The Ultimate Guide to Proposal Building

Chapter 7: Data Pricing

1. Introduction

  • 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 a 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.

1.1. Best Practices

1.1.1. Distinguish between price, value, and added value.

  • To arrive at a winning price, it is important to understand the distinction between price and 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.
  • The following is usually true of winning prices:
  • 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. Hence wherever possible in a proposal, explain how your solution adds value.
  • Your goal: Convey to the customer that without you as their choice, they might waste time, money, or their own implementation efforts.

1.1.2. Present cost and pricing data in a summary form.

  • Presenting a cost section executive summary is essential to gaining credibility and making your value proposition a complete circle with the technical proposal.
  • A summary version of cost detail makes the evaluator’s job easier. It also gives the cost analyst and, ultimately, the evaluator a simple and quick view of the costs and price in a constructive manner.
  • 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 your basis of your estimates

1.1.3. 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.
  • Some suggested methods to present cost and pricing data are shown below.

 

Type of cost or pricing data Presentation methods
Significant cost items or elements Pie or bar chart
Profitability, return on investment, or project revenue (time phased) Line chart (time phased)
Major suppliers or subcontractors Location (map) plus pie chart (participation percentage)
Added value Bar chart
High-risk costs Side-by-side charts comparing high-risk cost items and mitigation approach impact
Corporate investments in the project Stacked pyramid graph

1.1.4. Quantify all claims with measurable data.

  • Cost relies upon facts rather than judgment.
  • Your facts not only validate what you are claiming and lend credibility to your organization, they provide you and the customer with the specifics necessary to make an informed decision about your price.
  • 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. Bottom-up pricing is simply rolling up time and material costs, plus appropriate overhead.
  • In evaluating data presented, cost analysts rank estimated rationale in the following order, from most to least reliable:
    • Firm, negotiated vendor prices
    • Past-performance historical prices paid
    • Quotes from vendors/suppliers
    • Engineering judgment