Winning a tender can be transformative for a business, bringing in lucrative contracts, new clients, and valuable exposure. However, one of the most challenging aspects of tendering is setting the right price. Price too high, and you risk losing out to competitors; price too low, and you may end up winning the contract but losing money. The right pricing strategy can make all the difference, enabling you to deliver value while protecting your profitability.
Here are some essential strategies for creating a competitive and sustainable pricing approach to maximise your chances of winning tenders without sacrificing your bottom line.
The Importance of Pricing in Tendering
Pricing is a critical factor for evaluators in the tendering process, and usually, they are looking for the best value, not necessarily the lowest price. Evaluators need to see that your price aligns with the value and quality of service or product you’re offering. It’s about finding the balance between competitive pricing and demonstrating your solution’s value. This approach ensures your business is not only selected based on price but also seen as a reliable partner capable of delivering on promises.
Key Strategies for Setting the Right Price in a Tender
Before setting your price, it’s essential to have a complete understanding of all costs associated with delivering the service or product. This includes direct costs like materials, labour, and subcontractor fees, as well as indirect costs such as overheads and administrative expenses. Don’t overlook any cost that may impact your profitability. For example, consider whether the contract requires additional insurance, special licenses, or compliance measures. By accounting for all costs accurately, you’ll be able to set a baseline price that ensures profitability and avoids underpricing.
Some tender documents provide an indication of the client’s budget or pricing expectations, which can give you valuable insight into how to structure your pricing. Where budget information is available, use it to tailor your response. If the client has a strict budget, consider offering flexible options or value-added services to make your proposal more appealing without significantly lowering your price. When the budget is not provided, researching past contracts or similar tenders can give you a rough estimate of the expected range.
Value-based pricing focuses on pricing your solution according to the value it brings to the client rather than the cost of production alone. If your product or service offers unique features, efficiency gains, or risk reductions, emphasise this in your tender response and adjust your price accordingly. Value-based pricing can be a powerful strategy, especially if you can demonstrate how your offering will save the client money or improve outcomes. This approach helps clients see that your price is justified by the benefits they’ll receive, shifting the focus from cost alone to value delivered.
Understanding the competitive landscape is crucial when setting your tender price. Research competitors’ offerings, industry pricing norms, and factors that may influence their pricing strategy. If your industry has standard rates, consider aligning with or strategically positioning your price around them. However, if your service or product has unique advantages or higher quality, pricing slightly above average may work to your advantage by positioning you as a premium option. Conversely, pricing below market rates can help you stand out in certain scenarios but should be approached with caution to avoid signaling lower value.
When possible, offer pricing options or tiers to give the client flexibility. For example, if your service has multiple components, you could offer a modular pricing structure where the client can choose only the elements they need. Alternatively, you could create a standard and a premium package with additional benefits in the premium offering. This approach not only makes your proposal more adaptable but also enables the client to weigh value against cost, potentially leading them to a higher-priced option that still meets their budget and needs.
Clients appreciate transparency, especially regarding risks. If the tender involves certain risks (e.g., fluctuating material costs, regulatory compliance, or unpredictable timelines), include a risk assessment in your tender response. Show the client that you’ve accounted for these factors in your pricing and outline how you plan to mitigate them. This builds trust and demonstrates that you have a realistic understanding of project challenges, which can justify a higher price point if necessary.
When you can demonstrate that your solution is cost-effective or offers long-term savings, make sure this is clearly outlined in your pricing strategy. Consider including a cost-benefit analysis or examples from past projects showing how clients saved money over time by choosing your business. If, for example, you offer maintenance services that reduce operational costs or technologies that improve efficiency, explain how these will benefit the client in the long run, making your price appear more attractive.
Discounts can be effective in certain situations but should be used strategically. For instance, you may consider offering a discount if the client agrees to a longer contract term, guarantees a specific volume of work, or pays upfront. Discounts can make your proposal more attractive, but avoid over-discounting, as this can hurt your profitability and potentially lower the perceived value of your offering. Be transparent about the conditions of any discounts to ensure they align with your overall pricing strategy.
Including value-added components in your tender response can help justify your price and distinguish your offer from competitors. Think of unique services, warranties, or additional support that would enhance your proposal and deliver extra value to the client. For instance, offering a free post-project assessment or a dedicated customer support representative for the duration of the contract can provide extra assurance to the client, making the overall package more appealing without necessarily lowering your price.
Crafting a winning pricing strategy for tenders requires careful consideration of costs, value, and client needs. By thoroughly understanding your costs, focusing on value-based pricing, offering flexibility, and highlighting long-term benefits, you can set a price that appeals to clients while protecting your business’s profitability. Remember that the right pricing strategy doesn’t simply aim to be the lowest; it aims to offer the best value while showcasing the strengths and expertise that set your business apart.
Winning a tender is about showing clients that you are the most reliable, capable, and valuable choice. By refining your pricing strategy to reflect this, you can increase your chances of success in the competitive tender landscape.
If you need a hand with the non-proce aspects of your tender, I’m always here to help. Just give me a call on 0400 514 579 or shoot me an email to pauline@tenderwise.com.au.
Happy tendering!
Pauline