You should always create bids in-line with a well-thought-out and appropriate pricing strategy. This ensures you have fully considered the costs involved and can meet any expectations the buyer may have.

Key considerations when setting tender prices

Before deciding on the pricing strategy you will use for your bid, you need to ask yourself the following questions:

  1. What is more important to the buyer – price or quality?
  2. Can our price be competitive?
  3. Is the effort of submitting a bid worth the expected fee?
  4. Are we able to add value that our competitors cannot?
  5. Can we make a profit doing this project?
  6. If we cannot make a profit, are there any prevailing reasons to want the project?

From this assessment, you will have a clearer idea of what your pricing strategy must achieve and be able to make informed decisions regarding your pricing strategy.

Tender pricing strategies

The pricing strategies used within your tenders are no different from the pricing strategies you would consider in any other market.

Penetration Pricing

This is a strategy where you will deliberately offer prices that are below what you expect the competition to be offering.
This type of strategy is useful if you are breaking into the market and you need experience and references more than profit.

Competitive Pricing

By doing your research, it is possible to identify what you expect the market to be offering and align your prices to match.
If you can add value where your competitors cannot, or you have an unbeatable reputation, this type of strategy will help ensure you offer a fair price to potential buyers. If you have submitted bids before, through the feedback on your commercial score you can calculate the price of the winning bidder. Once you have received this feedback a few times you can build a picture of pricing in your market. This can then be used to inform your pricing approach in the future.

Price Skimming

This is setting your prices as high as the market will allow.
If you know you have a distinct advantage, inflating your prices could see you make a healthy profit. If you have a full pipeline and don’t need extra work, you could choose to go in with a high price, justifying taking on the work should you win the contract. Be very careful here though, you should consider the cost and resources involved in putting a winning bid together. Has this been factored into the calculations of how worthwhile going in with high prices is?

Cost-plus pricing

This is a simple strategy where you decide how much profit you wish to make, and price accordingly by adding a percentage on top of what your production costs would be.
While this strategy may not specifically help you win contracts, it is a useful strategy if you have specific targets you need to consider. This is a very commonly used approach, especially if you have limited information about likely competitor pricing. It should help ensure you profit from the work but should be thought of as a fairly blunt instrument, and it’s unlikely to optimize your win rate or your profitability.

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Pricing is part of a much wider bid strategy

Pricing strategies alone will not win you contracts, you have to consider how pricing works within your overall bidding strategy. Each contract has its own award criteria, but all buyers will score your bids based on an overall evaluation of everything you can offer – considering price, quality, and social value.

Never consider pricing strategies in isolation from the rest of your proposal, pay attention to how tenders are evaluated and build appropriate strategies.

What does this mean for you?

If the evaluation criteria are heavily based on price, you will have to choose an appropriate pricing strategy to be competitive.
You need to understand the mechanism for scoring the commercial section of your submission. The formula is not always the same, sometimes you will be much more heavily penalised for being more expensive than on other occasions.
If you are unable to compete on price, then you could develop bid strategies to complement your pricing strategy and win work by having an overall more appealing proposal.
If you know you struggle with price you should prioritise opportunities that are more heavily weighted towards quality, and build this in as part of your go/no go assessment.

Complement your prices to win more tenders

Highlight where you can introduce efficiencies

You want to demonstrate where you can exceed their expectations.
If timescales have been provided, could you do the work in less time?
Do you have any processes in place that may help achieve results with fewer resources or improve overall safety, for example?

Clearly define lifecycle costs

Provide a breakdown of associated costs showing what the buyer can expect to pay over a certain period or for the duration of the project. Research and development, production costs, maintenance costs, and end of life disposal costs are all considered to be part of life-cycle costs. Your competitors might go in at a lower price, but their lifecycle costs could be far greater. If you can demonstrate this in your quality answers it can secure you extra marks against those.

Demonstrate Social Value

Social Value is a major consideration in contract awards, and with the Procurement Policy Note – Taking Account of Social Value in the Award of Central Government Contracts, five key themes were highlighted for central government contracts: COVID-19 recovery; tackling economic inequality; fighting climate change; equal opportunity and wellbeing. By demonstrating how doing business with you will contribute to these objectives, you significantly boost your quality score. Social Value is the area bidders most frequently lose the most marks.

Understand the weighting of components within the commercials

Often you are entering more than one price as part of your commercial submission. How do these different numbers contribute to your overall commercial score? There are sometimes ways to increase the price of one element, and decrease the price of another which could mean you return the same profit from the contract but score more highly in the assessment.