A better formula for calculating proposal efficiency

Most people calculate proposal efficiency the wrong way. They calculate it based on how much effort they put into their proposals. This is based on the assumption that less effort always makes things more efficient. And it happens to be a wrong assumption. Efficiency is defined by maximizing productivity with the least amount of wasted effort.

Measuring proposal efficiency

The productivity of proposal effort is best measured by the amount or percentage won. This means that the efficiency of proposal development is defined by the dollars won divided by the dollars expended to win them. Here’s the equation:

Dollars won / dollars expended to win them

Now, take the top number, the dollars won, and look at it as the dollars submitted multiplied by your win rate

(Dollars submitted * win rate) / dollars expended to win the proposal

If you don’t track the cost of your proposals, you can use the number of hours spent working on the proposal as a poxy, since nearly all of the cost of preparing a proposal is time.

Which of these numbers will have the biggest impact on your efficiency?  Spoiler alert: It’s the win rate. 

Let’s try an example:

($1,000,000 * .3) / 10,000 = $30 won for every dollar expended

If you increase win rate to .4 you’ll get 40 dollars won for every dollar expended. You can achieve this without spending more on your proposals.

You’d also get the same result by reducing cost to 7,500. But that requires a 25% reduction in cost. If you did every 4 person proposal with only 3 people, or if you did every 4 week proposal in 3 weeks, what would the impact be to proposal quality and your win rate? If you reduce cost but lower your win rate, you won’t get the same result. Here’s an example based on only a 10% reduction in win rate:

($1,000,000 * .27) / 7,500 = $36 won for every dollar expended

That’s better than the first example, but it’s 15% less revenue than the example of ignoring proposal cost and increasing your win rate. It is usually better to increase win rate without spending more than you do than it is to risk lowering your win rate by reducing costs. It’s easier to increase win rate by working smarter than it is to maintain you win rate while working less. 

The volume of proposals submitted by a given number of staff is not a valid measure for proposal productivity or efficiency. Submitting more proposals at a lower win rate is not more productive. Definitions matter. 

But what about the real world?

In the interest of simplicity, there are some things missing from this equation. For example, at a higher win rate, you need fewer leads to win the same amount of business. Pursuing fewer leads reduces costs. Pursuing fewer leads that lose increases profitability, as well as productivity. Pursuing fewer leads that lose increases efficiency dramatically.

Another important consideration is that identifying, pursuing, and capturing leads can take a long time. Winning the leads you already have takes much less time. If you want quick revenue, instead of chasing opportunistic leads considering putting the effort into increasing your win rate for a faster payoff. Focusing on win rate means pursuing smarter instead of pursuing more. 

Your win rate also enables you to calculate the amount of wasted effort. Is it wasted effort to use elaborate proposal formatting that takes a lot of time to prepare? The way to determine that is to figure out how much that formatting impacts your win rate. Everything else is just opinion about presentation. If formatting impacts your win rate, then improving it will increase your proposal efficiency. If it doesn’t impact it, or if the impact is minimal, it will at best have a minimal impact on proposal efficiency, and you should be able to find many things that have a major impact to give priority to.  

If you want to increase efficiency by reducing wasted effort, don’t start by reusing proposal content. The reduction in win rate will wipe out any savings in effort. Instead, start by losing fewer proposals. Take the effort you’d put into create a reuse library and put it into increasing your win rate. This is another reason why it’s better to build your process around lead qualification and capture instead of maximizing lead discovery.

If you define proposal efficiency as the time per proposal, you can end up winning less. But if you define proposal efficiency as the time spent achieving a certain amount of revenue, you will only become more efficient if you increase your win rate.