Pricing your proposal is one of the most crucial and challenging aspects of business development. You want to win the contract, but you also want to make a fair profit and cover your costs. How do you balance these competing objectives and create a compelling offer for your potential client? Here are some factors to consider when pricing your proposal.
The first factor to consider is the value proposition of your proposal. What problem are you solving for your client, and what benefits are you delivering? How do you differentiate yourself from your competitors, and why should your client choose you? Your value proposition should be clear, concise, and aligned with your client's goals and needs. It should also justify your price and demonstrate the return on investment for your client.
Value proposition plays a key role when we share a proposal. It is important to call out key differentiators and what benefits you are delivering when compared to competition. In the end TCO plays a very important role ,if the value proposition is clearly articulated and shows a significant savings on TCO (direct as well as indirect savings), it should justify the price and ROI.
Let's clearly define a value proposition. It is a statement that communicates the unique benefits and value that your product or service provides to its customers. It explains why a customer should choose a particular offering over alternatives in the market. You want to start your proposal off strong by communicating your value proposition within the first couple slides.
In my experince the most important element when pricing your proposal is it's value proposition. A client doesn't care much about anything beyond the value they receive and if that value is worth the price tag. In defining the value proposition you first need to study your client, how they operate, how they generally make decisions and what they prioritise. Once you understand your client only then can you be able to effectively communicate the value of your proposal to them. It is important to note that clients are more likely to accept proposals that have a great deal of future value. No client wants to take out money for something that isn't sustainable nor contribute towards their vision, regardless of whether it's little or a lot.
Prior to Value Proposition, make a careful SWOT Analysis and very well understand the background of your client, as well as the decision makers. Proposition to Technical Decision Makers will be with different content from Proposition to Business (Commercial) Decision Makers.
When pricing your proposal, dive into your costs—account for direct, indirect, and operational expenses. Check out competitors' pricing to position yourself right in the market and highlight what makes your offering special. Understand your audience's budget constraints and how they perceive the value you provide. Keep an eye on market demand and economic conditions to set a price that fits. Align your pricing strategy with your business goals—whether it's higher profits or a larger market share. Be open to negotiating and consider flexible pricing models or different packages to cater to diverse needs. Ultimately, aim for a pricing sweet spot that covers costs, remains competitive, and showcases your value clearly to potential customers.
The second factor to consider is the cost analysis of your proposal. You need to estimate the direct and indirect costs of delivering your project, including labor, materials, equipment, travel, overhead, and contingency. You also need to account for the risks and uncertainties involved in your project, and how they might affect your costs. Your cost analysis should be realistic, transparent, and based on reliable data and assumptions.
This is where technological tools come in handy. You should consider using reliable technological tools that are available in your industry to assist with data analysis, risk assessment, and cost modeling, to enhance the accuracy and efficiency of the cost analysis process.
When comparing Price-only, there is no bottom-line. There will always be some competitor(s) offering lower price tag than yours. Remember to add CP Value of your products & ROI of your Project, at the end of your analysis.
Most companies mess up when it comes to pricing... Instead of really crunching the numbers and checking out their competitors pricing - They just pick a profit they want and roll with it. (But that doesn't work) Think about it this way - you can't decide to sell a Snickers for $20 because you want a high profit. If everybody else is selling it for $2, you won't sell anything. When it comes to pricing you need to figure out: - Your costs - Your desired profit - Your competitors prices Then set a price that makes sense for both you and your customers. Otherwise, you might end up wondering why your awesome proposal isn't getting any takers.
In some businesses, as a strategic step in starting it is being catered to focus on the gross profit margin. At this stage, the cost of raw materials or the direct costs with supply chain alignment becomes very important. If this stage is planned well and a reasonable gross profit margin is achieved it will pave the way for the net profit margin. Direct labor must be considered with direct cost. Also, projections or forecasting must be thoroughly studied before putting the cost as the cost might change with time. Alignment of forecasting with costing is a very important aspect Several cost factors can be accommodated by initially going with an agreement with different suppliers in the value chain responsible for supplies.
Cost analysis is required to calculate and plan the margins, contingencies, Risks and even to check the type of resources you need. It’s very handy to have cost analysis when things go south on the project to check the buffer you have in place in terms of cost.
The third factor to consider is the pricing strategy of your proposal. You need to decide how to set your price based on your value proposition, your cost analysis, and your market research. You can choose from different pricing methods, such as cost-plus, fixed-price, value-based, or competitive. You also need to consider how to present your price, such as using a single figure, a range, or a breakdown. Your pricing strategy should be consistent, flexible, and tailored to your client's preferences and expectations.
One thing I have found useful is that how unique the tool/project is and then how unique our expertise is in the industry, are there many companies doing the same work or not, it helps a lot in having the right price. Of course client priorities (timeline) also helps , more the time less the cost could be in a given situation.
Sometimes, pricing can be hard. It's much easier when you are selling a commodity. But with more complex solutions, it can be difficult to design a profitable pricing strategy. One effective way is to create a rock-bottom product or service and add on options - much like airlines do. Do you want to fly first class, business class or economy class? How many bags do you want? Do you want the luxury of a lounge before you take off etc.? Each component also needs to be priced to be competitive and profitable. You can then bundle offers to make them even simpler and more attractive. But be careful, at each stage, that you are not giving away too much and that the overall offer still remains profitable.
Pricing strategy should take into consideration of Industry Trends and Economics Indicators of your sector in every country & region. Top Business Developers should have the sense and vision to foresee & forecast market situation at least for a year or more...
