How Much Does / Should It Cost to Prepare a Proposal
By Russell Smith
Our customer frequently ask the question, “How much does it cost to prepare a proposal?” or a variant on the same question, “How much should it cost to prepare a proposal?” The answer to this question is complex and is affected by many variables. It is a little like the question, how much does it cost to build a house? The answer is affected by the size, materials, skill of the craftsmen, cost of the lot, and other things.
Usually, the people asking this question want a cut-and-dried answer. They want to be told, “a proposal should cost you X percent of the contract value”, or “Y dollars per page” or something like that. A meaningful answer is more complicated. Following below, I attempt to examine some of the variables affecting proposal cost and then provide some measuring yardsticks on what a proposal should cost.
An even better question than “What does a proposal cost?” is the question asking, “What does a winning proposal cost?” The key factor in answering this question depends on what type of Business Development philosophy an organization is pursuing. At the two extremes, there are companies who are extremely good at business development and other companies who are not. The companies who are good at (invest a lot in) business development do so much work on the program during the two years before it is even released as a Request for Proposals (RFP), that they may win 90% of the contracts where they submit a bid.
Other companies have more of a shotgun philosophy. They may not invest much in business development. And sometimes, they may not even be aware of a program they will bid until they see the Sources Sought announcement or even see the final RFP being released. It comes as no surprise that the shotgun approach to proposal selection / writing may produce a result such as 10% winning proposals or less. Of course the proposal cost for the companies using the shotgun approach is on the order of 10 times higher per won contract than the firms using a classical business development model.
Probably the most important overall variable affecting proposal cost is the type of proposal being prepared. Is it a simple quotation or is it a complex proposal? Is it services or products? Is it an old fashioned page unlimited proposal, or is it a current simple style services proposal limited to past performance and resumes? Does it require simply a paper proposal, or does the bidder also have to prepare an oral proposal; provide a product demonstration, prepare a product design, manufacture a model product, or go through other arcane rituals?
If, on the one hand, the vendor can sell service by simply providing a price quotation, then it may be the case that the level of effort required to produce a $5 million proposal is limited to three or four hours. If, on the other hand, the vendor is selling something that requires him or her to prepare a complex proposal, then the level of effort needed to prepare a highly competitive$5 million proposal might even be a few person months.
Anyone can see the large difference in cost to prepare a traditional proposal including the kitchen sink and a current style proposal limited to a few examples of past performance and key personnel resumes. An old style complex proposal for a $10 million contract could easily cost $100,000 of effort. In contrast, a smart bidder might prepare a proposal for the same $10 million contract for $5 - $10,000 of effort, if the RFP only requires a few resumes and past performance.
If the bidder also has to present an oral proposal, then the complexity and effort increases significantly. In order to plan, practice, perfect, and execute an oral proposal, the cost in consultant and in-house personnel time can easily exceed $40,000 for a contract valued in the tens of millions of dollars.
Then there are the questions, does the bidder have to complete a complex product design, mount a costly product demonstration, or even manufacture a sample product? It can be seen, these factors can increase the cost to prepare a proposal by tens of thousands or even millions of dollars.
As explained above, the type of proposal is probably the most important factor in determining cost to prepare a proposal. However, the cost to respond to the same RFP can vary widely depending on the efficiency of the bidder organization. Below we will address the question about how bid costs can vary with the efficiency and approaches prevalent in the vendor community.
In the never ending quest to win more business cheaper, companies use approaches to proposal preparation that vary widely. In the present piece, we will limit the discussion to variance in process, tools, staffing / organization, and workflow. The processes used by firms to prepare proposal range non existent to marvels of efficiency. We have seen $50-million companies that essentially do not have a proposal process, and we have seen $3-million firms that have a process highly adapted to their situation and needs. It goes without saying that, the firms lacking in process may expend 50% more than is necessary on proposal preparation, because the organization of the effort is not efficient. Processes vary as widely as the style of clothes, and the better organized firms often have a proposal process that is reduces the cost of proposal preparation by efficiently organizing their collective efforts in preparing their proposals.
The tools we have seen companies use in preparing proposals vary from MS Word to elaborate automated systems. For the companies that do not use tools well, the proposal preparation effort is expensive, because the archive of proposal documentation is bad or non existent; there is no standard method for formatting a proposal; and thus each effort rests on the personnel making a heroic effort. At the other end of the spectrum are firms that have a well organized and searchable archive of proposal pieces as well as other automated tools that will at least help in writing some proposal sections. There is no magic answer, and the tools that are right and affordable differ from firm to firm. The companies that use automated methods appropriately reduce their proposal preparation costs.
Within many companies, the workflow helps determine determines the staffing approach and establishes an environment that greatly affects the cost of proposal preparation. At the one extreme are organizations with a highly granular flow of contract opportunities, and at the other extreme are those firms that have typical peaks and valleys in workload due to bidding large programs. For the group with a workflow that is highly granular and even, it is possible to staff the operation with an in-house staff that works predictable hours. For the groups that experience great peaks and valleys, there is the never-ending expenditure of funds to hire consultants as well as lost staff time due to having personnel on the bench in times of low activity.
With all of these variables stated, it is still possible to predict the cost of preparing proposals under different circumstances. For a services company preparing typical services proposals, the cost of preparing a proposal can often be less than one half of one percent of contract value. These costs should not exceed six or 8 tenths of one percent, unless the field conditions are very challenging. And it is sometimes possible for a services group that has a very similar bid in the library to “recap the tire” and prepare a quality bid for as little as one or two tenths of one percent of contract value.
The cost to prepare a complex proposal requiring a significant system / product design to be submitted for a program valued in the tens of millions of dollars or more, is frequently in the range of 1 2% of contract value. When field conditions are challenging, these costs can rise to 3% or more. For example, several years ago, TRW (now Northrop Grumman) was bidding a multi-hundred-million dollar contract to provide a large system to the Air Force. The Air Force kept withdrawing and resubmitting the RFP over a 4-year period. TRW ended up winning the contract, but the cost of the proposal was 10% of contract value. In this case, TRW suffered from an act of God (otherwise known as Government inefficiency).