Calculating Proposal Costs

As a marketing leader in your firm, you may want to know how much it is costing your firm to submit proposals and how effective that spending is. If you know how much you’re spending on submitting proposals and the revenue you expect to gain from that effort, you can compare those numbers to calculate your proposal effectiveness. Once you have those numbers you can compare year over year or between different markets or departments to see if you are improving in your efforts.

In my past, I have used a 4-6% rule. Meaning that we would target our pursuit spending to about 4-6% of the potential revenue for the project. I can’t recall the specific place I got this statistic. However, I have learned that many factors such as market types (public vs. private) or procurement types (design, design-build, design competition, etc.) may increase or decrease that percentage. 

Here are some questions to help you decide what factors to consider when calculating your proposal cost effectiveness.

When do you open a pursuit/proposal charge number and who charges to that number?

Sometimes this doesn’t get opened until you get the RFP. If so, it doesn’t capture all the pre-proposal effort. Sometimes only technical staff charges to the specific proposal numbers because marketing staff charges all their time to a marketing staff number. 

For this calculation to be meaningful, decide as a firm as to when a proposal charge number will be opened and who will charge to it. Then try to stay as consistent as possible. I would highly recommend that all marketing staff also charge to these numbers when working on the specific pursuit.

What revenue will you count in the calculation?

I have worked at firms that counted only Net Service Revenue (the firm’s expected revenue minus any subconsultants) and firms that counted total contract value (including the subconsultants fees). I don’t believe there is a right or wrong answer here but will affect your spend percentage. I would decide on one way and be consistent in all your reporting. 

Do you want to report firmwide or specific markets/industries?

If your firm has different markets/industries, you may want to break down the spend percentages differently. In my experience, private industries with many fee proposals generally have a lower pursuit spend percentage but could have higher general business development expenses (that may be tracked with different project numbers). Whereas, the public sector and design-build proposals may have larger pursuit spending. I would recommend reporting on the markets separately and then calculating a firm-wide average. I would only compare the markets to themselves year over year and not to the other markets. 

What do you hope to achieve with knowing this calculation?

I have been asked to make dozens of reports and analyze different types of data. I always start with asking the person requesting this information, why do you want it or what type of decisions do you hope to make from this report or information? Sometimes the answers I get from those questions can be found in reports already developed or at least help me display the information in the way the person requesting can best understand it. 

What is your breakdown of new vs. existing clients?

Remember it usually takes more $$ to gain a new client than maintain/grow an existing client. Consider that when looking at the client breakdowns and understand where you are and what you want to accomplish with that client. 

For more information, please refer to these articles and studies:

AEC Marketing Budgeting 101

The 39th Annual Deltek Clarity A&E Industry Study – Produced in Collaboration with ACEC, ACEC Canada and SMPS