Sunday, June 12, 2022

A bid too far – On reaching for and losing projects


[statue of Icarus*]

The question of when is a price proposal too high is quite complex. Last week, I submitted a bid for a specialized service to an experienced professional. In my proposal, I took into account my investments in terms of time and energy as well as my assessment of his perception of value and ability to pay for and appreciate the result. I would like to say the negotiation ended in agreement but, alas, he wrote to me that I was far too expensive. My responding email providing further justification of the amount elicited a respectiful but delaying reponse.

This process of guestimation is present in all price negotiation. The service provider needs to consider all the inputs, including the cost of living,  time involved, material, paperwork and a factor for the difficulty involved in the work. On the other hand, since the value of any object is what another person is willing to pay for it, the service provider wanting to maximize profit must somehow guess based on known factors the amount beyond which the proposal is not relevant. For example, in translation, these factors include status, i.e., agency or end customer, price expectations of the location, e.g., Germany vs. India, competition, and personal loyalty, e.g., does the customer know and trust the service provider. To explain the last term, the expression better the devil you know frequently applies to price choices. In most cases, the provider does not actually know the budget or actual price proposed by other bidders. Thus, the minimum price reflects all the costs while the ceiling is the assessment of the customer’s definition of value and ability to pay.

Even with experience, it is difficult to accurately make that calculation every time. Sometimes, it turns out that a higher bid would have been accepted. Other times it appears that that the proposal was too high, either after receiving a response stating that message or by the lack of any response at all. The best strategy is to respond to a price complaint is to explain or restate the benefits and ultimate value and possibly provide a small discount as a matter of good faith, especially when dealing with people whose culture involves negotiation, such as in the Far and Middle East. When a proposal is tacitly or explicitly rejected without explanation, it is good business practice to invest a few minutes reviewing the bases of the proposal and ascertaining which lessons, if any, can be applied in the future. No service provider wins them all.

Most of the time, individual cases without full knowledge of the reasons for the rejection create a poor basis for changing pricing policy. First, it is often impossible to know if price was the actual issue. Secondly, even if lowering prices in future bids does lead to greater volume, the resulting jobs may fill the calendar, often making it impossible to take on higher paying work, a phenomenon called opportunity cost. Instead, a better long-range strategy is to imagine, identify, locate and market to customers that can and will pay the desired rate. Granted, in the short term, it may mean less income but, in the long term, it greatly increases the chance of success on high bids. As an example, luxury car manufacturers market to potential customers with the relevant income, not young couples. While immediate needs may require a reduction of rates, it is a risky strategy over time.

In practice, it is necessary to emotionally accept failure. No service provider wins 100% of its bids. Furthermore, it is often impossible to understand the factors involved in the final decision, which may only partially involve price. To survive as independent, it truly helps to believe that a great project is right around the corner. Admittedly, such a belief requires faith but also is the product of a solid client base and consistent marketing, two elements that the entrepreneur does control.  It should be noted that some clients do later return to the ‘high” bid when they discover that price and quality sometimes correlate. As a positive factor, the failure to attain a job can mean more time for children, family hobbies, and mushroom picking, to name just a few pleasurable activities. All work and no play do not make for a balanced and happy life.

Every freelancer occasionally reaches for a bridge too far and proposes a price too high. Such events may be disappointing but help us grow and even prosper. To apply that famous line by Tennyson (not Shakespeare), it is better to have bid and lost than not to have bid at all.

* Picture subtitles help the blind access the Internet.

Picture credit: Image by <a href=";utm_medium=referral&amp;utm_campaign=image&amp;utm_content=5269657">Reinhard Thrainer</a> from <a href=";utm_medium=referral&amp;utm_campaign=image&amp;utm_content=5269657">Pixabay</a>

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