Wednesday, December 22, 2010

The Price is Right

What is the right way to price a competitive bid? Do you know? I sure wish I did. Sometimes, I get it right and sometimes I don't. I wouldn't be surprised if you feel the same way.

I think back to the TV show with Bob Barker. There, you had to come closest to the right answer without going over. Does that hold any water in pricing consulting or brokerage work? If a prospect has $X budgeted, is it best to bid X, something barely less than X or something much less than X (I'm assuming that in a competitive situation, it is rarely correct to bid something more than X).

I don't know the answer, but I wish I did. If you really low-ball, does the prospect wonder if you understood the assignment? If you bid just a little bit less than X and somebody else really low-balls, are you out of the running? Why can't all prospects just hire me at the price that I would like to charge? That sounds like a great idea.

I think that the right answer varies by the type of work. Rarely is it right to be the high bidder. For commodity work (think actuarial valuations), I think that if there are 5 bidders, 2nd lowest has the highest likelihood of being right. If there are 6 bidders, 2nd or 3rd lowest feels about right, and maybe even 3rd highest if you are not too far off the others. On the other hand, for work that is viewed as more strategic, I think it's more about credibility. Are you viewed as being best for the job? If you price it too low, can you possibly be best?

In any event, I'd love some more opinions.

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