The number one reason why proposals lose... is a lie

The number one reason why proposals lose is price. It is also a lie.

It seems like every proposal that loses, loses "on price." It's politically safe. No one is to blame when you lose because of the price. The other company must have “low balled” it, or bid below their costs. They played dirty. It’s not fair. The client must be dumb to award it at a price so low. There’s no way they’ll be able to perform.

The truth is that most price losses are due to scoping the project wrong. It’s just not politically correct to say so. You probably bid too many staff or resources, or offered more than the customer thinks the project requires.

The solution you thought of as comprehensive, the customer thought of as more than they need. Your competitors’ labor rates may actually be higher than your labor rates, they just bid a lot less of it. They may even be able to do the project with less labor because they bid a smaller project than you envisioned. And the customer may even be happy with that because they chose the smaller proposal over yours.

Some other reasons why companies lose proposals and blame “price” include:

• Allowing the company to develop bloated overhead rates. Overhead adds to your price. When your overhead is high, it means you have to charge more for the same labor and resources. A lower overhead competitor can offer the exact same thing, and win with a lower price. The problem isn’t that your competitors bid below their cost, it’s that you spent too much on people and things that aren’t billable.
• Running out of time so that final pricing got rushed. Pricing can’t be finalized until all the decisions about what to offer are finalized. While there are many reasons why designing your solution by writing about it is a bad idea, it also means that you can’t price it until you are done writing. And any pricing issue that impacts what you offer potentially means last minute re-writes. The result is that pricing can’t be completed until the tail end of the proposal effort and there is tremendous pressure not to change anything “substantial.” With writing taking up all the available time, nothing is left for getting creative with pricing or trying a lower priced approach.
• Bidding the wrong staff or the wrong offering. When you want to win, it’s easy to bid the best staff. Unfortunately, they are also the most expensive. Finding the right balance is hard. Finding the balance the customer prefers is even harder.
• Retention raises that enable non-incumbents to underbid you. When you are the incumbent, it’s easy to give your staff raises so that you maintain continuity of service and customer satisfaction. Unfortunately, that makes it possible for competitors to find staff who are qualified, but don’t have the same history and are therefore cheaper. It’s sad, but sometimes the best way to win is to replace your own staff before your competitors do.

Losing due to price happens far more often as a result of bad estimates (project size, labor mix, and requirements) than it does because of costs that you “can’t do anything about.” But if you point that out when your company just lost a proposal, be prepared to get the stink eye. It’s better if no one is to blame because you lost “on price” and that’s outside of everyone’s control. Unless you want to win the next one.