When is it better to lose a price quote?
When is it better not to win? When the entire business case with its future possible additions isn't profitable. If we have to sell something to one customer at a loss and at the same time we will not benefit from it in the future, there is no point in doing that. The business theory states that each sale should be a win-win situation for both parties. But then, logically, the customer cannot be surprised that if he wants to be the sole winner and we should be on the losing side, we won't volunteer to enter such a fight.
But how to define our offer is disadvantageous for us? We must calculate all the expenses and assess all the the risks.
Of course, the cost includes the purchase of products that we offer to the customer. But there are other expences, for example:
- cost of a salesman who negotiated the quote
- cost of an employee who created it
- cost of other people - project designer, financial department, receptionist, cleaning lady, etc.
- company overhead costs
An ideal step is to calculate your total hourly cost. It will simplify your further estimates. And then put this hourly cost to the price quote in Offeris as cost items.
Example of a total hourly cost:
Monthly cost of employees 10 000,- EUR.
Office rental 1 000,- EUR
Car park 2 300,- EUR
Accounting 300,- EUR
Miscellaneous 1 000,- EUR
Our monthly expences are 14 600,- EUR
We have 5 full-time employees working 8 hours a day, during which they produce a combined 40 hours of daily expenses. Beware, this is expenses, not work! You can count that between 50% to 70%!
If we count an average number of working days in a month as 21, we know that the employees produce 40 x 21 = 840 hrs. of total hourly costs.
A single total hourly cost would be 14 600 / 840 = 17,38 EUR. If an employee spends 2 hours making a price quote, we have invested 34,76 EUR regardless of the success rate.
Never forget this sum. If your price quote contains the total hourly cost combined with the purchase prices (obviously, both hidden from the customer), you'll be able to evaluate more precisely when winning the bid transforms into a real victory.