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Identifying Your Competitors: How Wide Should You Cast Your Net?

Winning government contracts requires a lot of preparation. Would-be contractors spend hundreds of hours developing capture strategies and crafting compelling proposals, as well as (hopefully) assessing the competition. A successful competitive intelligence effort will identify the overall approach, as well as the strengths and weaknesses of each credible competitor, but this requires early identification of who those competitors are likely to be. An overly narrow focus risks missing one or more key competitors (surprises are bad), but an overly wide focus drains resources (like trying to boil the ocean).

So how wide is too wide to cast your net?

A textbook capture effort begins very early, well in advance of the customer releasing a Request for Proposal (RFP) and preferably even before word of the opportunity has hit the streets. This requires strong customer intimacy and keen market insights, but that’s a topic for another day.

Regardless of how your organization learns of an opportunity, your competitive intelligence effort should begin immediately and continue in sync with the capture effort. At this early phase, competitive intelligence begins with the critical step of identifying who the companies are that will likely bid against you.

There’s an obvious trade-off in starting this process so early; the less you know, the more you must assume. Alternatively, if you wait to assess the competition until you know who they are, it may be too late to make any needed course corrections. Therefore, the competitive intelligence effort is charged with making early predictions about who the competitors will be. But how?

An early prediction of which companies are likely to bid against you is based almost entirely on capabilities. Who in the industry has the capabilities required to submit a credible bid on the opportunity in question? Answering this question will require some research, but not as deep a dive as you will need to do later as the field narrows. For now, look at the websites and other marketing literature of would-be competitors. Read their capabilities statements. Review their list of past contract awards and compare that against their claims to assess their credibility.

It’s important to note that the government’s procurement strategy nearly always changes and evolves, making its requirements clear. As they become more specific, some competitors will drop out. This is the time to dig deeper into the contenders. Look at their strategies, unique strengths and weaknesses, and present and past clients. After you’ve done that, you can narrow your assessment down even further by reaching out directly to those companies to discuss any interest they might have in the bid. Look into their key personnel and find out what kinds of things they have historically shown interest in pursuing.

Be prepared for the evolution of the bid to involve huge jumps. What starts as a full and open competition may morph into a small business set aside, completely changing everything about the process.

Keep in mind that securing a government contract is an iterative process. As the government’s requirements become clearer, you can re-focus your lens based on those things to get a better idea of who your competitors are and the strategy you need to employ to win the contract.

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Evaluating Your Competitors’ Capabilities: Where to Start?

It goes without saying that winning government contracts requires a thorough and intimate understanding of the customer’s wants and needs. In positioning to win, however, it is equally important to understand how other companies (competitors) will attempt to meet those needs. In attempting to study and evaluate your competitors, one of the most fundamental questions to answer is “What do they do?” What are your competitors’ capabilities, and how do they apply?

In evaluating competitor capabilities, start with each of your potential competitor’s websites. Read their capabilities statement. What do they say they can do? What do they list as their products and services? What type of prospects do they target, or have they targeted in the past?

Now take it to the next level. Try to match their claims against reality. They may say they have capabilities in “cybersecurity,” but what type? Do they develop products or just implement other company’s software? Are they all about comprehensive strategies, or do they have a niche? Do they specialize in general prevention, rapid detection, and response, or is their focus endpoint, cloud, application, or network security? Most reputable competitors will not deliberately misrepresent their capabilities intentionally, but you can bet they will exaggerate to make them sound as good as possible. It’s up to the savvy and tenacious analyst to drill down and verify that any claims that competitors make are accurate.

Even an accurate list of capabilities doesn’t tell the whole story. What really matters is whether the competitor has actually put a capability they claim into action …and if so, when, where, and for whom? These are the details that put teeth into your competitors’ claims. Are there testimonials from clients on their site? Finding convincing and compelling evidence that your competitor’s capabilities have been put into action effectively on behalf of a client is what gives them credibility.

Make it a point to find out not only which contracts your competitors have been awarded, but how those projects turned out. Were the contracts shortened or even cancelled because of cost overruns, problems with making deadlines, or other deficiencies? Following a competitor’s social media accounts can also be revealing.

