Small Business Advice: Risks of responding (or not responding) to RFPs
by Rob Wolfe – Connected Places Global
Regardless of whether or not you respond, and whether you target price buyers, value buyers, or relationship buyers, reviewing RFPs provides insight to an organization’s current or anticipated issues and what it needs to meet its business objectives. Responding to RFPs can be part of a marketing strategy and can result in more business, or can rob you of time and resources.
In their book, Pricing With Confidence, Dr. Reed Holden and Mark Burton assert that when competing for business, the worst thing that a dominant incumbent can do is to respond to a Request for Proposal (RFP). They say an RFP is often a sign that a customer is not interested in the value offering or a relationship, but rather RFPs come, for the most part, from price buyers who make their buying decisions exclusively on price. They suggest considering what percentage of RFPs you win and, if your close rate is low, suggest you’re wasting valuable resources if you’re spending more than an hour per RFP response.
If you are the incumbent, can you afford not to answer the RFP and risk losing the business altogether? There are times when you need to walk away, especially when cost — not value, relationship, or your past performance — is the bottom line driver. I think it’s wise to always identify the key sources of risk in responding to any RFP before deciding. The best approach is to analyze and consider opportunities on a case-by-case basis rather than routinely responding or not responding to them. Consider the following with each RFP opportunity:
1. Consider who has been asked to submit a RFP.
While you may not know who has been asked to submit a RFP, be aware that sometimes buyers request a total value RFP from the top few candidates, and request a competitive RFP from other candidates for “control” purposes. If it’s a broad RFP and it’s obvious that bids will be better from smaller lower-shelf competitors, then the buyer could be trying to get the services of stronger candidates at a better price, and winning on value may be more challenging. On the other hand, if you are one of the top providers and the other top provider responds to the RFP, is it worthwhile or necessary to respond even if price is the main criterion?
2. Look for themes in the RFP.
How many times does the word “cost” (or a similar reference) appear in the RFP? As Martin Andelman suggests in his whitepaper, The RFP and Creating Proposals that Win, “Read between the lines. You can tell an awful lot about what a company is looking for and struggling with by close examination of the questionnaire. Read carefully [and you will find that] those issuing the RFP will tell you how to sell them.” If your strategy is not to sell them on low cost, but that’s clearly what they’re looking for, then as a value or relationship provider you may not want to waste any time responding.
3. Know the evaluation process.
Fully review each individual RFP to see what the criteria are for selection. Before spending any time responding, you need to know how to avoid being disqualified. Is cost the first criteria used to eliminate candidates? What process will the requestor follow in their evaluation? If the RFP reflects a sensible level of due diligence, it might be a positive sign that the company is aiming for a long-term partner rather than a low cost solution.
4. Know your value proposition.
Highlight every factor that will distinguish you from your competitors. Understand how your own strengths compare with your competitors. If your pricing is in line with the competition and you have a stronger value proposition based on expertise, experience or some other factor, you can still win the deal. However, if cost is the most important driver of the decision and you are not the low-cost provider, then let the win go to the competitor who prefers to serve price buyers. Provide your added value to the customers who value it and don’t waste the time responding. Demonstrate confidence in your value proposition.
5. Make relationship a part of the process.
Meet with the prospect to gain a deeper understanding of their needs beyond what is in the RFP. Focus on their business and financial drivers, not yours. Even when you’re not dealing with relationship buyers, gaining some rapport and trust along the way just might give you the edge.
According to Martin Andelman, “The bar is not nearly as high as you might imagine.” He suggests that 20-40% of those who receive the RFP won’t respond. Another 30-40% will respond reluctantly and, therefore, poorly. Only 20-30% of those given the opportunity to submit a proposal will even be in the running. If price is not the primary driver, if you know your value proposition and have used it to address the requestor’s needs, and if you have gained some trust in your relationship along the way, I think even a dominant incumbent can be better off responding than not responding to the RFP.
And for those issuing RFPs:
- Know your limits. Do you have a limited budget? Are there things you definitely want included? Are there things you definitely want excluded?
- Is what you want from the RFP reasonable or possible? If you want the highest levels of service and the lowest possible prices, is it likely you will be satisfied in both areas?
- Understand that tradeoffs may be necessary and understand what tradeoffs are involved. Is low cost more important than unconditional on-time delivery of services? You’ll have to pay for higher levels of service or a long-term relationship.
What are your thoughts on this, or what are the guidelines you follow when deciding when to respond to an RFP?
Acknowledgements: The thought leadership of the following fellow members of professional networking groups is expressed in the content of this feature through their responses to discussion on this topic: Hope Oriabure-King, Ernie Harris, Jill Markquardt, Karie Barrett, Frank Restifo, and Lou Barbato. Additional insight was captured from the Martin Andelman (www.rfpnation.com) whitepaper, ‘The RFP and Creating Proposals that Win,’ and from multiple RFP-related whitepaper authors at Captureplanning.com, a provider of proposal and business development support. Thanks to all of you for your insights and contributions.
Entry filed under: BUSINESS BEST PRACTICES, ENTREPRENEURSHIP, MARKETING STRATEGY, SALES. Tags: "responding to request for proposal", "responding to RFPs", "RFP risks", "small business advice", RFP, Rob Wolfe.