In India, over 75,000+ government tenders are released monthly – that are a combination of central and state government tenders. Government tenders form almost 10% of the country’s GDP. Majority of government tenders released in India are by Indian Railways, MES, CPWD, State PWDs and PSUs like NTPC, HPCL, BPCL etc. The value of these government tenders also varies from as low as Rs. 2 Lacs to the large ones going into 1000’s of Crores.
So what’s the underlying point here. Well, it is that if You – an SME – are really keen to find more business opportunities from this huge opportunity pool of government tenders, there is something surely available for you. For that matter, any SME or business unit from across different industries like textile, chemicals, food & beverage, packaging, garments, organic oils/spices and many more, shall always find the relevant opportunities in government tenders that fits their bill.
So, how do you assess if the government tender is worth yours SMEs time and money. There are SMEs whose sales pipeline and revenues are driven by winning and contracting the government tenders. We will be sharing with you a checklist that may help you arrive at that decision. Before that, based on few industry average standards, let’s see how we come to the cost of winning and breaking even, when bidding for tenders.
Based on the industry standards that have been arrived at, with data from lot of SMEs that participate or have participated in government tenders, on an average typically an SME wins 1 out of 10 tenders. The question here is though, is winning that 1 tender out of 10, enough to make this whole proposition profitable, and hence even worth an SMEs time and money. Lets understand some numbers for that.
Average cost of putting together the proposal is between 0.5-1% of the tender value. We are taking 1% here for the calculation purpose, with a minimum spend of 1lac/Tender
Profit margins are typically between 5-10% of the total tender value, depending on location, urgency etc. We have assumed 10% for demonstration purpose.
Average win rate is 20% for all the tenders an SME bids for. We have considered lower win rate at 15%
Arriving at the Break-even cost
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Description
Values
Tender value (based on various government sites)
1,00,00,000
Proposal making cost (%)
1%
Proposal making cost (INR)
1,00,000
Profit (10%,INR)
10,00,000
Total proposal submissions/year(#)
24
Win-rate (%)
15%
Total Cost (INR)
24,00,000
Total Profit (INR)
16,00,000
Return on Investment (INR)
67%
With the help of above table, we can see that for an SME to just break-even it needs to win at least 10% of the government tenders that it bids for. But most of the SMEs, are not even aware that, the government tenders that they bid for, whether they even make any profits for them or not. In fact the average value of tenders to be bid is considered to be just 1 Crores. SMEs can easily bid for tenders which are of higher values and interestingly at higher values of >20 Crores the proposal making cost shall come down to 0.1 – 0.5% of the tender value. Higher the tender value, lower the proposal preparation cost. However it will also directly affect the number of tenders that the SME can bid for, as higher value tenders will attract lower tender preparation cost.
Checklist to assess the worth of government tenders
Hence, below simple checklist should help you get to the decision point of knowing whether government tenders are meant for your SME:
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First thing to do is to sort and pick the relevant tenders. Check out the number of government tender opportunities that are in your SMEs area of expertise and in the regions where you would like to do business. You would end up filtering out a lot of tenders and come down to a very small number to start with
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Next thing to do is to decide the average value of contract you want to bid for. A simple thumb rule that you may follow is that, if the tender size is 25% or more than your company’s annual turnover, then drop it. Authority will anyway not choose you in that case, as they don’t want you to compromise on the service quality due to the size of their contract.
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Now you need to find out the cost of preparing the tender proposal. If you are new to the government tender contracting, then the cost must be give & take >=1% of the overall government tender value for tender values <20Crores and 0.1-0.5% for other tenders; if you already have been in to this, then there would lot of repeat stuff, and hence it will be close to 0.1-0.25% of the tender value.
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Use the above table of arriving at the break-even, to see if your SME is able to make money at these percentages or not. More importantly, please do remember that there is huge time gap of many months between the bid proposal writing and finally getting paid for the tender that you may have won.
Hope this exercise helps your SME arrive at the decision of whether to bid for government tenders or not. And if you are bidding for it, what’s the right percentage that will help you achieve the break-even and then be able to generate profits by bidding for the government tenders. We will be more than happy to assist you further. BidAssist team would be more than happy to connect with you and help you further in this regard or help you with any other queries regarding government tenders.
Reach out to us on 1800 102 9586 or you may write to us at contact@bidassist.com