One helpful tool for evaluating competitors’ capabilities is called a Most Important Requirements (MIR) assessment, where you create a list of the customer’s most important requirements and rate each competitor against each of those requirements. This will show you how your competitor’s strengths will align with what the eventual RFP will be looking for. 

Evaluating your competitors will teach you a lot about your business and broaden your knowledge of the industry so that you can refine your business strategy, craft winning bids, and grow your company.

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Profit & Fee Are Good Things, But They’re Not the Only Things

The goal of every business is to remain in business.

In order to do that, the business has to make a profit. True, that may be a long term goal. It’s entirely possible that a business may make money one year and lose money the next — but at the end of the day, profit is a goal and an expectation. 

If you look in any business school textbook, you’ll find profit identified as “cost + fee.”

I believe that in today’s hypercompetitive environment, that definition is too narrow. 

I think a better formula now is profit = cost + strategy.

The reason is that, in the short term, customers often have business goals and objectives that may or may not include profitability. For example….

Say you’ve never worked in a certain marketplace before, and you want to arrive on the scene in a big way. To enter the marketplace in a way that gets you noticed, you may decide to bid on a project at a rate that doesn’t include profit. Heck, you may decide to even bid at a loss, especially if you know that the customer is likely to award based on low price simply to either gain market share or announce your presence in the contracting arena by securing the award. 

I frequently tell prospective vendors entering the federal marketplace that no U.S. contracting officer has ever gone to jail for selecting the lowest price. In fact, contracting officers frequently have incentive to pick the lowest price. Therefore, it is not outside the realm of possibility for a contracting officer to approach a competitor and try to negotiate the amount of profit contained in the submission. If your goal is profit, there are tactics you can use to protect the margin you have included that we’ll discuss in a future blog.

In addition, there may be times when the government agency really wants you to participate in the acquisition process. Under the Federal Acquisition Regulations (FAR) competition for bid awards is strongly encouraged. Contracting officers are looking for a minimum of three bids. They get uncomfortable when there are only two, and downright cranky when there’s only one. Reviewing only one bid for an RFP triggers all sorts of time-consuming tasks from FAR, so contracting officers work hard to ensure a competitive field. If you are asked to submit a bid that you are not in a position to service, creating a submission at a high price makes sense to avoid if not exclude selection.  

Are there other reasons for a contractor to submit a bid that are not driven by profit? Here’s one that’s underhanded and just this side of dishonest, but it serves to demonstrate how an unscrupulous company owner can manipulate the government contracting system for their own gain. Several years ago, a privately owned company wanted to sell. Their valuation was relatively low, which drove their asking price down. The owners developed a strategy that would inflate their revenue, making them look more appealing on paper. They bid on and won several high-dollar government contracts at impossibly low prices. The purchasing company spent the next five years on the verge of termination for cause on all of these projects because the pricing was artificially low and the contracts were nearly impossible to service. Again, driving the on-the-books revenue up to inflate the asking price was unethical, but it works within the owners dubious but nonetheless effective business strategy.

Fee and profit are very good things, but they are not the only things that determine why contractors go after programs. Sometimes, your business strategy creates goals that are better met outside of the conventional approach to profit and loss.

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Total Evaluated Price (TEP) v. Performance: What’s the Difference?

Let me start by acknowledging that when people say the federal contracting arena is complicated, it’s because of concepts like Total Evaluated Price (TEP).  After 30 years in the telecommunications and Federal industries, I’ve figured it out—and our team’s understanding of this and other federal-specific words and phrases has helped our clients win more than $30 billion worth of business. So let’s give it a try…

Because it’s important to have the big picture, an explanation of TEP has to start with a brief summary of the Federal Acquisition Regulations (FAR), for those who may not already be familiar. FAR is a set of principles that guide the government procurement process, including the purchase of goods and services. Codified in Title 48 of the U.S. Code of Federal Regulations, FAR is prepared, issued, and maintained jointly by the Secretary of Defense, the Administrator of General Services, and the Administrator of the National Aeronautics and Space Administration subject to the approval of the Administrator of Federal Procurement Policy. Except for a few noteworthy agencies, including the USPS and the Federal Aviation Administration (FAA), all government agencies are required to comply with FAR. 

