Pricing and pricing strategy is a critical part of the tender process. As bid and tender writers, most of our time is usually helping clients with the writing side of the tender process. However, we are also able to provide guidance with pricing and pricing strategy.
What you need to consider when setting tender prices
When developing your pricing strategy and setting your prices, you should consider:
Many businesses looking for tender consulting services require assistance with pricing. Generally speaking, regardless of if you are in the construction, maintenance, defence, health or any other industry, you will need to take into account some core factors when formulating your pricing.
- The value of price vs quality from the buyers perspective. What weighting do they put on each and what is the weighting criteria for pricing stipulated in the tender. Federal, state and local governments in Australia all include a weighted criteria in their procurement documentation.
- What type of rates to our competitors charge? What is the ‘market’ rate and how do I rates fit within the market?
- Do our rates enable us to add additional value? How can we explain the additional value provided as a result of our pricing strategy?
- Does our pricing account for the additional compliance requirements normally associated with the government or private sector tendering and delivery process? Will we make a profit and have we considered the costs of reporting and other communication associated with servicing the contract? For example, in the construction sector, the level of compliance and communication associated with building a residential home in Sydney is a lot less than building a small public toilet block for a local Council.
Different tender pricing strategies you can use to win government tenders in Australia and profit
There are many different tender writing strategies you can employ to win government tenders. Some of the strategies we help our clients employ include:
- Penetration pricing. This is generally a dangerous strategy that can lead to you winning contracts that are not profitable. It needs to be used with caution and in line with a larger overall strategy to penetrate the government market. Penetration pricing involves offering prices that are lower than your competitors and generally below market. Sometimes your lean business structure allows you to do this, whilst other times, it’s an overall strategy to win more contracts. For some building contracts, it’s the potential for variations that is attractive. Either way, a low pricing strategy can work in some scenarios.
- Market pricing. This is generally a logical strategy especially when you can back yourself to write a great compelling and persuasive tender response. Market analysis is critical and often in bids in Australia, they will provide an approximate contract value. For example, in Northern Territory government tenders you can see the value of previous contracts. Also, when bidding at market price, you give the buyer the single that you are a quality operator that is pricing to deliver a good outcome and that you have provisioned for the appropriate resources to be allocated. Sometimes a low price can trigger some scepticism in the mind of the procurement team.
- Price Skimming. This is where you price the contract as high as the market lets you. It generally results in you winning less work for high contract value. This strategy generally comes down to your resourcing. If you have limited resources and would need to engage additional resources to complete a project or deliver a service, you may chose this pricing strategy to cover any additional costs and ensure you operate at a high margin.
- Cost-plus pricing. This is a strategy that a lot of our construction clients in Australia adopt. We help them write the tender whilst they gather quotes from several different tradespeople. Once you have calculated your costs, you then add a margin for your profit. With this strategy you need to be careful. When you calculate your costs you need to factor in your project management as well as contract management costs. The costs of managing a government contract in terms of administration, communication and reporting are generally higher than a private sector contract.
Pricing and winning tenders and bids in Australia
When you are putting together your pricing, you need to ensure you communicate the value your pricing presents. Sometimes, having a higher price, with an explanation about how it can by a lower overall lifetime cost to the client when you consider the whole lifecycle.
Some points to communicate in your bid or tender (and explain in your pricing if possible) include:
- Talk about and showcase potential efficiencies. If there are specific efficiencies through your program, capability or even equipment, you should highlight these and explain how they enable you to provide more competitive pricing.
- Highlight decreased lifecycle costs. It may be your chosen use of materials, or doing something a more expensive way now that will save money in the future. Either way, you should explain these and clearly define savings. Talk about these and explain how the long-term savings in terms of maintenance outweigh the short term increase in costs.
How to understand your competitors pricing
This is always a challenge as generally speaking, as you would, your competitors will keep their pricing confidential. However, in order to gather insights into your competitors pricing you can:
- Research the contract value for the previous tender. You can do this in the Northern Territory as well as some other states. They often provide insight into the overall budget in the specification document.
- Bid and enter the game. This helps as the more you tender the more you will receive tender feedback. This will give you insight into how your pricing rates against your competitors. Remember that if you are winning too many bids you may be pricing too low. In a tender debrief they generally provide guidance to you on your pricing.
- Analyse your competitor’s operations. This is also important. You can look at how your competitors operate in order to understand their costs which then drive their pricing.
Some other key points to consider when setting your pricing include:
- Is your pricing proportional to the volume of work? For example, if there is a potential high volume of routine work, you may want to price lower and find more efficiencies in your operation.
- Is there a new competitor that is undercutting everyone? If so, how are they doing it. You generally don’t want to enter into a race to the bottom.
- Is there any intel you can get on the costs of performing the work? Does the client have a reputation for being flexible and lenient. If so, factor this into your costs.
- Do you have a strong bid with solid experience and a track record that justifies a higher price?
- How do you fit in the market in terms of services provided? Are you a premium service provider? If so – you can price accordingly.
How do you set your price for a government tender?
In order to set your price for a government tender (or private sector for that matter) in Australia we generally recommend you:
- Understand your position in the market and how you fit-in relevant to your suppliers. Are you a quality provider, a budget option or something else.
- Review the specification and scope of the tender. Where there is insufficient detail and this results in uncertainty from a pricing perspective, you should go back and clarify (by asking questions through the portal). Often the incumbent provider has an advantage because they know the ins and outs of the contract. Clarifications can help limit this advantage.
- Identify areas where you can do things better – faster! These are two your advantage. If you are a demolition business for example, and your methodology enables you to decrease costs by completing the works quicker, then this is to your advantage and will enable you to be more competitive on price. It’s also important to keep your sub-contractors in check so there is no price creep from preferred sub-contractors.
- Forecast variable costs as best you can. This is always a challenge for longer term contracts which many panel appointments and tenders are. You need to quote at a price that has some buffer – in case variable costs such as wages, labour hire costs and materials (if applicable) increase. Factor this into your quote.
- Include your wider team. Sure – keep your pricing confidential. However, include your wider team in the discussion to identify any potential costs you haven’t factored in.
- Don’t price a tender or job you don’t have a reasonable chance of winning and deliver. It’s a lot of effort and you need to consider the opportunity cost of your time.
Looking for assistance to price your next tender, project or job?
Our team of bid writers based in Sydney, Brisbane and Perth can assist. We will work with you to understand and interpret the pricing questions and guide you on the pricing process. We can’t help you set your price as we do not have sufficient knowledge of your business, however, we can help you identify factors to consider when setting your pricing.
Contact our team of bid and tender writers today at info@thetenderteam.com.au or call our Director, Jason Cooney, on 0410 448 770.
