Participating in tenders is a great way to grow your business. However, filling the tender document and calculating a tender price quotation can be tedious. Therefore, it is important for you as a business owner to look into these details carefully.
In many tendering processes, submitting tender price or quotation price comes at a later stage.
- Stage one, focusses on the technical aspects
- Stage two, requires you to work on a tender cost sheet after you have received a quotation request from the buyer (Note – Once the quotation is submitted, no changes can be made in the costing)
Therefore, it is necessary to be careful while drawing a quotation. As an MSME or emerging business owner, if you are familiar with the eTendering process then this article will help you stay updated on the best practices for quoting a price for tenders; if you are a first-time tender applicant, this guide on how to quote a price in tender will help you to reduce errors in calculation and quote a fair price for your tender bid.
What is quotation?
In a tendering process, the formal response submitted by supplier to request for quotation is called a quotation. One important thing to note is that the quotation document includes pricing or cost that does not change at later stage. It is not an estimated value of the project but actual costing.
The most competitive quotation wins the contract. If you win an order basis the quotation that you have submitted, the contract will be drawn with the same amount. Hence, make sure you consider all the elements before arriving at a final figure.
- Quotation is not the tender fees or Earnest Money Deposit (EMD)
- Quotation is a cost estimate for the products/services being offered
- Quotation is a fixed price, and once accepted by the buyer, cannot be changed
Earnest Money Deposit (EMD) is a type of deposit made by the bidder to buyer. In case of unsuccessful bid, EMD is refunded to the bidder after the tender process is complete. It can be from 1 to 10% of the estimated tender value.
How to calculate tender price?
Calculating quotation or tender price can be a complex task. When you plan to quote for a tender, you need to calculate multiple factors. Listed below are some of the common factors with tender pricing examples to help you understand the concept better.
Cost of raw material
While evaluating cost of raw material, keep it in mind that you are calculating it for future. Consider the contract period and calculate the rising cost of raw material accordingly. For example, you notice the general trend of 10% increase in raw material price annually. In this case, if your contract is for 2 years, you need to calculate cost of raw material considering Y-o-Y hike.
Similarly, a business usually requires more than one raw material, and the method of calculation remains the same for all the raw materials needed for the project. Once you determine cost of each raw material, add them to arrive at a figure for total cost of raw material.
Cost of labour/wages
This is yet another component that rises at regular intervals. Consider the trend of rise and accordingly arrive at a quote basis hours required. For example, if the daily wage per person is ₹1000, consider 10-15% increase in labour charges annually (considering inflation, DA, and basic hike). If your project is expected to last for 2 years and you need at least 20 people to complete the project, your labour charges need to be calculated keeping annual increment in mind.
Other direct costs
You may also incur other direct cost in productions such as logistics, warehousing, insurance, travelling of personnel if involved, etc. You need to consider these components too.
Other expenses
You also need to consider various other expenses such as rent, office expenses, utility expenses, consultation fees, overhead expenses, etc.
When you add all of above, the amount you get is your production cost. Now you can add desired profit margin in this figure to arrive at the quotation value.
Is there a specific format for submitting quotation?
You can keep a tender cost sheet format handy, which can help you in timely submission of quotations. The format may include various elements such as:
- Production cost
- Factory cost
- Cost per unit
- Total cost
Tips for tender pricing
- Make a checklist: You can start preparation of quotation by making a checklist of all the elements and components required for the project. This will ensure that consideration of all aspects.
- Create a win-win situation: Never quote a price that is unsustainable for your business. It will have adverse impact on your business. If you think financially, it is not viable to participate in a particular tender on the cost parameter, you can reconsider your decision of participating in the tender. Also, think from the buyer’s perspective and analyse if it is a value for money proposal.
- Consider all the factors: Calculate all the factors including certification fees, all other miscellaneous charges, etc.
- Be specific: Mention what is included in the costing sheet and what is excluded. That gives the buyer a better clarity.
- Consider inflation: Inflation is an important aspect to consider when you are quoting for any project having timeline of more than a year.
- Double check: Before final submission of the quotation, double check if you have considered all the elements and components. Also, verify the figures mentioned.
To sum up: Quoting the tender price
When submitting a quotation, remember that the lowest bidder is not always the winner. The buyer usually looks at value for money. They also consider other factors such as quality standards, health and safety procedures, certifications, credibility, etc. before awarding the tender.
Therefore, your quotation should be competitive enough to stand a chance to win and be sustainable for your business. That is when you will be able to grow your business by participating in tenders.