When doing an acquisition, United States government agencies must comply with a requirement defined within FAR for doing an evaluation of cost or price. There are different approaches for doing this, but at some point, all of them must arrive at a total price upon which the award decision will be made. 

Here’s the challenge: TEP is a purely artificial construct. It does not have to reflect reality.

Let me give you a few examples:

A few years ago, a government agency released a solicitation for an Indefinite Delivery, Indefinite Quantity (IDIQ) contract, the vehicle typically used to acquire service contracts, or architect/engineering services. IDIQ awards are usually for base and option years during which the government places delivery orders for supplies, or task orders for services against a basic contract for individual requirements.

For this particular $100 million IDIQ contract, the agency wanted to include as many awardees as possible. The overall solicitation included 150 labor categories to be priced over a 10-year period. The government was able to achieve its goal and remain within FAR requirements by stating that it would award based on the submitted hourly rate of one junior level programmer/analyst during, thereby keeping the door open to anyone who wanted to bid.

Another example involves the Department of Defense’s (DOD) Mine-Resistant Ambush-Protected (MRAP) vehicles, the light tactical vehicles designed to withstand damage from Improvised Explosive Devices (IEDs). Designed and fielded through an accelerated acquisition process that employed concurrent production, testing and fielding in order to meet the urgent requirements of Operation Iraqi Freedom and Operation Enduring Freedom, the MRAP vehicles were eventually found to have a significant issue while in use. When the MRAPs were hit with an IED, the Marines inside survived, but they couldn’t get the doors open. Designed to be opened only in an upright position, the heavy doors were unworkable when an explosion caused the MRAP to overturn or land on its side.

The DOD needed to release an RFP for the design, fabrication, installation, testing, and fielding of assistance-devices for the doors so that they could be opened at any angle. Because the budgeting and allocation process could take up to five years, and the year in which the actual award would be made was unknown, the DOD wanted to guard against prospective contractors who might be able to glean inside information to game the system and inflate the price. The DOD was concerned that a bidder who had inside information might be able to game the system by inflating the price during the actual award year, and provide an artificially low price in the other years. By requesting TEP over a multi-year contract, the agency was able to better ensure that the pricing was on the straight and narrow. 

Remember that the TEP is an artificial construct, and the performance price is what the customer is actually going to pay. Next month we’ll talk about the strategies you can employ during the capture process to increase the probability of a win, profitability, or revenue. 

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Winning in the Federal Marketplace: Does the Incumbent Still Have the Advantage?

businessman-signing-contract

Time was when incumbents nearly always won the day in the federal marketplace. Typically, service contracts repeat themselves at the end of a 3–5 year contract period, and, despite the incumbent’s inherent advantage, federal agencies allow these contractors to bid on the repeat contract. I can’t give you the exact statistic, but I have been paying attention, and I estimate that it used to be that over 90 percent of incumbent contractors were successful in winning the contract again… and again.

It used to be that unless your Competitive Analysis (CA) was indicating that the incumbent was underperforming or had fallen out of favor for some other reason, submitting a bid was close to an exercise in futility. Government agencies used to view the transition from one contractor to another as costly and full of risk; therefore, come rebid time, the incumbent was more than likely to capture — again. Unfair? Maybe. But when you play in the government’s sandbox, they make the rules. You can take your pail and shovel and go home, or stick around and learn how to play the game when you are not the incumbent.

Today, incumbents have a very large target on their backs. Where at one time their past history with the federal agency was nothing but an advantage, in many ways, that’s changed. For one thing, incumbents have established price and performance expectations with the customer that may not be viable anymore. The incumbent’s numbers may have changed, yet the customer nevertheless expects the same pricing structure. Regardless, incumbents are often stuck with the structure and approach they’ve always used and may be penalized when they try to convert it to one that is more efficient and cost-effective now.

