In our previous blog, we introduced the idea that strategic sellers view tendering as a numbers game that needs to align with overall business revenue goals. Strategic sellers also know that the quantification of tendering performance is a guaranteed pathway to more effective and efficient bidding.
Four bid metrics that matter
Here’s a quick recap of the four key bid metrics:
- Annual bidding revenue
- Proposal win rate
- Average contract value
- Bid investment ratio
But what can they tell you about the way your organisation is bidding, and where you can make improvements?
Using bid metrics to calculate targets
How efficient and effective is your bidding strategy? Should you compete for everything, or focus your bidding resources on opportunities you have a better chance of winning? Do you need to invest more in your tendering? Or do you need better templates, collateral and content to reduce your overall bidding costs?
You can’t hope to answer all of these questions at once, but knowing your numbers is the only way to start finding out. So once you’ve established your four bid metrics listed above, run your numbers using these formulas:
A. Total annual value of bids to pursue =
Metric #1 divided by Metric #2
B. Number of opportunities to find/submit =
Calculation A divided by Metric #3
C. Annual bidding investment =
Calculation A multiplied by Metric #4
Here’s an example. If your metrics look like this:
1. Annual bidding revenue | $10 million |
2. Proposal win rate | 25% (one in four) |
3. Average contract value | $2 million |
4. Bid investment ratio | 2% |
Then your target calculations look like this:
A. Total annual value of bids to pursue | $40 million |
B. Number of opportunities to find/submit | 20 |
C. Annual bidding investment budget | $800,000 |
If you measure it, you can manage it
This is where the numbers get interesting. If you can improve your proposal win rate from 25% to 50%, this halves the number of opportunities you need to find to reach your target of $10 million.
The doubling of your proposal win rate also halves the annual bidding investment budget required – reducing it to $400k.
If you were then able to bid more efficiently, and bring your bid investment ratio from 2% down to 1%, your annual bidding investment budget would halve again – reducing further to just $200k.
Strategic tendering requires an investment mindset. Calculate targets, measure often and focus on changing the things that matter so you can take small steps towards long term improvements in your bidding effectiveness and efficiency.
If you need help telling your sixes from sevens, module 1 of our Bid Accelerator program is dedicated to helping you apply key bid metrics and calculations to your own organisation. For a sneak peek at that module, view a recording of our free ‘Know your Numbers’ webinar here.
