When is better to not win a price quote bid? When an entire business case with its future possible additions isn’t profitable. If I make a sale at a loss to a certain customer and there are no further benefits in the future, there’s no point in going through with it. The business theory states that each sale should be a win-win situation for both parties. If a customer wants to be the sole winner and we should be on the losing side, he can’t be surprised we don’t exactly volunteer to enter such a fight.
How do we determine an unfavorable quotation? We must calculate all expenses and assess the risks. Naturally, the cost includes a purchase price of the products offered to the customer, but there are others, e.g.
- Cost of a salesman who negotiated the quote
- Cost of an employee who created it
- Cost of other people – a project designer, finance department, a receptionist, a cleaning lady, etc.
- Total company overhead
An ideal step is to calculate your total hourly cost. It will simplify your further estimates.
Example of a total hourly cost:
The monthly cost of employees $ 30,000
Office space $ 1,000
Car park $ 2,300
Accounting $ 500
Miscellaneous $ 1,000
Our monthly costs are $ 34,800
We have 5 full-time employees working 8 hours a day, during which they produce a combined 40 hours of daily expenses. Beware, this is expenses, not work! You can count that between 50% to 70%!
If we count an average number of working days in a month as 21, we know that the employees produce 40 x 21 = 840 hrs. of total hourly costs.
A single total hourly cost would be $34,800 / 840 = $41.43. If an employee spends 2 hours making a quotation, we’ve invested $82.86 regardless of the success rate.
Never forget this sum. If your price quote contains the total hourly cost combined with the purchase prices (obviously, both hidden from the customer’s sight), you’ll be able to evaluate more precisely when winning the bid transforms into a real victory.