Another disadvantage the incumbent may have is that, at the end of the day, they know too much. You’ve probably heard the adage “A little knowledge is a dangerous thing.” If you believe that, you’ll understand when I mean when I tell you that, in the federal marketplace, a lot of knowledge is an even more dangerous thing.

Translation?

Anyone who’s been around the block even once in the federal contracting world knows that nothing is more important than 1. understanding what a solicitation’s requirements actually are, and 2. addressing them in meticulous detail. However, when an incumbent reads a new proposal from a contractor for whom they have worked — especially on the same contract — they often “read between the lines” rather than focus on what the solicitation is actually asking for. And that’s a big mistake.

Certainly, leveraging CA and your own intuition about the customer and their solicitation makes sense, but only up to a point. When you have knowledge about a customer that you have gained from experience, even if it’s not germane to the solicitation at hand, it can be difficult NOT to think you know more than the customer does about what they want. Thinking you understand what the customer really, really, REALLY wants more than they do is the beginning of the end.

Bottom line? If you’re a non-incumbent, you have a better shot at winning than you used to… especially if you follow a few basic rules that will amplify your advantages:

  1. Understand in detail what the solicitation requirements are. Whether you’re the incumbent or not, you need to understand what represents the most value to the customer. That said, as a non-incumbent, you have the advantage of viewing a solicitation with fresh eyes, making you more likely to focus on what’s actually being requested, and that’s a big plus. 
  2. Understand how the evaluation process will be performed. Do your homework so you can understand the process the decision-makers are likely to use as well as any bias that the people doing the evaluation may have. Address these, but make absolutely certain your response sticks to the requirements as written and that you adhere scrupulously to the eval process.
  3. Create a solution. Your solution needs to be minimally compliant with the requirements defined at a price point that is competitive with where you believe the incumbent will be in the competition. This is no time to show off. Don’t provide too much value. You don’t want to be kicked to the curb because your solution is either too expensive or not achievable.

Finally, capture strategies are very much based on “What have you done for me lately?” Incumbents tend to think that the customer is more invested in their future working relationship with them than they probably are. It’s a mistake to think that a customer you’re currently working with really, really, REALLY wants to keep you and will do so at all costs. After 30 years in the federal marketplace, I can tell you that if someone else builds a better mousetrap and/or at a lower price point, most customers are all over it, which is good news for the non-incumbent.

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Assessing the Competition with a Non-Cost Evaluation Model

One of the most important and valuable elements of an effective competitive assessment—as well as a solid capture strategy—is assessing who is the “team to beat,”  the competitor in the strongest position to win. This process highlights the areas where you need to strengthen your capture and proposal efforts so that you can outmaneuver the top competitors and secure a winning spot.

To assess the competitors, analysts develop a non-cost evaluation model based on how the customer is most likely to review proposals to determine which competitor is worthy of an award. In order to create an eval model, you must understand how the customer will evaluate each proposal. There are several ways to determine this.

The first and most valuable source of the customer’s evaluation criteria is Section M of the customer’s Request For Proposal (RFP). This is where the customer provides detailed guidance regarding how they will evaluate proposals and make an award decision.

If, however, the procurement is in its early stages, there likely will be no section M to review because the customer has not yet released the RFP. In these situations, there are other options for developing an eval model, such as a Draft RFP (DRFP), the RFP from a prior iteration of the contract, other RFPs from the same customer, or even something like customer guidance provided in an industry day briefing.

Whatever source you use, carefully examine the language to determine the various evaluation factors the customer will use to assess proposals. These factors may include criteria such as technical approach, management approach, past performance, price, etc.

Once you have identified the various evaluation factors, it is important to also understand the relative importance of those factors. Assigning quantitative values (numbers/percentages) to each of the factors in the eval model is a useful way to calculate a numerical score for each competitor. This enables you to determine who has the highest score, and thus who is in the strongest position to win. The key to developing an effective eval model is to ensure that the factors and point values you assign closely mirror what the customer has indicated.

