Price Matters – Strategy in Developing a Winning Price.

Price Matters – Strategy in Developing a Winning Price

Copyright 2013 Granite Leadership Strategies, Inc.

Pricing Strategy Pricing vs. Costing Bid Price and Performance Price Best Value vs. LPTA Target Price & Price to Win Getting Knowledge – Customer, Company & Competition Common Considerations & Other Pricing Considerations Phases of a Price Easy Pricing Strategy Options – Basic 101 The Top Shelf Pricing Options – Advanced 505 Key Take Aways More Questions?

Agenda


Those decisions and deliberate actions which drive your ultimate price that wins.

Not cost plus feeCost plus risk (aggressive or conservative)Cost plus strategyYou can impact cost – but you can impact the price

moreBiggest impact is on methods and decisions that

influence the value you add and whether the customer cares about that value

Pricing Strategy


The Proposal Pricing GameIt’s unbelievable how

much you don’t know about the game you’ve been playing your whole life.Mickey Mantle


Pricing vs. CostingCost is what it costs you

to do the workPrice is market driven


Bid Price and Performance Price

Bid Price Aggressive/creative

staffing mix and costs

Projected indirect costs with the win

Few factors for risk

Strategic fee

Considerable strategic positioning

Performance Price Real staffing mix needed

at conservative labor costs

Projected indirect costs conservatively (less tasking?)

Factor for unknowns/risk

Reasonable fee

Conservative strategic moves


Best Value vs. LPTA

Best Value Is it REALLY best value?

Customer seeks optimal price & capability

Multiple best value solutions

Take advantage of best value attributes w/customer

Do attributes = monetary value?

Lowest Price, Technically Acceptable (LPTA) Keep it lowest – price

matters!

Do not add anything to increase price – no added value, required quality, meet requirements

Only give what they ask – bid to requirements

Price to not lose $


Why Know the “Target” Price Range?“Target” price is a range

not an exact numberSo you know what you are

aiming for!!!It’s not a dart gameIt’s not just about “wrap

rates”


What is Price to Win (PTW)? Price to win (PTW) is a direction &

process It’s about your best homework &

analysis It’s not done casually or cavalierly PTW - knowledge customer, your

company, your competition PTW creates winning range – not

exact # Myth PTW exact # PTW weighs price vs. capabilities

vs. risk PTW developed objectively &

subjectively Use of FOIA among large contractor

is high


Knowledge – Customer IntelligenceBudget & independent

cost estimatePrior buying historyBudget pressureAward historyFavoritesSingle item price

sensitivityPrice vs. performance


Knowledge – Company Analysis Rates – direct & indirect –

existing & projections History- wins/losses &

why Top down analysis Bottom up analysis Risk taking Customer perception Bid strategies Differentiators Teammates Info


Knowledge – Competitive AnalysisSimilar contractsTeammatesTheir investmentsProbable

approach/trendsSubscribe to search

servicesEstimate rates- their

tricksBid aggressiveness?


Price Proposal Humor


Common ConsiderationsGovernment

Independent Cost Estimate

Customer KnowledgeYour Own PricingCompetitors PricingWhere You Add ValuePriority of Evaluation

Criteria Effecting Bid


Other Pricing Considerations

What is the lowest cost compliant answer?

What do your capability driven solutions add?

What is your “value” solution?

Value adds require a graphic w/$!

What are your company investments - no customer cost


Phases of a PricePre RFPProposalAfter the win!


Easy Pricing Strategy Options – Basic 101


Easy Pricing Strategy Options - ExerciseName three easy pricing strategy options


Staffing Effort – Best Practices• Staffing mix that

meets requirements – can you do with less wisely?

• Show how your staffing solution meets PWS


Labor Rates – Best Practices• Lower end of labor rate

bands or minimum

• Minimum quals

• Negotiate new hires in advance (written)

• Low price insignificant labor categories (throw aways)

• Substantiate & document

• Stick with your decisions


Indirect/Wrap/Burden Rates – Best Practices• Seek cost reductions

• Increase bases

• Use known existing work

• Plus consider only the impact of this win


New Indirect Pools – Best Practices• Be mindful of

customer indirect rate sensitivity

• Determine the composition of the workforce to see effectiveness of new indirect pool

• Segregate this project if different from rest of business


Impact corporate G&A- Best Practices• Be sensitive to

customer perception of G&A

• Increase the business base – biggest factor (aka grow the business/win more!)

• Build corporate infrastructure wisely & as needed


Escalation – Best Practices• Get bona fide

authoritative source – DRI/McGraw Hill

• Examine historical trends – Bureau of Labor Statistics (Professional, Admin)

• Vary by contract year

• Vary by labor category – high/low demand


Bidding Direct – Best Practices• Consistent with CAS –

bid direct whenever possible

• Gets otherwise indirect costs as direct costs if possible


Teammates Pricing – Best Practices• Determine your targets

early

• Get agreement on basics – escalation, fee

• Consider consistent labor rates

• Do your homework – their history

• Do price analysis & negotiate long before due date – they can hang you up


Fee – Best Practices• Consider using weighted

guidelines analysis to determine adequate fee range

• Analytical, fits opportunity & risk, fits your business model, unemotional

• Minimum cover your unallowable costs – usually 1%-3%

• Vary by year (not zero front end – buying in)

• Consistent throughout team


Value Adds & Minimum Required – Best Practices• Bid only minimum

requirements (LPTA)

• Strong urge to add more value – do you do it?

• Value adds – itemize & keep track of cost separately – put it in a graphic!

• Use value adds in your pricing exec summary


Facility Location – Best Practices• If dedicated facility

consider direct cost – note: customer can dictate location

• Separate out project only from corporate – bid direct or separate OH pool

• Locate in “thrifty” neighborhood

• Locate in HUB Zone


The Top Shelf Strategy Options – Advanced 505


Advanced Pricing Strategy Options - ExerciseName one advanced pricing strategy option


Total Time Accounting & Uncompensated Overtime – Best Practices

Total time accounting required by DCAA

What is it and how does it work?

Reduces cost/hour FP deliverable contracts – no

impact on cost FP LOE contract – does

impact Must bid if you plan to use it Drawback: employees

compete time record


Graybeards & Staff “Greening” – Best Practices

Include senior people selectively

Bring in new staff (lower rates) when appropriate

Show promoted staff over time

Mix new staff in as replacements over time


De-escalation/No Escalation– Best Practices Not everybody will stay

on contract for duration Consider the impact of

hiring junior level replacements in rate

Use respected sources & calculate impact

Put into rate or vary DL rates

Vary by contract year Vary by labor category –

high/low demand


Wise Mix of Labor Rates (Prime/Subs) – Best PracticesWhere is each team

member strongest?Don’t split the labor

categoriesWho has strengths &

lowest rates in each category?

Fix inefficiencies!


Subcontractor Indirect Rate Concessions - Best Practices

Approved rates vs. impacted rates

Discuss pre-RFPUsually needs advance

management decision


Your Investments @ No Cost – Best Practices Highlight in price

volume executive summary (separate from tech exec summ)

Put value on investments Not chargeable/billable Suggestions:

Training

Advisory board

Indirect costs

Staff time


Key Take AwaysParticipants input!

Price Matters – Strategy in Developing a Winning Price.

Documents

Transcript of Price Matters – Strategy in Developing a Winning Price.