As part of our tender consultancy service, we often discuss tender pricing strategies with clients. This beginner's guide to pricing tenders covers the most common topics we address to help you aim for the winning bid.

Understanding Your Business and Competition

Knowing your business, its costs, competitive pricing, and your competition is crucial. While we can't predict the winning price, this guide will explain some of the most important issues when bidding to win a tender. A GeM Consultant can help you analyze market trends and your competition to set competitive pricing.

General Pricing Strategy

Price is almost always a key component in the evaluation of tenders. To ensure your company’s pricing is competitive in your market sector, consider these strategies:

Direct Costs: These are the specific costs incurred to provide the product or service, such as staff, materials, subcontractors, and supervision.

Indirect Costs: These include premises, management, professional fees, administration, etc.

Profit: This is the difference between the selling price and the sum of direct and indirect costs.

A GeM Consultant can assist in accurately calculating these costs and establishing a pricing structure that aligns with market expectations.

Pricing Methodologies

Cost-Plus Pricing: A very common methodology where you account for all costs and then add your margin to determine the selling price. This approach helps you compare your prices with the market while ensuring an acceptable profit. A GeM Consultant can guide you through this process to ensure accuracy and competitiveness.

Value-Based Pricing: This strategy involves setting a price that customers are willing to pay, which may be higher than cost-plus pricing if your offering is premium or scarce. In a commoditized market, it may be lower, prompting a review of costs and overheads. GeM Consultants can help you identify areas where you can leverage value-based pricing effectively.

Marginal Pricing: This approach looks at the differences in production levels, setting the price to cover the extra cost of producing an additional unit of output, plus a profit margin. Consider this when you have spare capacity within your fixed overhead structure. A GeM Consultant can provide insights into when marginal pricing might be beneficial.

Economies of Scale: Higher outputs or increased operation scale can reduce costs, enabling you to offer a reduced unit price for high-value, long-term contracts. GeM Consultants can help you leverage economies of scale in your pricing strategy.

MEAT – Tender Evaluation

MEAT stands for Most Economically Advantageous Tender. Tenders are assessed based on a combination of price and quality. For example:

• 70% price and 30% quality: focus on low price
• 30% price and 70% quality: focus on high quality

Understanding the specific weighting within the price evaluation is crucial when pricing tenders. Concentrate on getting high-score prices right. A GeM Consultant can help you navigate MEAT evaluations to optimize your bid.

Firm Tender Price

An invitation to tender (ITT) requires a fixed, non-negotiable price offer. Once submitted, it is uncommon to have the opportunity to alter your tendered price. Therefore, ensure you properly cost the stated requirement in the tender to avoid errors. GeM Consultants can assist in ensuring your pricing is both competitive and compliant.

Tender Compliance

Completing the ITT’s pricing schedule correctly is essential. If you don’t understand how to fill it out, seek help or ask for clarification. Compliance and accuracy are as important as providing a good price and quality response. A GeM Consultant can provide valuable support in this area.

Pricing Tenders Exactly

Carefully read and re-read the specification, requirements, and contract to understand the contract fully and price it correctly. Price what’s asked for to maintain competitiveness. If added value gets high marks, include cost extras.

Commercial View When Pricing Tenders

Take a commercial view when pricing tenders. Consider the whole deal realistically. For example, if some items within the specification have a high cost but are rarely needed, adjust your pricing accordingly.

Schedule of Rates (SOR): Common in the construction industry, SORs are price lists for a contract. Offer a set of rates that will get you top marks by being very competitive on high-score prices. GeM Consultants can help you manage and optimize your SORs.

Know Your Competitors

Consider your competitors’ strengths, weaknesses, and pricing. This knowledge can prove invaluable when finalizing your tender pricing and bid submission. A GeM Consultant can help you gather and analyze competitor data.

Only Bid on Tenders You Can Win

Choose the right tenders and ignore others to increase your tender success rate. If the tender isn’t right for you, it may suit a competitor better. A GeM Consultant can help you identify the most promising opportunities.

Tender Pricing or Cost Breakdown

When a tender asks for a breakdown of your price(s), they are looking for a reasonable estimation. Ensure important items are properly budgeted for and your overheads and profits are reasonable. Look at your company accounts for a better idea, showing some basics about your business’ costs and profits. A GeM service provider can guide you through creating an accurate cost breakdown.

Pricing Tenders for a Fixed Term

Certain tenders mandate fixed pricing for as long as 5 years. This means assuming what your costs will be for that period. Take a reasonable view in predicting future costs based on current knowledge. If costs increase beyond reasonable prediction, discuss the situation with the customer to seek a financial arrangement.

Guaranteed Savings

Buyers seek fixed-term pricing for certainty of cost. However, offering better value for money each year may be more desirable. Look at economies of scale and long-term efficiencies to provide specific savings each year. GeM Consultants can assist in identifying and presenting these savings.

Show Tender Pricing Explanations

Seek clarification if a tender pricing schedule doesn’t make sense. Show anything requiring explanation clearly and unambiguously, ideally on the pricing schedule. Avoid making qualifications unless absolutely necessary. A GeM Consultant can help ensure your pricing explanations are clear and compliant.

Alternative Bids

Offer an alternative bid where possible, as they tend to score higher marks. Ensure compliance by giving the customer what they ask for and offering the alternative, explaining the saving.

Measure Results

Track your tender results and always get feedback on how you did against competitors. Benchmark your results to trim costs or identify areas where you can increase prices and make more profit. A GeM Consultant can help you analyze and improve your tender performance.

Summary

While we can't predict the winning price, using this guide when pricing tenders should increase your chances of success. Qualify each bid, pitch competitively in line with tender requirements, and keep track of your results compared to competitors. Pricing tenders is challenging, but these basics, with the support of a GeM Consultant, should help you get started.