Many businesses enter the government-contracting arena with the expectation of the "$1,000 mousetrap" – that is, the idea that government work is a cash cow that can be milked by exorbitant overpricing. These businesses often get a rude awakening when they find that profit margins on government contracts are often quite slim and may have a cap as low as 10%.
In a slow economy or a competitive industry, bidding wars drive prices and profit margins to new lows. With this kind of bid environment it becomes more important than ever to track your government bid efforts, your successes and your failures.
Tracking the Government Market
When it comes time to ask, "Is this government bid strategy successful?" an important follow-up question is, "Compared to what?" To get a more complete idea of how your business is faring, establish benchmarks for your industry and market. Tracking against these benchmarksis a good way to find areas to improve, as well as to track the health of the contracting landscape in general.
Conduct market research on other companies of your size, in your area, and in your industry. Chances are, your company is already aware of its major competitors. How successful are they in the market compared to your company? Compared to industry standards? Tracking down this intelligence can be costly and time-consuming. Instead, consider purchasing business intelligence from a government information service. You can track the contracting activity of buyers as well as competing contractors specific to your area and industry. From there, you can use your market research to track overall trends and bid competitively.
Government Bid Success Metrics
Make sure that tracking is in place so that every government bid you submit, whether you win it or not, contributes to your overall government bid strategy. Tracking success factors allows you to trim the fat and work more efficiently. Some success metrics to track include:
- Job cost
- Profit margin by client and type of job
- Ratio of bids submitted to bids won
- Percent of returning clients
- Time spent per bid
- Time spent per job
Once you've gathered some data, you'll begin to see areas for improvement. Do you have clients who send a lot of work your way but at low profit margins? Do you consistently submit bids to certain agencies or on certain projects that end up being rejected? Which projects have the highest profit margins? Which ones take the longest to complete? With these data you can begin to hone your bid strategy to target the highest-profit projects. Set minimum requirements for each project to meet before you'll pursue or complete it.
Cutting Costs to Reduce Your Bid
Data tracking can also reveal hidden operational costs that can be cut without sacrificing value to the customer. Track worker efficiency — for example, times of day or types of projects that seem to cause productivity to dip. Keep equipment well-maintained; maintenance expenses usually end up being less costly than the productivity losses caused by shoddy equipment. Have project managers keep detailed records of every step of the contracting process. You may be surprised at the hidden places where time and money are wasted.