I often work with managers who believe every RFP represents an opportunity, and therefore, it’s their responsibility to respond to each and every one they receive. I wholeheartedly, passionately, and without reservation, completely disagree with this approach. While it is true every RFP represents an opportunity, it’s also true that not every opportunity is a good opportunity. Or a winnable opportunity.
When to No Bid–a short story
Consider the case of a small, three person Web development firm. In the twelve months they’ve been in business, the three founders have racked up a noteworthy collection of clients and an impressive body of work. They’ve done an excellent job networking in the local business community, and people are starting to take notice of their fledgling firm.
Then one day, they receive an RFP out of the blue from a major, multinational corporation. The RFP describes a project that seems to be a great fit for what they do, but its scope is huge, and involves developing and supporting a corporate-wide web application that will be rolled out globally. Should they respond?
I’ve been in sales my whole life, and as a result, any opportunity I encounter gets my adrenaline pumping and my heart racing. Therefore, I’d probably make an effort to learn a little bit more about the opportunity, and specifically, why they chose to send the RFP to us. Barring some unusual findings, though, I would probably advise this client not to respond to this RFP for three reasons.
First, all their customers to date have been local businesses under 250 employees. Their lack of experience working with a major multi-national corporation is a significant hurdle that will be difficult to overcome.
Second, they had no contact with this firm prior to receiving the RFP. The only information they have is what’s presented in the RFP, and that generally isn’t enough to thoroughly understand and qualify the opportunity.
Third, with only three people in the firm, they lack the infrastructure that a major, multinational organization would certainly be looking for in an organization they will rely on to support a global application. Unless the three of them have nothing to do for the next few weeks, and unless they’re looking for something to pass the time, they have no business responding to this RFP.
As all of us know, though, business decisions aren’t always so well-reasoned and logical. Bolstered by their recent successes, all they see when they look at this particular RFP is a huge opportunity, lots of dollar signs, and a short cut to the big leagues. So they respond. Then they lose.
This story is entirely fictional, but it’s not made up.
In a traditional face-to-face sales process, professional salespeople “qualify” an opportunity to determine whether it is a good fit for both the seller and the buyer—before they invest additional resources. The problem that we run into with RFPs is that sellers don’t always qualify an RFP opportunity as diligently as they otherwise would if an RFP weren’t involved.
As a result, many sellers have a tendency to respond to every RFP they receive, even those they would otherwise disqualify if they were to review the opportunity more thoroughly. The result is the seller invests lots of resources into opportunities they aren’t going to win. And that doesn’t make good business sense.
The RFP Response Ratio
The purpose of the RFP Response Ratio is to measure how careful a company is in determining which RFPs to pursue. It’s calculated by dividing the total number of RFPs that are pursued by the total number of RFPs that are received.
By itself, the RFP Response Ratio is not the most insightful piece of information you’ll ever collect. If you respond to 100% of the RFPs you receive, for example, it could mean you aren’t being very discriminating in how you use your resources. However, it could also mean that of the RFPs you’ve received, each was a good fit for your company. In other words, an optimal Response Ratio could be 50% for one business and 100% for another.
The value of the RFP Response Ratio is not the statistic, itself, it’s the awareness it creates among managers about how internal resources are being used. For managers who automatically respond to every RFP they receive, the RFP Response Ratio encourages them to invest time thinking about whether an individual RFP represents a legitimate opportunity that is winnable, or whether it’s a poor fit that will more than likely result in a failed bid and much wasted time.