Building an eval model that reflects the way the customer is likely to review the proposals is just the first step. In order for the process to be helpful, you must populate the model with information on your potential competitors to determine where each is likely to stand. This requires solid research and analysis of your competitors’ capabilities, solutions, strategies, strengths, and weaknesses on the given opportunity.

Creating an eval model is closely connected with understanding the requirements. The more you understand your customer, the more accurate and valuable your eval model is likely to be.

In addition to giving you excellent intelligence on your competitors, an eval model will also reveal or reinforce what is true and what you believe about your firm. For example, an eval model can tell you if you have the internal capabilities to claim the winning position, or if you need to fill gaps or mitigate weaknesses by adjusting your strategy or teaming with other companies.

Eval models vary by client and by opportunity, and are very different if you are bidding on a product or a service. And remember, an eval model should be updated continually throughout the procurement process as you learn more about your competitors and yourself.

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How to Assess Your Competitors Without an RFP

In a perfect world, the government customer would always know exactly what they want, would always publish clear and thorough solicitation documents in a timely manner, and would explicitly and clearly explain how they plan to evaluate you and your competitors to make an award decision.

Unfortunately, we do not live in a perfect world.

Often the customer experiences delays upon delays, and industry is forced to wait for the RFP, or even a draft RFP, to obtain the guidance they need. In other instances, the customer chooses to use an entirely different process, such as an OTA (Other Transaction Authority), which provides no Section M or evaluation criteria whatsoever. Regardless of the reason, there are many times when capture and competitive intelligence efforts must move forward cautiously in the absence of clear instructions from the government customer.

The question is, how do you evaluate your competitors against the customer’s criteria when the government hasn’t provided that criteria? The answer is NOT to simply kick the can down the road or forego that evaluation altogether. No, the answer is to use the next best thing—a notional (or strawman) evaluation model built on a series of assumptions that can be updated later as more information becomes available. There are almost always clues at your disposal that you can use to develop a notional evaluation model.

In developing a notional evaluation model, remember the goal is to approximate the process the customer will most likely use to evaluate proposals. As a starting point, always consider whether the opportunity in question is a new program or a recompete. If it is a recompete, there is a strong possibility that the customer will reuse the same evaluation process from the prior iteration of the contract. Even if it’s a new program, customers often use and reuse (and reuse again) the same evaluation process for all of their solicitations; so it may be a safe bet to use the section M from a similar, recent program from the same customer. You can see what standards and requirements they deemed important, and it can give you the foundation you need.

Another valuable source of data on customer evaluation plans is the Government Accountability Office (GAO). For those unfamiliar, the GAO is the government entity responsible for adjudicating protests filed by contractors in response to a procurement decision. All of the GAO’s protest decisions are made publicly available on their website, GAO.gov, and can be very useful in getting detailed insight into not only the customer’s evaluation criteria, but also how specifically they rated certain competitors, and in some cases, even the prices proposed by those competitors.

Finally, remember that key requirements and evaluation plans are often communicated in general terms via industry day materials, or presentations given at trade shows, which can provide helpful clues for building a notional evaluation model. 

We continually stress the importance of customer intimacy. You must know what the customer truly cares about in order to develop an accurate evaluation model to objectively and effectively examine yourself and your competition.

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Understanding the Requirements: How to Earn a Winning Edge

It may seem rather obvious that the first step in competing for a federal contract would be to try to understand what the customer is actually asking for. Isn’t that just common sense? And yet a surprising number of companies make the mistake—consciously or subconsciously—of underemphasizing this fundamental principle. Consequently, the resultant proposals are either too self-centered, or worse, non-compliant.

Failing to (a) understand what the customer actually needs and (b) address those needs thoroughly in a proposal is often the reason companies fail in their attempts to secure contracts in the federal marketplace.

How does this happen? It happens when a company focuses too much on convincing the customer to buy what they’re selling rather than first taking the time to understand what exactly the customer needs and then striving to satisfy those needs. This may seem subtle, but there is a vast philosophical difference here that can truly make all the difference between winning and losing.

