. If the costs are all recovered and the margins look good but the price is too high then Sales are not happy. It is the Pricer who can be treated as the owner (and sometimes even the creator) of such a problem. This can put a lot of stress on the Pricer as they may feel responsible, or be made to feel unhelpful, if “their” numbers are not strategically correct whilst they may be mathematically correct. Furthermore it is likely that this predicament occurs a day or so before the deadline as pricing only really comes into focus late on in the cycle, especially if decision making and cost estimation is tardy.

I have found that this hidden cost is particularly common in the more high-value bids. This is principally due to the fact all tenderers will find the same opportunities exciting and therefore all bid for them: opening up a firm to low cost competition and even low cost incumbents. Yet the stress on the Pricer remains considerable and can lead to demotivation and, ultimately, resignation.

The best mitigator for the hidden costs of bidding for the Pricer is for the wider team, and especially the leadership, to comprehend and actively-manage what the Pricer is going through. It is my hope that with an understanding and a pro-active collegiate team ethos that the hidden costs of bidding for a Pricer can be identified and minimised, if not removed.

This article was written by Peter Bryans.

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