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What are the things to be noted while deciding on the cost and pricing?

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Baskar Sundaram

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Cost and pricing data are developed based on past performance and customers’ perceptions of value. Cost and pricing are highly dependent on the setting. Bid for government agencies and pseudo-government entities often have strict regulations regarding cost and pricing data. When bidding for government procurement, make sure to understand acquisition rules and regulations.

Showing what your price comprises demonstrates your logical approach and gives credibility to your proposal. In a commercial setting, having a logical approach to your pricing is proved when you provide some details of what your price represents in both true numbers and graphic form.

Distinguish between Price, Value, and Added Value

Price is what you charge a customer for a product or service. Value is what your customer perceives your product or service is worth.

 Customer’s perceived value ≥ customer’s budget ≥ your price ≥ your cost. 

Added value is defined as the difference between the customer’s perceived value of a solution and the price they pay, plus any implementation costs. 

Customers often choose solutions that offer the greatest added value. Convey to the customer that without you as their choice, they might waste time, money, or their own implementation efforts. A summary version of cost detail makes the evaluator’s job easier.

In your summary, make sure you reach as many of these objectives as possible:

 Total costs or prices in graphics and narrative (many customers want to see the bottom line up front)
 Price of key assumptions (not every cost assumption, but the major, important ones)
 Overall themes
 Price discriminators
 Cost or price implications of choosing your approach
 Your positive approach to the logic and reasonableness of your costs and prices
 Cost tracking and control systems
 The story of basis of your estimates.

Use Graphics to Clearly Convey Value

Use graphics, tables, and charts to quickly give the reader a snapshot of the message you are delivering. For both the customer and your own senior management, you can use graphics to gain swift understanding and faster acceptance of the cost and pricing data you present.

Rely upon facts rather than judgment. Your facts validate what you are claiming and lend credibility to your organization. Justify and build your case for your costs with your past performance historical information. Seek other organizations’ historical data where you are lacking information and use that data to generate your gaps.

Accurate and complete cost data are best estimated using a bottom-up basis of estimates.

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