It’s important to note that every RFP contains explicit and implicit requirements. The explicit requirements are those requirements that are articulated by the customer to all bidders, so that all are equally aware of them. These explicit requirements are the foundation—they are the key components that a contractor MUST address in order to qualify for a given opportunity.

Just because they are explicitly stated does not mean they are clear. Sometimes (okay let’s be honest, much of the time), the customer doesn’t actually know what they want. Sometimes (if you’re lucky), the customer will be conscious of their limitations, and will seek input from industry (via RFI, sources sought, Draft RFP, etc.) to help them understand what is possible, but not always. Unfortunately, there are many times where the customer has no clue what they want, but thinks they do, and moves forward at ramming speed.

Behind the explicit requirements, there is typically a hidden list of unspoken—or implicit—requirements that represent the customer’s true definition of value. These are what we call “customer hot buttons,” and every customer has them. A customer’s hot buttons will motivate them, inspire them, or perhaps even keep them up at night. Identifying and addressing these implicit requirements is where a winning strategy beings—it is how a company differentiates themselves from their peers and gains a competitive edge.

You may ask, how does one go about identifying a customer’s implicit requirements? The answer is … (you guessed it!) … good old fashioned customer intimacy. Know your customer. Study your customer. LISTEN to your customer! Talk to others in the industry about your customer. The ultimate source of your customer’s hot buttons is always your customer.

Once you have come to understand explicit and implicit requirements of an opportunity, THEN you can begin matching them against your internal capabilities. Your strengths and weaknesses will emerge quickly, enabling you to develop strategies for leveraging and enhancing your strengths and mitigating your weaknesses (e.g., teaming).

The better you understand your customer’s explicit and implicit requirements, the better positioned you will be to enhance your proposal in ways that your customer appreciates and values. Don’t assume you know the answer, don’t be afraid to ask “dumb questions,” and don’t try to sell what you have before you understand what your customer wants.

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Price To Win: Know When to Hold ‘em and When to Fold ‘em

In today’s federal marketplace, anyone can compete for business.

And anyone can win—at least some of the time. It’s the possible losses, however, that can provide more than experience to learn from—they can, at times, be ruinous.

Therein lies the rub.

Because opportunity incurs costs—in resources, bid and proposal feeds, and your staff’s time, smart would-be government contractors know that Price To Win (PTW) strategies are a key part of capture. Smart government contractors can tell you that identifying your Price To Win position is more than a number; a true PTW strategy reflects the complex relationship between your customer needs, their allocated budget, and their spending patterns.

Industry expert Randy Richter, Chairman and Price To Win Director at Richter & Company will tell you that even smarter contractors take the definition of PTW a bit further. These competitors know that determining their PTW position for a given opportunity not only involves factoring in the impact of their customers’ needs, budgets, and spending patterns, but also analyzes their competitors’ solutions, strategies, tactics and degree of aggressiveness throughout the bid cycle.

But only the smartest contractors, says Richter, understand when the PTW process should actually begin. “Some will say that the process should begin early in the life cycle of the bidding process, but in reality, the smartest competitors begin crafting their PTW strategies well before a draft RFP is in place,” he says. “The wisest decision a contractor can make is not to try to decide how to win a bid, but whether to compete at all. Sometimes, the better part of valor in government contracting is to step back from a given opportunity so you can live to fight another day.”

Richter says his firm’s PTW support is provided by experienced analysts who understand the government process, know how to price, and can think outside of the box. “We train our team to ethically gather information, analyze it to create actionable intelligence, and develop solid assumptions,” said Richter. “We then customize our proven processes and tools that we’ve developed to each potential competitor’s situation to produce accurate, defensible results.”

There are two ways to build a PTW strategy:

  • The Top Down process uses historical data, including information on bids previously awarded and budget information to identify the parties’ “comfort zones.” In other words, a Top Down determines in what range customers tend to award bids, and where competitors tend to receive them. The Top Down approach is best used in early gate reviews to help firms decide whether to compete at all, and/or to develop proactive solutions using “design to cost” approaches. Effective Top Down efforts can be pursued easily and affordably as ongoing projects because very little data is required.
  • A Bottom Up PTW analysis is best performed as soon as customer requirements and evaluation processes are known, typically once the DRFP is released. Based on identifying targeted competitors’ solutions, building up their costs, and identifying how these costs will be prices using their strategies, is the foundation of Bottom Up PTW reviews. Results are updated as new solicitation documents become available, with work continuing to cover amendments, ENs, FPRs, and negotiations.

