How to Price Your Tender Proposal for Success

Pricing a tender is a high-wire act. Price too high, and you lose the bid to a cheaper competitor. Price too low, and you win the bid but lose money on the job. Finding the 'sweet spot' requires a scientific approach to costing and a strategic approach to margins. This guide will show you how to do both.

Step 1: Know Your True Costs

Before you add a single cent of profit, you must know exactly what the project will cost you. Many businesses fail because they forget hidden costs.

Direct Costs

• <strong>Materials:</strong> Raw materials, software licenses, equipment.
• <strong>Labor:</strong> Wages for staff working directly on the project (including overtime).
• <strong>Subcontractors:</strong> Fees for specialist partners.

Indirect Costs (Overheads)

• <strong>Administrative:</strong> Office rent, internet, electricity, insurance.
• <strong>Management:</strong> Salaries of project managers and admin staff.
• <strong>Logistics:</strong> Transport, accommodation, per diems.

The Contingency Fund

Always add a contingency buffer (usually 5-10%) for unexpected events like price hikes, delays, or scope creep.

Step 2: Choose a Pricing Strategy

Once you know your break-even point, you need to decide how to price for the client.

1. Cost-Plus Pricing

<strong>Method:</strong> Cost + Fixed % Profit Margin.<br><strong>Pros:</strong> Guarantees profit. Simple to calculate.<br><strong>Cons:</strong> May not be competitive if your costs are high.

2. Market-Based Pricing

<strong>Method:</strong> Researching what competitors charge and pricing slightly lower.<br><strong>Pros:</strong> Highly competitive.<br><strong>Cons:</strong> Risky if you don't know your competitors' cost structures.

3. Value-Based Pricing

<strong>Method:</strong> Pricing based on the value/ROI you deliver to the client, not just your time.<br><strong>Pros:</strong> Highest potential margins.<br><strong>Cons:</strong> Hard to justify in rigid government tender templates.

Step 3: Completing the Pricing Schedule

Government tenders usually come with a standard pricing schedule (SBD 3.1, 3.2, or 3.3). You MUST use their format.

Rules for Success

1. <strong>Fill in Every Line:</strong> If an item has no cost, write "R0.00" or "Included". Leaving it blank can be seen as an incomplete bid.
2. <strong>Check VAT:</strong> Ensure you know if the price requested is Inclusive or Exclusive of VAT. This is the #1 reason for pricing errors.
3. <strong>Double Check Math:</strong> Use Excel to calculate totals, then copy them carefully. An arithmetic error can disqualify you.

Common Pricing Pitfalls

The "Foot-in-the-Door" Trap

Bidding at a loss just to win the client, hoping to make money on future work. In government tenders, "future work" is not guaranteed. You are stuck with your low price for the contract duration (often 3 years).

Ignoring Inflation

For multi-year contracts, your costs will rise. If the tender doesn't allow for annual escalation (CPI adjustments), you must build inflation into your initial price.

Frequently Asked Questions

What is a "firm price"?

A firm price means your quote is fixed for the duration of the contract and will not change regardless of exchange rate fluctuations or fuel price hikes. A "non-firm price" allows for adjustments based on proven cost increases.

Can I offer a discount for early payment?

You can, but it usually doesn't help your evaluation score. Government evaluation is based on the total bid price. Early payment terms are often ignored by the adjudication committee.

How much profit should I add?

There is no single answer. For commodities (pens, paper), margins are thin (5-10%). For specialized services (consulting, engineering), margins are higher (20-40%). Research your industry standards.

Conclusion

Pricing is not a guessing game. It is a mathematical exercise followed by a strategic decision. Build a robust pricing model that covers all your costs, add a fair margin, and verify your figures three times. A profitable business is built on profitable projects.