How Much Do Your Proposals Cost You?

There are a few ways to determine the importance of a strong Go/No-Go decision process for your architecture, engineering or construction firm. Regardless of how you look at it though, the fact is it’s important. For this particular post, I’d like to focus on the financial reasons to tighten your firm’s process.

First, a few quick stats from 2009’s Industry Outlook (ZweigWhite).
  • 77% of firms planned to expand marketing activities
  • 65% of firms planned to team more often (not joint venture)
  • 54% of firms planned to enter new markets
These statistics have at least one thing in common – more proposals. The question is, at what expense?

Cost per Proposal
I wanted to take a whack at the average cost per proposal. Since I’m writing in gross over-generalizations, I’ll try to stay as conservative as possible. That way I can end by saying “it’s AT LEAST this bad.” Here is a quick estimate of hours for a public RFP response.
  • Marketing Staff – 30 hours
  • VP or Exec Input – 10 hours
  • Senior Billable Staff Input – 5 hours
Now, we can use direct labor rates to calculate costs, or we can use fully-burdened rates that would be used for pricing out jobs (since there are billable people involved in the process). Just to be conservative, I’ll use mid-range direct labor rates.
  • Marketing Staff – $25/hour
  • VP or Exec – $50/hour
  • Senior Billable Staff – $40/hour
This brings the total labor cost of a proposal to roughly $1,450. Again, this is a conservative estimate, but depending upon the size of your firm and type of proposals you submit, it’s not a bad number to work from. (I know there are some firms out there that spend ten times this much effort on a large contract.) This also doesn’t account for any production expenses that may go into submitting numerous hard copies, etc.

Opportunity Cost
Opportunity cost means the cost of NOT doing something else. (huh?) So, if we assume that each proposal costs us $1,450 in labor, opportunity costs means that we are also “losing” money by not having those people do something else more productive.

For the marketing staff, the time would likely still be an overhead cost. That does not, however, justify the “marketing doesn’t have anything better to do” mentality. It just means that in this example, I don’t want to make a bold assumption that the marketing team would be landing a big contract with that 30 hours.

We can assume though, that roughly 50% of the executive’s time could be billable and 90% of the senior staff’s time could be billable. Using those percentages and fully-burdened labor rates, we can say we are losing $1,290 more in billable time.

Controlling Costs
Our total cost per proposal is now roughly estimated to be $2,740.

During the last two years, many firms found themselves in a frenzy, chasing after any project that they were capable of completing. However, for every wasted effort, the firm may as well have written a check for $2,740. A tight Go/No-Go process could save any given firm in the tens of thousands of dollars per year in productivity. Even though the labor expenses would be the same on the bottom line, the effort wouldn’t have been wasted on opportunities that may have been dismissed with a thorough screening. It would have been redirected to something more fruitful.

Controlling costs doesn’t have to mean eliminating them. It means looking at where money is spent and making sure it’s used effectively. Following a Go/No-Go process is not only a wise marketing decision, it’s a wise financial decision for AEC firms.

Remove Foot from Mouth

I wanted to share one of my wife’s favorite stories about me from architecture school. It actually turned out to be one of my classmates’ favorites as well – at my expense unfortunately.

I was in Professional Practice, the class that was supposed to expose us to life as a practicing architect. During that one class we were reading an article about urban redevelopment written by some pretty well-revered Chicago area architects. The article was interesting enough at first, but as I read on, the language started to get a little more “fluffy” from my perspective. The piece went from a useful essay to a flowery case study.

As our professor called on us to all stop reading and start sharing our opinions, she opened with “So, does anyone have any thoughts on the piece?”

I’ve never been one to hold my tongue, so I jump-started the class discussion with “Blah, blah, blah!” (literally, that’s what I said)

The professor was a bit taken aback and asked me to explain. I expressed my frustration with the almost transcendentalist writing, which was supposed to be about a relatively practical topic in a practical class…not quite so politely probably.

I was at about my fourth sentence when one of my best friends flipped to the back page of the article and quietly pointed to the authors’ names. Who else would they be, but my professor AND her husband.

Foot. In. Mouth.

I learned something very important that day. Use whatever information is given to you…ALL the information given to you, before you enter into a discussion. As a marketer these days, that is still one of the most important lessons I’ve learned.

It means learning everything you can about a potential client before your first meeting.

It means using and applying market research to sell a marketing plan up the chain of command.

It means having the most well-rounded view possible of a client before presenting them with branding recommendations.

It means tracking, analyzing and reporting on pretty much everything you do so you have a strong understanding of what works and what doesn’t before proposing new efforts.

And of course, it means reading the byline before you start bashing an article unknowingly written by your professor.

