How to Price A Tender

Written by Rob Nathan | 27/05/19 07:47

Learn how to price your tender response in Australia with strategies to stay competitive, cover costs, and highlight your value to buyers.Pricing a tender response is often one of the most complex and critical stages of the tendering process. As to what the price should be, there is no straight answer because every tender is different. Below are some pricing strategies to help you get started.

When it comes to the price you want to put forward, only you and your team in the business will know what a winning price looks like. As the owner or employee of the business, you will have more knowledge than any tender writing expert, on your business's operating costs, competitors and cost structure. Here are a few helpful tips to help you understand the most important issues when it comes to price.

Understanding the Key Elements of Pricing a Tender

There are three primary components that make up your tender price:

1. Direct Costs

The specific costs incurred to provide the product or service e.g. staff, materials / sub-contractors and supervision

2. Indirect Costs

include premises, management, professional fees, administration etc.

3. Profit Margin

The amount added to ensure the project is financially viable for your business.

In some cases you will only be asked to show these three elements, however, a more comprehensive breakdown is often requested depending on the tender. These can be specified either as a percentage or in as a currency ($).

How to Calculate Direct and Indirect Costs

Direct Costs

Think about the nature of your business, if it, and your product is quite simple, it should be rather easy to calculate a breakdown. Use your existing estimating tools or refer to past financials or project data.

Indirect Costs

Indirect costs are often the hardest to break down, especially if there are multiple items on the tender to price. Showing one percentage of the true breakdown is impossible, as it will not accurately represent a breakdown of different prices. Try averaging indirect expenses across the life of the contract, then do a sense-check compared to your company accounts and pricing calculations. If your breakdowns are reasonable and realistic representations of your price, then you should be able to confidently expand on these if challenged.

Pricing Competitively While Maintaining Profit

While pricing low can win attention, competing only on price can damage your margins and long-term sustainability. Instead:

Understand the buyer's evaluation criteria.
Highlight your value-adds (e.g. local knowledge, efficiency, included extras).
Benchmark your pricing against competitors while justifying any higher costs with benefits.

Remember, buyers are often willing to pay more for better value.

Tips for Pricing Tenders

Here are a few helpful tips to help you understand the most important issues when it comes to price.

1. Read the Pricing Requirements Carefully

Make sure you've read the tender request for the pricing and understand what it is the tender issuer is looking for. The tender response may ask you for:

Hourly rates
Labour and material breakdowns
Subcontractor costs
Fixed or variable pricing

If your pricing doesn’t align with the response criteria, your bid may be deemed non-compliant.

2. Ensure the Tender is a Good Fit

To put it simply, if the tender request is asking too much of your business or if you don't think you can win it - don't waste your time and effort responding to it. Take time to conduct a thorough go/no go process before commiting to ensure the tender is a good fit for you business.

3. Clearly Communicate Your Value

Highlight any added value that comes with your price, even if it's something simple. Let the tendering company know the value and benefits of your business compared to your competitors. This could include:

Free consultations
Ongoing support
Faster delivery times
Sustainable or local sourcing practices

4. Break Down Your Pricing Clearly

Some tender response schedules are not always clear. It may be that the tender issuer doesn’t really understand the business you're in, or it may be an error, so it’s always a good idea to clarify anything that doesn't make sense. Make sure you explain anything that the price depends on.

5. Be Aware of Price Changes

If your business has suppliers or subcontractors, confirm prices of goods with your suppliers and contractors, as prices may change.

6. Be Clear About GST

It’s important to check if the pricing is required to include or exclude GST. It's may seem like a simple thing to overlook but getting this wrong could lose you the bid because your pricing is 10% higher than you meant. On the other hand, you could win the bid and instantly lose 10% of your profit margin. Ouch.

Final Thoughts on Tender Pricing in Australia

Pricing is about more than just numbers. It's about communicating the value, credibility, and trustworthiness of your business. With increasing emphasis on value-for-money in Australian procurement, demonstrating how your pricing reflects quality outcomes will make your response more compelling.

Need help pricing your next tender response? Visit our Resources Hub for tools, templates, and detailed guides to help you prepare competitive, compliant, and compelling submissions for tenders across Australia.

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