When you want to win a share of a shipper's business, you often must submit a bid on their Request for Proposal package that includes your schedule of rates, terms, and conditions. To ensure a hard-won contract proves profitable in the long run, you may need to make tough calls in dynamic markets and segments. That requires new strategies, tactics, and technology solutions.
Before you craft your RFP response, start by deciding on your goals and developing a strategy to achieve them. Your goal may be to win the entire bid, to win only a portion of the bid, or just to make a good showing. Let's start by considering three potential strategies.
Strategy #1: Win the Entire Bid
If the shipper/client business is lucrative and fits well with your existing business, you may decide to secure the entire package or as much as the shipper allows. In that case, you might decide to make compromises on pricing to make your bid as appealing as possible.
Strategy #2: Win Part of the Bid
If the pricing required to win the entire bid will make the overall contract unprofitable, you may decide to pursue only part of the bid. You can focus on lanes in the RFP that are profitable and/or a good fit with your existing business. This strategy gives you the chance to build or enhance an ongoing relationship with the shipper. Your company will also be in a prime position to take on additional lanes at more profitable pricing later.
Strategy #3: Lose the Bid but Make an Impression
If many bidders respond to the RFP and the contract price is driven below your operating costs, you can still benefit by bidding on the RFP. A professional bid establishes legitimacy in the eyes of the shipper and opens up opportunities to develop a working relationship.
For any strategy, if your competition offers overly aggressive bids, their low-price strategies may lead them to fail or walk away from the contract. This opens the door for you. At the very least, complying with all the rules of the bid and responding on time should result in an invitation to bid on future contracts.
Execution: Understand and Comply with the Shipper's RFP
Shippers who issue an RFP are buying business-critical services that must meet an exacting standard to support their supply chain. So success in completing a bid for an RFP depends on much more than rates alone. In fact, some companies say that rates are the least important part of the proposal.
Your RFP response must demonstrate that you thoroughly understand the shipper's underlying requirements. Clarify what services you provide and differentiate your services from your competitors' offerings. Shippers usually provide a framework for the rules of engagement, including the format for your response, the additional materials you can provide, and the amount and type of contact permitted between you and their contact person.
Use the channels that the shipper specifies to clarify any aspects of the bid that you could turn into an advantage. Contact gives you a chance to become better acquainted with the shipper and build relationships with key players. You can also use this opening to demonstrate your competence and to respectfully suggest improvements in the RFP process. If the contact person shares your recommendations with other respondents, this establishes your company as a thought leader and may score points with the shipper's bid evaluation team.
Avoid Common Mistakes
You can lose a bid if you 1) fail to specify the mileage system, 2) neglect or don't budget accurately for accessorial fees or fuel surcharges, or 3) use an incorrect or unacceptable formula to calculate those and other elements of the bid. You may also need to convert the bid format from representative geographic areas to specific points or vice versa. Be sure to document and share your working assumptions to help explain pricing differences among competitive bids. By laying out your assumptions and formatting your proposal to be easily understood, you could win the bid over a lower-priced competitor.
Price Accurately with Benchmarking Tools
Your bid must comply with the RFP's requirements for format and content. If you're serious about winning the shipper's business, however, you must include your best possible price structure also.
You already have solid knowledge about the lanes where you have experience. Use that as the starting point. Add external sources of information to support your rate portfolio, such as quotes from carriers who work in or around destination cities central to the RFP. By initiating an ongoing dialogue with your carriers, you may develop a new understanding of their capabilities in a given direction or lane. A thorough understanding of customer requirements may lead to innovative solutions for loading, dispatching, or unloading equipment, to enable trips for the shipper and your company.
Compare your lane rates against the market's prevailing rates. These are the costs or prices that your competitors also encounter. Look for a benchmarking product that measures the cost of transportation, such as DAT RateView™. RateView provides both contract and spot market rates derived from actual freight bills and rate agreements for tens of thousands of truckload freight moves across North America.
Your pricing analyst also needs to evaluate volumes, seasonality, and timing, and to understand any risk factors. The lane rate history in RateView can support this analysis with a 13-month window into each lane's seasonal trends. You may also want to ask for conditional language to cover changes, such as revisions in Hours of Service (HOS) or mandatory enforcement of Electronic Onboard Recorders (EOBRs) that can change the pricing dynamic overnight.
Improve Your Bid with Map and Mileage Software
Use mapping software to create a visual representation of your capabilities or plans to service the shipper's business. A recognized and reliable mileage software package, such as ALK Associates' PC-Miler®, closely approximates actual travel distances. Sometimes the shipper will dictate the mileage software preference in the RFP. If you choose a different mileage system, be prepared to reconcile any divergence from PC-Miler or the shipper's preferred benchmark.
SMC3® provides a good method of evaluating different carrier tariffs and also their own less-than-truckload tariff system for evaluating LTL rates. Frequently the truckload analyst needs to calculate break points and may be able to secure more truckload movements by demonstrating break points that are lower than conventional wisdom.
Analyze the Margin with a Pro Forma
If you develop your pricing matrix based on prevailing rates, review your bid to ensure you have preserved adequate margin. The margin should be appropriate to your objectives, as discussed above, let you cover your costs and contingencies, and produce some return on your investment. One of the best ways to check this is to create a pro forma balance sheet that corresponds to your bid.
Using a simple spreadsheet, consider annual volumes and the price per load, and calculate a revenue figure. Then add up all the costs needed to support that revenue. Remember to allocate a portion of your indirect costs or overhead to support this new business. Then evaluate the return and determine whether it will improve your profitability. If you're adding volume without profit, you may want to re-think your strategy.
You can also weigh risk by considering several possible outcomes and assumptions. Copy your pro forma, change a single variable, and assign a percentage representing the likelihood that this new scenario will arise. Perform the same test with each assumption, and you will create a model of the RFP's real value to your business. Later you can plug your actual experience into the pro forma to understand and analyze whether reality conformed to your initial plan.
Here are the four elements you need to respond successfully to an RFP:
- Start with a specific goal or strategy.
- Understand and conform to the key components of the bid, including whom to contact and when.
- Obtain market intelligence from internal and external sources, and validate your findings with benchmarking tools.
- Measure and analyze the financial effect of your bid pricing on your overall business to ensure adequate margins.
Categories: Best Practices and Benchmarks