The Taste Test for Your AEC Firm

I had another blog post in the works when a friend shared this great piece on their Facebook wall.

The Essence of Pleasure by Jonah Lehrer

I couldn’t help but scrap my other post (or at least put it on hold) to jump on this topic for a few moments. The Essence of Pleasure briefly promotes Jonah’s new book while sharing a few experiments from Yale and Cal-Tech pyschologists and neuroscientists. One such experiment is an “oldy but a goody” that has been recreated in a number of different environments, all with similar results. Here is one anecdote shared in his post regarding the expensive vs. cheap taste test:

Twenty people sampled five Cabernet Sauvignons that were distinguished solely by their retail price, with bottles ranging from $5 to $90. Although the people were told that all five wines were different, the scientists weren’t telling the truth: there were only three different wines. This meant that the same wines would often reappear, but with different price labels. For example, the first wine offered during the tasting (it was a cheap bottle of Californian Cabernet) was labeled both as a $5 wine (it’s actual retail price) and as a $45 dollar wine, a 900 percent markup. All of the red wines were sipped inside an fMRI machine.

Not surprisingly, the subjects consistently reported that the more expensive wines tasted better. They preferred the $90 bottle to the $10 bottle, and thought the $45
Cabernet was far superior to the $5 plonk. By conducting the wine tasting inside an fMRI machine (the drinks were sipped via a network of plastic tubes) the scientists could see how the brains of the subjects responded to the different wines. While a variety of brain regions were activated during the experiment, only one brain region seemed to respond to the price of the wine, rather than the wine itself: the medial orbitofrontal cortex, which is believe to “integrate” sensory information with our expectations. In general, more expensive wines made the medial orbitofrontal cortex more excited. The scientists argue that the activity of this brain region shifted the preferences of the wine tasters, so that the $90 Cabernet seemed to taste better than the $10 Cabernet, even though they were actually the same wine.

In reading the comments on the post, there are numerous people arguing that true wine connoisseurs would be able to tell the difference, the machine messed with taste buds, etc. Regardless, in one way or another, it has been proven over and over again that people convince themselves that the more expensive object is usually better.

As I often do, I’d like to challenge people to apply this to B2B marketing. More specifically, apply this to the brand of your AEC firm.

If we believe in the research (which I do), then let’s replace the word “price” in this experiment with the word “value.” I think it’s safe to say that price is just one way that we determine value. When we do that, we focus the conversation on how to position our AEC firm brand as the most valuable – regardless of what we charge for our services.

A whole list of questions comes to my mind when I think about firm branding in these terms:

  • Does your firm LOOK expensive, even if it isn’t?
  • Are you providing value-adds to your clients, or just finishing the job?
  • Do you appear bigger or more established than you are?
  • Has a client or potential client ever told you that?
  • Have you ever won a job over a larger competitor, or one that was less expensive?
When your brand is managed well, your firm’s value is maximized specifically in the eyes of your target audience. That means they choose you because you’re the premium choice based on their perception, and that also means that a deep understanding of your target audience is crucial for a powerful brand.

Repositioning Your Firm – Without Changing A Thing

Tonight, as my family and I ate dinner on the deck, I noticed our bottle of OFF! on the table. Aside from the usual “special formula” and “family-safe” marketing copy, one thing that really stood out were the words “WEST NILE VIRUS” in all caps. We actually bought the patented anti-West Nile Virus version?!?

The smaller (not quite fine) print above reads “Repels mosquitoes that may carry”. So, basically any mosquito spray that can claim to repel mosquitoes, can make a similar claim. It’s not untruthful, it’s just slightly misleading if consumers don’t read the packaging carefully.

Putting the potentially ethical issues aside for a moment, I wanted to highlight something that SC Johnson’s marketers did well. They repositioned their product without changing their brand. As consumer needs adapted (i.e. a recent focus on West Nile Virus in the mainstream media), they updated their messaging without departing from the core brand values for the product line. In fact, they didn’t even have to change the product! I don’t have any prior knowledge of the OFF! products’ actual brand platform, but I would imagine it includes things like “increasing safe outdoor time and mobility for families.”

While marketing for products and services often differs, putting this in terms of an AEC brand isn’t that large of a leap. The industry changes regularly based on technological developments, environmental pressures, governmental regulations, building codes, etc. Successful firms follow those changes by building the appropriate capabilities internally, but ALSO adjusting their positioning in the marketplace.

Your firm’s brand is made up of a mixture of things, one of which is a dedication to your target audience. Depending upon how well that audience is defined, you should be able to adjust your service offerings and your messaging without losing the essence of what has always made your firm successful.