Last updated on September 9th, 2019 at 02:07 am
For many businesses, the first step in generating revenue is responding to a request for proposal (RFP). RFPs are invitations to submit a bid. Your bid will become the basis of any contract that is eventually signed.
When responding to an RFP, it’s critical that you not only address all of the requirements listed in the document but that you also analyze the requirements to see if your business model is a good fit for this specific project.
1. Understanding the RFP Process
While every business and government agency has a slightly different RFP process, they all have three phases.
In the first phase, an organization releases an RFP. They may post it on their website, send out a press release, or send an email to a list of potential vendors. The RFP will list a window of time during which response or bids will be accepted.
The second phase is the screening phase. The company filters out companies that failed to meet the requirements or who do not seem to be a good fit. The company then selects a group of proposals as finalists.
In the third phase, the finalists are evaluated, and a proposal is accepted. Once the proposal is accepted, the two companies will enter into a contract negotiation.
2. Evaluating Price Point
Successful businesses understand what their minimum price point is. They know that they cannot generate profits operating below a certain price point because of their fixed costs.
Before going through the process of analyzing a lengthy RFP and working on a response, it makes sense to calculate the price range the company will accept. If the maximum acceptable price is below your minimum price point, there is no need to waste effort bidding on a contract you will not get.
3. Understanding Deliverables and Milestones
The next key to responding to an RFP is to make sure you are clear on the number and frequency of deliveries the contract will require.
If the delivery requirements are beyond your capacity, you need to decide if you can increase capacity if you land the contract. There may be an opportunity cost to spending resources to increase capacity for a single contract.
Sometimes the best choice for your business will be to forego an opportunity. But, you may be ready to grow, and increasing capacity makes sense.
Your potential client will want to know the specifics of how you plan on fulfilling the contract.
4. Checking Time Horizons
Beyond the number and frequency of deliverables, you need to examine all of the time horizons for the contract.
When will you be paid? When are the deadlines for the different milestones? Will the contract have a flexible deadline or a set deadline? What are the penalties for being late? How long is the contract for? Does your performance depend on other partners?
Some of these issues will be negotiable if your bid is accepted. But, you need to consider the time horizons for deliveries and payment when deciding whether or not to bid.
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5. Determining the Level of Effort and Resources Required
More than one company has run into major cash flow issues after landing a bigger contract than they were used to handling.
You need to evaluate the materials and human resources you will need to meet the contract. This will influence your costs and your timeline for delivery.
Will you need to scale up to meet the requirements listed in the RFP? How variable are materials costs?
This is not a time for unrealistic positive thinking. You need to take a hard look at what the contract is really going to require from you in terms of effort and resources.
6. Evaluating Special Conditions
A well-written RFP will also include any special conditions for the project. You need to make sure that you are comfortable with any special conditions and plan for how special conditions will impact your costs and delivery timetable.
Sometimes a special condition will make a project too expensive for your company to undertake.
7. Adapting to Method of Evaluation
Often a company will require a bid be submitted in a certain format. You need to adapt your response to conform to whatever submission and evaluation requirements the company requests.
There is an ancient Zen saying that states, “The way you do the small things is the way you do everything.” Following directions down to the smallest detail helps your bid survive the filtering process and demonstrates the care you will use on the project.