How do you establish a pricing strategy for tenders?

What is a procurement pricing strategy?

A procurement pricing strategy is a plan that defines how you structure your prices to strike a balance between competitiveness and profitability. In tenders, price is often one of the most important award criteria, but it's not just about bidding the lowest price. You must also consider other factors, such as quality, sustainability, risk management and customer satisfaction. A good pricing strategy allows you to remain competitive without jeopardizing your margins.

Why is a good pricing strategy important in tenders?

A well-thought-out pricing strategy helps you be competitive while ensuring that your business remains profitable. Pricing too low can come at the expense of quality or the ability to perform the contract successfully, while pricing too high can result in losing the tender. An effective pricing strategy takes into account both your costs and the expectations of the contracting authority. It can also help position your company as a reliable and professional partner, not only offering the lowest price, but also delivering the best value.

Benefits of a strong pricing strategy:

• Improved profitability: A well-planned pricing strategy ensures that your projects remain profitable without putting pressure on your margins.
• Stay competitive in the marketplace: By understanding the pricing strategy of your competitors, you can develop a pricing structure that is attractive to the contracting authority.
• Balancing price and quality: A pricing strategy helps you strike the right balance between a competitive price and delivering high quality, which is essential for a winning EMVI bid.

How do you establish an effective pricing strategy?

1. Analyze the competition:

Start by analyzing previous tenders and the prices your competitors have used. This will give you insight into how they set their prices and what factors they include in their calculations. Also look at how the award criteria were structured in previous contracts. This will give you an idea of what value for money was considered optimal.

Tip: Use public sources such as TenderNed to gather information on prices offered in similar tenders and how they were evaluated by contracting authorities.

2. Determine your costs accurately:

A successful pricing strategy begins with an accurate calculation of your costs. This includes both direct costs (such as materials and labor) and indirect costs (such as overhead and administration). Be sure to include all cost items, including risks that may arise during project execution. By properly identifying your costs, you can set a realistic price that is both profitable and competitive.

Example: When undertaking an infrastructure project, you need to consider not only material costs and personnel, but also factors such as permits, transportation and possible delays due to inclement weather.

3. Choose an appropriate pricing strategy:

There are several pricing strategies you can employ, depending on your position in the market and your competition. Here are some common strategies:

• Cost-plus margin: You determine the cost of the project and add a fixed margin for profit. This is a simple method, but it can be difficult to stay competitive if your margin is too high.
• Market-based pricing: Here you set your price based on what the market is willing to pay, depending on supply and demand. You take into account the price of competitors and try to offer a price that is just a little more attractive without becoming loss-making.
• Value-based pricing: In this strategy, you set your price based on the added value you offer to the contracting authority. For example, this could be if you offer unique technologies or a superior risk management strategy that provides additional assurance or savings to the procuring entity.

4. Consider award criteria:

In many tenders, the choice is not made solely on the basis of price, but on the Most Economically Advantageous Tender (EMVI). This means that the contracting authority also includes other factors, such as quality and risk management, in the assessment. It is therefore important to align your pricing strategy with the award criteria. If quality outweighs price, you may be able to ask for a higher price by demonstrating that you deliver higher quality than your competitors.

Example: If the tender calls for innovative solutions and risk mitigation, you can ask for a higher price as long as you make it clear that your approach ensures lower risk and higher efficiency.

5. Adjust your price to risk:

When determining your pricing strategy, it is important to factor in risk. Every project carries certain risks, such as delays, increases in the price of materials or unforeseen circumstances. Make sure you translate these risks into a financial cushion in your price. This will ensure that you won't face unpleasant surprises if problems arise during the execution of the project.

6. Be flexible in your approach:

Every tender is different and may require a different approach. Be flexible in your pricing strategy and willing to adapt to the specific needs of the contracting authority. In some cases it may make sense to offer a lower rate to win the tender, while in other projects you can raise your price if you offer clear advantages that the competition does not have.

7. Test your pricing strategy with scenarios:

It can be useful to simulate different pricing strategies to see how they would play out in different situations. Do a scenario analysis where you test different price points combined with changes in costs, market demand or competition. This will give you a better idea of how flexible your strategy should be.

Example: Create a scenario where material costs increase, or where you face unexpected delays, and see how this affects your profitability.

Common mistakes when creating a pricing strategy:

• Too much focus on lowest price: While a low price can help you win a tender, it can also come at the expense of quality and profitability. It is important to strike a balance between price and value.
• Not factoring in risks: Not including risk in your pricing can lead to unexpected costs later on. Make sure you have a risk margin built into your pricing strategy.
• Neglecting award criteria: If you focus exclusively on price and ignore other award criteria, you risk losing important points in the evaluation. Make sure your bid also scores strongly on qualitative criteria such as sustainability and risk management.
• Not responding to market signals: If you don't follow competitors' prices or market trends, your pricing strategy may be out of sync with what the market expects. This can reduce your chances of success.

Conclusion: How do you establish a pricing strategy for tenders?

An effective procurement pricing strategy is based on a thorough analysis of your costs, award criteria, and competition. By balancing price and quality, and factoring risk into your pricing, you can remain competitive without sacrificing profitability. A well-thought-out pricing strategy helps you convince the contracting authority of the added value you offer, while protecting your margins.