Understanding what your competitors are charging for similar offerings is crucial. I can't stress this enough! Setting your price too high or too low without considering the market benchmark can impact the perceived value of your proposal. Make sure your prices are in line with what others are charging, and be flexible based on your client's needs. This way, your prices show you're worth it and match what your clients expect in a competitive market.
The fourth factor to consider is the negotiation plan of your proposal. You need to prepare for the possibility that your client will ask for a lower price, a higher scope, or a faster delivery. You need to have a clear idea of your minimum acceptable price, your maximum possible scope, and your optimal delivery time. You also need to have a list of concessions and trade-offs that you can offer or request in exchange for a better deal. Your negotiation plan should be strategic, collaborative, and respectful.
Preparation is key. Before a negotiation meeting, I'd do the following: 1) Consider the other party's needs, desires and frustrations. Fear, greed, and avoiding embarrassment tend to be among the top leading drivers to what motivates most people. 2) Anticipate what the other party will say. 3) Outline for key things you want to say. 4) Roleplay the meeting several times in order to be prepared for different reactions. 5) Ask trusted advisors to point out your blindspots. 6) Put yourself in the best possible frame of mind before the meeting. Be committed and confident. Execute on your promises. 7) Build a reputation for over delivering on your product or service. Remember, you often win when you help others win.
If you prospect tries to get you to lower the price do this: Let them know you are willing to lower the price but you would have to adjust (lower) the scope of services or product features. This approach allows you to meet the client's budget constraints while maintaining the overall value of the offering. By transparently discussing trade-offs, you not only demonstrate a collaborative spirit but also ensure a win-win outcome that addresses both parties' priorities in the negotiation process. Also, most of the time they end up going with the original price and full features.
Know your enemy and know yourself and you can fight a hundred battles without losing. 知己知彼，百戰百勝。 Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win. 勝兵，先勝而後求戰；敗兵，先戰而後求勝。 Sun Tzu - Art of War
The fifth factor to consider is the legal compliance of your proposal. You need to ensure that your proposal meets the relevant laws, regulations, and standards of your industry and your client's country. You also need to protect your intellectual property rights, your confidentiality, and your liability. You need to include the necessary terms and conditions, warranties, and clauses in your proposal. Your legal compliance should be accurate, complete, and verified.
For SMBs to collaborate with professional CPA & Legal Advisors using contract-base support is vital. Where as, for Large Sized Enterprises always include Legal, QA & Certification Dept. in internal communications when Legal Compliance is concerned.
As an industry example, insurance brokers are typically required to disclose their commissions in the majority of jurisdictions. The specifics of what constitutes “adequate disclosure” varies depending on the applicable law, but generally insurance brokers must be transparent about their pricing, fees, and commissions.
The sixth factor to consider is the quality assurance of your proposal. You need to check that your proposal is error-free, well-written, and well-formatted. You need to proofread your proposal for spelling, grammar, punctuation, and consistency. You need to review your proposal for clarity, logic, and persuasiveness. You need to solicit feedback from your colleagues, managers, or experts on your proposal. Your quality assurance should be thorough, rigorous, and timely.
Do NOT send a proposal without someone else reviewing it! Often times, we don't catch our own errors. Also, let's be real - sales people aren't typically the most detail oriented people. I'm including myself in saying that - you have to know your own strengths and its important to get another pair of eyes on your proposal before sending it out. Also, someone in leadership should ALWAYS be reviewing proposals that are sent and approving them before sales sends them off. The last thing you want is there to be a pricing mistake in a proposal. You can lose a ton of money that way.
Also remember to add or quote your products' ISO, CE and other QA related Certifications during your proposal. This will gain trust and confidence from your client; and will avoid excessive back and forth questioning.
A response with poor quality sends a message about what the prospect can expect for the project. They may think "If you can't take the time to produce a quality document to win the business, what will your deliverables be like when you have my business?" Be sure your response is compliant (we can do it), compelling (here's how), differentiated (why us instead of them) customer focused (we're here to solve your problem), and easy to understand (we won't waste your time with marketing hype). Use informative graphics and captions to make it skimmable (We're easy to work with). Show the client they are important by building time in the schedule for a final check and use their name first and more often than yours!
Pricing factors vary on multiple aspects, hence there is no specific or standard practice to be followed. According to my experience it is important to use the following factors into consideration for IT products and services - Overall Efforts for design , development, implementation and support - Any 3rd party licenses - Cost for travel and accommodation - Overheads - Any allowance assigned for team - Last but not least Margin and negotiation buffer
An important step in determining pricing is to accurately assess the risks involved. By way of example, an insurance broker needs to consider factors such as the prospect’s loss history, size and location, market conditions, industry-specific risks, and future potential changes involving internal and external factors (e.g., change in expansion plans, political climate).
Here are some additional considerations for Pulp & Paper Pricing: ? Demand & Elasticity: Gauge market fluctuations and understand how price changes affect demand for optimal pricing. ? Customer Tailoring: Segment clients based on needs and offer tiered pricing packages for maximum revenue and satisfaction. ? Lifecycle Costing: Factor in maintenance, repairs, and disposal to ensure a comprehensive and profitable price structure. ? Competitive Analysis: Research competitor offerings and pricing to identify differentiation opportunities and price strategically. ? Value-Added Services: Highlight technical support, training, or customization to justify premium pricing and enhance proposal value to some markets.
Depending on your Product, Business Sector & Market Segment, below are the factors (some and / or all) you should consider when pricing your proposal: Cost of Production. Competitors' Price offerings. Quantity / Revenue of Order. Annual Revenue Target. Warranty & After-service Terms & obligations. Additional Certification cost (if needed). Marketing Strategy & Budget. Profit Margin (EPS for IPO Co.s).