If you’re like the vast majority of small-medium-businesses (SMBs) you’ll have concluded that it’s not really worth the effort – it’s too resource intensive, too costly and the outcomes are too unpredictable to be considered worthy of investment.
Is it really thought? How much does it actually cost to respond to an RFP and how much should you be investing in related presales activity before you start seeing an uptick in your fortunes?
Empirical evidence is quite thin on the ground in this regard. A cursory internet search reveals that the Irish government suggest SMBs spend about $5,000, LexMundi estimates a legal proposal, , will take 40-50 hours to compile (again c.$5,000), but there’s very little data. So at TenderScout set ourselves the challenge of figuring out what the right answer was; we decided to get some data! Data is the difference between feeling that proposals are too expensive and knowing exactly how expensive or not that they are.
Gathering the Data: How much do SMBs tell us they spend?
We asked 130 SMBs how much they spend on proposals in response to RFPs; this is what we found:
- SMB Investment in RFPs worth less than $140,000
For low value contracts, typically those published by state, city or county buyers, 57% of SMBs spend a maximum of $2,100 on their proposal, while 26% spend in the region of $5,300.
- SMB Investment in RFPs worth more than $140,000
For higher value contracts, typically those published by federal buyers, 48% of suppliers spend up to $5,300, while 50% spend up to $10,000 and beyond.
Analyzing the Data: What’s the % of cost to contract value?
To determine the correlation between the cost that SMBs compiling a proposal and the value of that contract, we mapped the data taken from our SMBs real proposals and we found that SMBs spend 3% to 6% of the contract value on all of the activities leading ou to and including the proposal delivery.
Analyzing the Data: Can we predict competition outcomes based on the amount invested?
To round out our challenge, we asked our SMBs to tell us their win-rate, the ratio of proposals submitted to contracts won. We wanted to see if the level of investment could be used as a predictor of outcomes. When analyzing our sample data set we discovered a linear correlation between the amount invested and the win-rate;
An SMB that invests 1% of contract value on proposal delivery has a win-rate of 10%, while a 6% investment results in a win-rate of 60%. The impact of investment at higher levels becomes increasingly marginal.
In conclusion, SMB, should invest at least 3% of the expected value of the business if they are serious about competing for RFPs; those that spend more than that will realize significantly impactful results.