In the current economic climate, competition for new business is intense and even the most successful companies don’t win every contract they bid for. Having the right expectations about your win-loss ratio is important.
Although winning all of the contracts you bid for sounds ideal in practice, it would mean that you were either:
a monopoly supplier (probably with a scrutinised or pre-set profit margin) or
limiting your bids to only those you were certain to win
If you only bid for contracts you’re certain of winning, you are likely to limit your bid costs, but will constrict your revenue too. For example, if there were 100 contracts, each worth £50k and you limited yourself to the 10 you were nearly certain to win, you would grow your revenues by £500k. But if you bid for a further 20 contracts that you had a fair chance of winning, even with an expected win-loss ratio of 30%, you would have a further 6 wins and an extra £300k of revenue.
So the question is “what is the right win-loss ratio?”
Although the answer depends on a number of factors (e.g. number of potential suppliers, market maturity etc), literature on the subject suggests a good win rate is 40%.
One of the big four consulting firms found the single best predictor of proposal success was the existence of a strong customer relationship. If they had a strong customer relationship, the win-loss ratio was 40% and if there was no relationship with the customer, the win ratio was less than 10% (Tom Sant (2004) in “Persuasive Business Proposals”)
Interestingly, SPI reported that a steep discounting of the bid price (by more than 30%) increases the win rate from 45% to 58%, but the discount significantly reduces both revenue and profitability.
The general lessons on win-loss ratios are:
A 40% win-loss ratio is a good performance
A higher win-loss ratio is achievable with target customers, providing you have established a good relationship
Spend a small amount of time pre-qualifying bids to avoid chasing “hopeless” bids. This is important both to keep the costs down and to establish your company (brand) as a serious supplier
Bid to your target customer segments, don’t chase too wide a set of customers
Understand why you win and lose — a short win-loss report captures the learning and sharpens your bidding. Standardise any text or terms that are used repeatedly in your bids
Regardless of whether you win or lose, understand your competitors and ask for customer feedback on the quality of their bids
Track and analyse your bid data — how many bids/contracts have there been over the last year? How many did you qualify in/out? How many of your qualified bids did you submit? How many of the bids submitted did you win or lose? What is your win-loss ratio by volume and by value? How many are still being considered? How many did the customer withdraw (i.e. not won nor lost)? What is the average decision making time?
Don’t offer big discounts unless it’s part of your planned business model
In summary, beware of kissing all the frogs in the vain hope one will be a prince. Even in that fairy tale, the princess spoke to the frog, pre-qualified the opportunity and made her successful bid.
I hope you are finding these newsletter topics useful and interesting. If you want to explore how we can help you grow and develop your business, then please contact us.
The general lessons on win-loss ratios are: A 40% win-loss ratio is a good performance. A higher win-loss ratio is achievable with target customers, providing you have established a good relationship. Spend a small amount of time pre-qualifying bids to avoid chasing “hopeless” bids.
The win-loss ratio is calculated as the percentage of won opportunities over lost opportunities. For example, if your team had 3 won opportunities and 7 lost opportunities, the Win-Loss Ratio is 42.8% (3 / 7 = 42.8%).
Defining a good win rate depends on your company, niche market, and product. However, a rate of over 60% is considered a strong indicator that you have efficient and effective sales strategies. Some industries might have lower success rate expectations because of the size and complexity of the target market.
A win rate of 40% in trading can be considered acceptable or even good, depending on various factors, including the risk-reward ratio and overall trading strategy. Win rate alone doesn't provide a complete picture of a trader's success; it needs to be evaluated in conjunction with other performance metrics.
For instance, if an investor makes 100 trades, 60 trades are profitable, while 40 are not, the win/loss ratio would be 60/40 or 1.5. This means the investor is winning 1.5 trades for every losing trade.
Loss ratio is used in the insurance industry, representing the ratio of losses to premiums earned. Losses in loss ratios include paid insurance claims and adjustment expenses. The loss ratio formula is insurance claims paid plus adjustment expenses divided by total earned premiums.
Like film study, win-loss analysis is the process of going back and reviewing your closed opportunities—wins and losses—to uncover the trends and insights that can influence future success rates.
The lower the ratio, the more profitable the insurance company, and vice versa. If the loss ratio is above 1, or 100%, the insurance company is unprofitable and maybe in poor financial health because it is paying out more in claims than it is receiving in premiums.
The average value of how many currency units you win for every unit you lose (in the selected currency). This is calculated by dividing the average winning trade by the average losing trade.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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