Like many firms in the A/E/C industry, the firm I work at is experiencing an uptick in business. We’ve got a lot of work and we’re hiring (If you know any schedulers or claims analysts looking, please…please send me an email).
But there is one thing we’re experiencing that I never have before. For the proposals we’ve submitted in 2014, our “hit rate” is 100%. Yes, we’ve won every contract that we’ve submitted a proposal on.
But is that a good thing or a bad thing? That’s what I want to explore with you today.
The Proposal Hit Rate
Especially when I do webinars, people always try to ask me what my “proposal hit rate” is. My answer is always this:
“It doesn’t matter.”
People always email me and ask what the industry average proposal hit rate is. My answer is always:
“Even if there was such a metric, it wouldn’t be a good measuring stick for your firm.
This idea of proposal win rate as measurement of success has been drilled into our head. I just don’t buy it. In fact, I’ve gone on record saying that it’s a flawed metric. Let’s just look at four scenarios to illustrate that point.
Let’s say there is a city with two architecture firms. Firm A has a win rate of 30% and Firm B has a win rate of 70%. Who is more successful? Firm B…right?!?!
But let’s look at it in more detail.
Firm A
- Proposals Submitted: 20
- Proposals Won: 6
- Proposal Hit Rate: 30%
- Proposal Revenue Submitted on: $10M
- Proposal Revenue Won: $7M
Firm B
- Proposals Submitted: 20
- Proposals Won: 14
- Proposal Hit Rate: 70%
- Proposal Revenue Submitted on: $10M
- Proposal Revenue Won: $3M
Now that you see it in more detail, what firm has been more successful? Clearly, it’s Firm A…not Firm B as we originally thought.
Now, there is an obvious fix to this, right? Don’t measure by number of proposals (which, by the way, everyone does)…measure by revenue submitted on. Ok, so using that approach, let’s look at another scenario.
Firm A
- Proposals Submitted: 20
- Proposals Won: 6
- Proposal Hit Rate (By % of Revenue): 70%
- Revenue Submitted on: $10M
- Proposal Revenue Won: $7M
- Proposal Revenue Won Last Year: $70M
Firm B
- Proposals Submitted: 20
- Proposals Won: 14
- Proposal Hit Rate (By % of Revenue): 30%
- Revenue Submitted on: $10M
- Proposal Revenue Won: $3M
- Proposal Revenue Won Last Year: $2M
Now which firm’s proposal efforts are more successful this year? Well, it’s safe to say you’d rather be working for Firm B than Firm A this year…wouldn’t you? But let’s consider even more detail.
Firm A
- Proposals Submitted: 20
- Proposals Won: 6
- Proposal Hit Rate (By % of Revenue): 70%
- Revenue Submitted on: $10M
- Proposal Revenue Won: $7M
- Proposal Revenue Won Last Year: $70M
- Sole Source and Add On Revenue Last Year: $2M
- Sole Source and Add On Revenue This Year: $68M
- Total Revenue Last Year: $72M
- Total Revenue This Year: $75M
Firm B
- Proposals Submitted: 20
- Proposals Won: 14
- Proposal Hit Rate (By % of Revenue): 30%
- Revenue Submitted on: $10M
- Proposal Revenue Won: $3M
- Proposal Revenue Won Last Year: $2M
- Sole Source and Add On Revenue Last Year: $6M
- Sole Source and Add On Revenue This Year: $1M
- Total Revenue Last Year: $8M
- Total Revenue This Year: $4M
Now which firm looks more successful? Firm A, right!?!?!
Now you might say, “Well, Firm A could have won a lot more work from proposals since it won $70M last year.” But consider this. We don’t know anything about the potential proposal opportunities out there for Firm A. There may have been $80M last year and $10M this year. Plus, if they won $50M more in work, that could easily put this firm out of business.
Let’s muddy the waters even more by looking at even more data.
Firm A
- Proposals Submitted: 20
- Proposals Won: 6
- Proposal Hit Rate (By % of Revenue): 70%
- Revenue Submitted on: $10M
- Proposal Revenue Won: $7M
- Proposal Revenue Won Last Year: $70M
- Sole Source and Add On Revenue Last Year: $2M
- Sole Source and Add On Revenue This Year: $68M
- Total Revenue Last Year: $72M
- Total Revenue This Year: $75M
- Proposal Costs: $1M
Firm B
- Proposals Submitted: 20
- Proposals Won: 14
- Proposal Hit Rate (By % of Revenue): 30%
- Revenue Submitted on: $10M
- Proposal Revenue Won: $3M
- Proposal Revenue Won Last Year: $2M
- Sole Source and Add On Revenue Last Year: $6M
- Sole Source and Add On Revenue This Year: $1M
- Total Revenue Last Year: $8M
- Total Revenue This Year: $4M
- Proposal Costs: $60K
Now we see that Firm A spent 14.9% of the proposal revenue won on those pursuits. Let’s not consider how the firm does its accounting (that can get messy). But let’s say that, without absorbing the firm’s proposal costs, they make 12% profit on each job. If you spent 14.9% getting the job, there is no way you can make a profit. That’s a big problem that Firm A needs to consider.
While Firm B only spent 2% of those revenues on proposal costs and they won 30% more with those efforts than last year, they are still down 50% from last year. The big question there is could they/should they have proposed on more?
The point I’m trying to make is this. To simply look to a proposal win rate as a measurement of success is foolish. Yes, even some of my closest friends will be offended by that statement. But I’ve just proven it to you.
But What About A 100% Hit Rate?
As much as I’d like to pat myself on the back, simply looking at that 100% proposal hit rate doesn’t give you any way to measure the effectiveness of our overall proposal efforts.
There is no reason to believe that the quality of our proposals has drastically improved this year or that there was less competition.
As Ford Harding once said to me, “If you win every proposal, that just means one thing…you’re not proposing on enough.” That’s our likely scenario. But were there proposal opportunities that we missed? That’s certainly the question that discovering our 100% proposal hit rate created in my head.
But unfortunately, you don’t know what you don’t know.
What Are Proposal Hit Rates Good For?
I’m not saying proposal hit rates are completely devoid of merit. Yes, they can be indicators. But as a measurement of proposal success they, well, suck.
What are your thoughts on proposal hit rates? Am I talking cRaZy? Or did I hit the nail on the head? Share your opinion by posting a comment.
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