There is an exercise common to IT service companies that is so very critical that its importance can never be over-emphasised. It brings together the best effort of people from different departments, different roles, different levels and can make a big difference to the course an organization takes.
And then there is an activity that is a terrible waste of time, so much so that it can completely drain away and collosally waste weeks or months of collective hard work and effort of several key resources. It can mildly exacerbate differences among teams and magnify overlap of ownership and can cause temptation to indulge in some toe-stepping.
The ironic thing is although both these seem diagonally opposite, they can still be describing the same activity
Responding to RFPs.
Weeks, sometimes months of effort goes into it. Document after document is formatted, version upon version is consolidated, architecture after architecture is drawn up.
And if you win the deal, it was all worth it. If you don’t, you sigh and move on.
Perhaps this is not as unique to IT companies as I have made it sound. It happens in Manufacturing as well as other industries – almost any industry that has a B2B revenue model.
Nonetheless, in the IT industry there may be at least one significant difference – more often than not, the team that gets together to respond to an RFP may be different each time. Solution architects, Domain Experts, technical architects, subject matter experts, account managers – are all spread across different Vertical Domains, CoEs and Technology Practices. Each RFP demands a unique mix of these resources.
What effort goes into this and how much of it is unproductive? Or productive?
lets say 6 people from the middle management get involved in making one RFP. For this discussion, let us not include in this 6 the usual Sales Manager, Account Manager or Sales support and coordination people who usually also get involved in each proposal.
These 6 people typically taking about two weeks to complete their part of the RFP, so we are talking about 480 person hours. Thats roughtly $12,000 of billable time at an average resource cost of $25 per hour.
Ask your sales, what their conversion has been – if it is 8:1, it means one proposal wins for every 8 lost.
That means you have to make 9 proposals or respond to 9 RFPs to crack one deal.
What all that says, is you invest rougly $108,000 to close one deal. And this does not include sales and marketing effort and expenses, tele support and other sales costs. Ok, and another thing, I am not going to get petty and include infrastructure cost from all the conference calls, discussions, white boarding sessions and anything else that goes into responding to one RFP.
Thats a lot of money to close one account. Or to put it differently, thats a lot of money to lose 8 accounts.
Question that seems to be more important right now to me is, who is paying for it? whose budget does this pre-sales cost come off? it certainly does not come off the sales cost, because sales is not paying this money. It certainly is not a cost that can be billed to any customer.
If you are from Manufacturing or the BFSI segment, I may not be very off mark when I say that the people who respond to RFPs are more often than not, the same, But still some of the points that I am trying to make may still be relevant to your industry.
But what are your thoughts? Do we look at this as a necessary evil that must be taken in the right spirit – read philosophically – or should we get palpitations and try to find means to minimise this?
And finally, if you are a prospective buyer, a client, a customer, how would you react if you had to pay vendors (actuals would do) for responding to RFPs? How much would you be willing to pay??