Recently we were asked if there are any industry standards for the bids versus awards ratio, which is one metric used with sales. For example, if you had four requests to bid and was awarded one, then the ratio would be 25%. Of course, that is a very oversimplified example because there are a lot of complicating factors that can impact this metric.
For example, is there a portion of requests you get that you never win?Â Itâs not uncommon for certain companies to require three bids for any work even though they may already know that your pricing will be higher.Â That means theyâre requesting bids only as a formality but have no intention of awarding the work to anyone other than their preferred vendor. It’s important to eliminate those requests because they will unfairly reduce your ratio.
In my opinion, there is another complicating factor that should be considered if you want a fair comparison or benchmark to others who make similar products.Â Although not often discussed, most companies have some of the products they sell which are commoditized. I think that you can only compare your bids versus awards ratio to companies whose products have a similar amount of commoditization.
For example, a standard business card might be considered a commoditized product with little opportunity for value-added. An example of a product with more value might be that same business card, but now it’s ordered online through a web-to-print portal, and it includes a customized QR code that automatically adds the business card to another person’s contact list. This would add more value to the business card.
If one company sells 25% commoditized products, they should expect a different ratio than a company that sells 75% commoditized products. For companies that specialize in very price competitive products, their ratio is often lower than companies that sell products with higher value.Â For companies that sell higher value products, their ratio is higher.
Do you measure this ratio? And more importantly, what other metrics do you use to achieve a “Balanced Scorecard Approach“? The underlying ideas in this approach were developed by Bain and Company, and later published in the book of the same name. We believe that to fully understand the performance of any department or company, it requires a number of different measurements to achieve a 360Â° view.
Are you a fan of the bid versus awards ratio? How do you use this information to improve the performance of your company? What other metrics do you use to get a 360Â° view?