Set Up a Strategy and Do Not Under-Price Contracts
You will be very familiar with the following situation. You are a starting company which is not known on the market. Or you are a bigger company, but a client falls out suddenly. Or you just crave to get an interesting customer with the vision of long-term cooperation. You get an invitation into the public tender which you want to win. What do you do? You Under-Price the contract. Let’s be honest – it is probably something that everybody went through at some point. However, there are several reasons why this strategy should not become your standard.
A Dangerous Spiral
At the beginnings or in crisis situations, it is understandable to a point, but it cannot become a routine process. You might not be able to get away from such a spiral. Be especially careful with corporate clients who might be financially interesting, but they are also very capable negotiators: they throw around promises, but they very often want for you to show what you can do for a very low price.
In Ackee, we stick to stick to a couple rules:
- In case a client is too focused on the price, we start to be very cautious. Will the budget let us do quality work?
- When you give out a discount, the client will most likely want one next time as well. That is why we think twice about each discount.
- In case the price is the only criteria in state contracts, we ignore them altogether.
The main goal of most procurement departments in big companies is reducing costs. Every little percent counts because in the volume of big contracts it makes a lot of money. I personally know a Czech company that is part of a global concern who has more than 100 suppliers for its IT contracts – from small companies consisting of 10 people to big integrators with hundreds of employees. Czech suppliers are complemented by companies from India and Ukraine because of the focus on price.
When it is time for a tender, the contracting authority prefers a couple high-quality companies, but procurement mostly sends the inquiry to all suppliers in their database. It is inevitable that the preferred companies are faced with cheaper competition. The argument that cheap companies are not ready to compete in terms of quality is often thrown out. They are assuming that all suppliers are technically capable of delivering the contract.
And when a project does not go according to plan? It is OK – it can be thrown away and a new tender can be initiated. I know tenders where teams of tens of people win with rates around 3000 CZK/MD. And this is how tens of projects are tendered monthly.
What If I Want Quality?
Nothing is black and white. For example state institutions have it difficult and without needed professionals, competition based on price is the simplest solution. An exception to the rule is for example the National Museum which learned from its negative experience with a cheap supplier and below average application and they chose rather to cancel their second public tender based solely on price.
But the basic recipe is the following: find a professional, set up a reasonable amount of money for the reward and a public tender can be created where the price has 40 % weight and quality 60 % weight. In the private sector, it is even easier. All you need to do is let the professionals decide, approach 3 TOP companies and not try to save on the price at all cost to the detriment of quality.
Set Up Priorities
In Ackee, we told ourselves that the market is big. Customers as well as suppliers are numerous and there will always be somebody cheaper. We are focused on quality, interesting projects and long-term and fair relationship with the client. We leave clients who are too price-oriented to others. And how alleviating it was!
Currently we are working like that only on a couple requests and only after the introductory meeting with the client, we uncover whether it is worth continuing the cooperation. In case both parties are in sync and the project is interesting, we put on our best effort in order to deliver the best presales work and impress the potential client.
That is a great advantage in the end. We are not dealing with tens of projects in presales phase at the same time, but only one or two that we are really interested in. And we very often win those. When we ask clients afterwards why they picked us, we tend to hear that we were the best and it was visible that we really want to work on this.
Working on top-class projects brings several benefits. Our people are excited that they can work with TOP clients and that we are able to remunerate them accordingly. It is also one of the reasons that our company is reasonably profitable from the beginning, without investors and it is nicely and most importantly, healthily, growing.
Thanks to the strategy based on quality, we can fully emerge also into projects that are a pure joy: for example award a million to a non-profit organization, create an app for the Czech Mountaineering Association or a mobile guide through the beginning of the Velvet Revolution. Currently we are also working on an app for the World Wildlife Fund (WWF) in northern Germany. Try it out as well and results will follow.