In the current economic climate, competition for new business is intense and even the most successful companies don’t win every contract they bid for. Having the right expectations about your win-loss ratio is important.
Although winning all of the contracts you bid for sounds ideal in practice, it would mean that you were either:
- a monopoly supplier (probably with a scrutinised or pre-set profit margin) or
- limiting your bids to only those you were certain to win
If you only bid for contracts you’re certain of winning, you are likely to limit your bid costs, but will constrict your revenue too. For example, if there were 100 contracts, each worth £50k and you limited yourself to the 10 you were nearly certain to win, you would grow your revenues by £500k. But if you bid for a further 20 contracts that you had a fair chance of winning, even with an expected win-loss ratio of 30%, you would have a further 6 wins and an extra £300k of revenue.
So the question is “what is the right win-loss ratio?”
Although the answer depends on a number of factors (e.g. number of potential suppliers, market maturity etc), literature on the subject suggests a good win rate is 40%.
One of the big four consulting firms found the single best predictor of proposal success was the existence of a strong customer relationship. If they had a strong customer relationship, the win-loss ratio was 40% and if there was no relationship with the customer, the win ratio was less than 10% (Tom Sant (2004) in “Persuasive Business Proposals”)
Interestingly, SPI reported that a steep discounting of the bid price (by more than 30%) increases the win rate from 45% to 58%, but the discount significantly reduces both revenue and profitability.
The general lessons on win-loss ratios are:
- A 40% win-loss ratio is a good performance
- A higher win-loss ratio is achievable with target customers, providing you have established a good relationship
- Spend a small amount of time pre-qualifying bids to avoid chasing “hopeless” bids. This is important both to keep the costs down and to establish your company (brand) as a serious supplier
- Bid to your target customer segments, don’t chase too wide a set of customers
- Understand why you win and lose — a short win-loss report captures the learning and sharpens your bidding. Standardise any text or terms that are used repeatedly in your bids
- Regardless of whether you win or lose, understand your competitors and ask for customer feedback on the quality of their bids
- Track and analyse your bid data — how many bids/contracts have there been over the last year? How many did you qualify in/out? How many of your qualified bids did you submit? How many of the bids submitted did you win or lose? What is your win-loss ratio by volume and by value? How many are still being considered? How many did the customer withdraw (i.e. not won nor lost)? What is the average decision making time?
- Don’t offer big discounts unless it’s part of your planned business model
In summary, beware of kissing all the frogs in the vain hope one will be a prince. Even in that fairy tale, the princess spoke to the frog, pre-qualified the opportunity and made her successful bid.
I hope you are finding these newsletter topics useful and interesting. If you want to explore how we can help you grow and develop your business, then please contact us.
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As someone deeply immersed in the realm of business strategy and proposal management, I understand the intricacies and challenges that companies face in the competitive landscape. My extensive expertise in this field allows me to shed light on the concepts embedded in the provided article and offer insights that go beyond surface-level understanding.
The article delves into the nuanced dynamics of winning and losing contracts in today's cutthroat economic environment. Let's dissect the key concepts presented:
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Win-Loss Ratio Significance: The article emphasizes the importance of having realistic expectations regarding your win-loss ratio. Winning every bid may indicate limitations, such as monopolistic conditions or overly conservative bidding. Striking a balance is crucial for sustainable growth.
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Bid Strategy and Revenue Growth: The piece explores the strategy of bidding on contracts you are likely to win versus expanding your bid scope. It demonstrates that a calculated approach, bidding on a mix of certain and probable contracts, can significantly impact revenue growth.
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Determining the Right Win-Loss Ratio: While acknowledging that the ideal win-loss ratio varies based on factors like market maturity and competition, the article suggests that a good win rate is around 40%. This figure provides a benchmark for companies to assess their performance.
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Customer Relationships: The article highlights a finding by a major consulting firm that a strong customer relationship correlates with a 40% win ratio. This underscores the importance of fostering and leveraging client connections in the bidding process.
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Impact of Bid Price Discounts: The article touches upon the impact of bid price discounts on the win rate. It notes that a substantial discount (over 30%) can boost the win rate but at the expense of reduced revenue and profitability.
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Pre-Qualification and Targeting: The piece advises spending time pre-qualifying bids to avoid pursuing "hopeless" opportunities. It stresses the significance of targeting specific customer segments rather than casting too wide a net.
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Learning from Wins and Losses: The article recommends understanding the reasons behind both wins and losses. It emphasizes the value of a short win-loss report to capture lessons learned and improve future bidding strategies.
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Competitor Analysis and Customer Feedback: Regardless of the outcome, the article encourages companies to understand competitors and seek customer feedback. This iterative process helps refine bidding approaches and enhances competitiveness.
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Bid Data Tracking and Analysis: Comprehensive bid data tracking is recommended, covering metrics such as the number of bids, qualified bids, submissions, wins, losses, and the average decision-making time. This data-driven approach enables companies to assess performance and identify areas for improvement.
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Caution on Offering Discounts: A cautionary note is sounded against offering significant discounts unless aligned with a planned business model. While discounts may increase the win rate, they can adversely affect revenue and profitability.
In conclusion, the article provides a holistic perspective on navigating the competitive landscape, underlining the importance of strategic bidding, customer relationships, and continuous improvement through data analysis and learning from experiences.
