VP of Business Development
Is there a standard percentage that one should allow in expenditures when chasing down a job? For example, does it make sense to spend $20,000 pitching a job that will net you $200,000? Is 10% the right amount?
Comment from Stephen Craine:
A great question. Too many businesses are willing to give away all but the smallest profit in order to win the sale.
It makes sense to spend $20,000 to win a job with a gross revenue value of $200,000 as long as you are making a net profit when you deduct all costs related to supplying the product or service.
Think about it this way:
It cost you $20,000 to win the business that will bring in $200,000.
That leaves you with $180,000.
Now take away all other costs of winning the sale and providing the service or product to the customer. Include anything that is related to the job won.
Here's some examples:
- Cost of sales staff.
- Account manager time.
- Transport.
- Manufacturing cost.
- After sales service.
The final figure is your net profit on the $200,000 revenue form the business that you won.
And don't forget timeWhen calculating the true value of a job you are trying to win remember to include the time it will take for the revenue to come into the business.
There is a big difference in the value to your business of a $200,000 one off sale that will be paid for within 30 days, and a $200,000 contract that will be invoiced monthly over 3 years.
The first example has an instant impact on your cash flow and for this reason you may be willing to spend in order to win it.
The second has no instant impact and may have more cost related to it, eg administration of the account, so you may want a bigger net profit from the job.
I hope this helps!
Stephen Craine