This bidding strategy can destroy your company before you realize it

How more turns into less

The easiest corporate strategy for growth is to bid everything. Proposal professionals hate this strategy because it results in a low win rate that they expect to get blamed for. It also increases their workload for little gain. But the undeniable fact is that you can win business by bidding opportunistically. That’s what makes it so tempting. The result is a certain… tension… 

See also:
Bid/no bid decisions

Whether you should bid opportunistically or strategically is a simple return on investment calculation. Add up your costs of bidding and compare it to your wins. The problem with opportunistic bidding is that it results in low win rates. When you bid without an information advantage, you bid at a competitive disadvantage. Your cost per win goes up as your win rate goes down. And the ones you win are probably the ones where your pricing was lowest, resulting in lower profit margins. Opportunistic bidding leads to higher costs and less profit. But it also results in more profit than you would have had if you didn’t bid anything. 
 
Every time I've run it with real numbers, I find that the impact your win rate has on your profitability makes investing in a high win rate the better investment. For example, at a 10% win rate, you'll need three times the number of leads as a company at a 30% win rate, just to hit the same revenue. All that opportunistic bidding is often great amounts of energy spent uselessly. The idea that opportunistic bidding produces more revenue than you would have had without it is an illusion. At a 30% win rate you’ll achieve twice the revenue of a company with a 10% win rate, and do it with half the leads and a lower cost of bidding.
 
There is no doubt that you can win some business with an opportunistic approach. The question is whether that's the best ROI. The answer will not be the same for everybody. Consider:

  • The closer you get to a commodity service, the less important trust and other factors become, the more important price becomes, and the more bidding in volume can pay off.
  • If the size of your bids does not cover the costs of customizing your bids, then while win rate will remain critically important, you will not be able to afford strategically pursuing each opportunity.
  • In certain niche markets, customers buy without advance planning or announcements.
  • Some things are purchased by a customer only once and customers are widely dispersed, making targeting impossible.

But even putting aside the importance of win rates for a moment, it’s a strategic question that determines whether opportunistic bidding will destroy your company: Does opportunistic bidding lead to growth, or does it plateau when you run out of leads that are easy to find and bid? 

For opportunistic bidding the only path to growth is to find more low-hanging fruit than you lose. Forever. The idea that opportunistic bidding can get your foot in the door is an illusion. Opportunistic bidding is not a way to jump start a business or something you can switch from when “you are ready.” If you can get the business without a customer relationship, then someone else can steal it from you the same way. Opportunistic bidding requires a business model that can survive high levels of churn. If you run a non-commodity services business, rapid turnover will kill your business. 

When you run out of easy leads, you will be unable to replace the revenue at the same rate. That’s when things go bad quickly, because you’ve built an organization that structurally, culturally, financially, and otherwise is incapable of the investment required for strategic pursuit. You can’t switch on a whim to strategic business if you don’t have the right processes, the way people think they are supposed to do things is all wrong, you haven’t mastered long lead time pursuits, your win rate is abysmal, you can’t cover the costs of strategic pursuits, and you habitually start too late.
 
Every time I've seen it tried in a non-commodity services business, opportunistic bidding led to a crash that was most often resolved by selling the business and not simply reorganizing it, but replacing it with a strategic organization.

The difference between a strategic organization and an opportunistic one is that maximizing win rate is a higher priority than maximizing the number of bids. Investing in a high win rate means doing things like relationship marketing, developing an information advantage, and perfecting your lead qualification and proposal processes. A strategic organization doesn’t focus as much on chasing leads as it does on winning them. But a better way to look at it is that investing in win rate means hitting your numbers without any opportunistic bids.

You can indulge in opportunistic bids in a strategic company. You just can’t depend on them. To be strategic you have to build an organization that hits its numbers by achieving its win rate targets and constantly raising them. Opportunistic bids can be pursued if they are paid for by sunk cost resources and don’t conflict with strategic bids. If you have resources sitting around not pursuing strategic bids, then you may not be as strategic an organization as you think. Even when those resources aren’t working on a bid, they should be investing their time in increasing your win rate.


 


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Carl Dickson

Carl is the Founder and President of CapturePlanning.com and PropLIBRARY

Carl is an expert at winning in writing. The materials he has published have helped millions of people develop business and write better proposals. Carl is also a prolific author, frequent speaker, trainer, and consultant and can be reached at carl.dickson@captureplanning.com. To find out more about him, you can also connect with Carl on LinkedIn.

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