Once you have your PTW position, what needs to happen next? To compete, or not to compete. To engage in the game and work to win the hand, or—like The Gambler—know when to walk away and when to run? Hold ‘em or fold ‘em?

Richter says this is one of the most important moments in the entire process—where a business decision must be made that only the potential federal contractor can make. “Our job is to show our client the position they need to achieve to beat their competitors, but whether they should attempt to move their company into that ‘win zone’ is entirely up to the firm’s leadership.

If you need more information to decide about whether to engage, my best advice is to ask questions,” said Richter. “I always told my kids that the only dumb question is the one you don’t ask, and I extend that advice to our clients today. Unless the project is classified, of course, why not take a chance? Ask the question. You just might get the answer you need to make an informed decision.”

Richter & Company’s consistent process, innovative tools and experienced staff have helped customers win over $30 billion since 2006.

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Understanding Your Customer’s Budget

Businesswoman calculating customers budget

Can you afford NOT to know what your customer can afford?

Your company has products and services to offer, and you have identified a customer who needs them (or something like them) and plans to procure them (competitively, of course).  But the question is– what can they afford?  This is a simple question, but one that is all too often neglected by capture teams too focused on the features and benefits of their solutions to recognize how costly they’ve become.  Never mind the competition (for now). Start with understanding your customer– in particular, your customer’s budget.  What happens when you design a product that your customer can’t afford?  Answer: You either discount it heavily and take a loss, or it sits on the shelf and you eat the entire cost of designing it.

Every customer has a budget–this much should be obvious– and it behooves every capture manager to endeavor to understand that budget.  But how?  Here’s a great place to start … ASK!  That’s right.  If you have meetings with the customers, ask them what their budget is for the program. If you don’t have meetings with the customers, pick up the phone or send an email and ask them.  They may not know, or they may not be willing to share that information with you.  If that option fails, or if it isn’t an option at all, don’t despair! There are several other ways of assessing your customer’s budget.

In the case of government agencies, budgets are formed through a lengthy (typically year-long) approval process, and in most cases, finalized budgets are published and available for download.  These budgets do tend to be high-level and therefore may not provide detailed budget data for your individual program (unless it’s a large or high-priority program). It’s always worth checking, and a savvy analyst can usually look at historical spending and make some reasonable assumptions to project what the program budget will be as a percentage of the high-level budget. This is obviously more challenging in the commercial space, where customers do not typically publish budget data, but even there you may be able to determine what they have paid for similar goods and services in the past and make some projections based on that data.

Once you’ve developed an estimate of the customer’s overall budget for a program, you’re not done yet.  Typically, program budgets must also cover certain expenses related to running the procurement and the program office itself (i.e., “keeping the lights on”). This represents what we call “holdback” or “management reserve.”  When you subtract this reserve from the overall budget, what remains is called “contractor addressable budget” or simply “addressable budget.”  THIS addressable budget is the figure you need to understand in order to ensure your solution is affordable.

Determining holdback can be tricky. Sometimes, customers publish their program office expenses in their budget documents, but not always. Otherwise, find someone knowledgeable about the customer (perhaps a former government employee or contracting officer) who can comment on standard practices, or make some logical assumptions and move on (don’t get stuck in the weeds!)

Finally, keep in mind that budgets change. The annual budget requests are just that:  requests. They present a snapshot of what the customer expects to spend on a program at one point in time, but that can (and often does) change. So it’s imperative to maintain good customer intimacy and listen carefully to what the customer is saying, watching for signs that either the budget, or the customer’s definition of value, may be shifting.

For more information on customer funding analysis, Competitive Intelligence, or Price To Win, contact Richter & Company.