A basic theoretical framework for investment in bid teams
Overview and simple example:
To justify a £250,000 increase in investment in a typical big bidding function in a large corporate requires either:
1) an increase in winning percentage of less than 1%; or
2) for the bidding function to be able to produce fewer than 10 extra bids a year.
Simplifying assumptions:
Bid teams cost money. Let’s call the additional amount spent on a bid team X.
Bid teams produce bids. Let’s call the number of bids produced Y.
Those bids have a certain average chance of winning. Let’s call that P.
Each of those bids generate a certain average amount of margin. Let’s call that M.
If X > YPM then the additional bid team spend is profit reducing.
If X = YPM then the additional bid team spend is profit neutral.
If X < YPM then the additional bid team spend is profit enhancing.
A worked example
A bid team costs £1 million.
They produce 20 bids.
They win 50% of bids.
Those bids produce, on average 0.5m margin.
X = £1m
YPM = 20 * 50% * 0.5 = £5m
The bid team costs £1m and generates £5m and is a very good investment.
Increasing investment, increasing return
We can now start to explore some of these relationships. To simplify, I am going to assume that bid teams cannot influence contract profitability. (This is obviously not true in the real world).
If you invest 500k in a bid team currently producing 20 bids and winning 50% at 0.5m margin then to make your 500k back you need to either:
- Increase your bid production from 20 bids to 22 bids (0.5m = 2 * 50% * 0.5); or
- Increase your win rate from 50% to 55% (0.5m = 20 * 5% * 0.5); or
- Some combination of
October 31, 2022
