The big question on the mind of Bob Rogers, CEO of The Chesapeake Center (Chesapeake), was, "How do I hit my backlog number?"
For a contractor, "backlog" is the future value of contracts. It's money you know you've got coming. In order to stay flat, a contractor must win enough new business to replace its backlog as time goes by. Your backlog can sustain you (for a short while) even if you don't win any new business. Since the procurement process takes so long (from lead identification through contract start can easily take more than a year), the backlog number can tell you more about a company's health than its revenue number. Chesapeake had a target backlog it wanted to grow to. To get Chesapeake's backlog to where they wanted it, they needed to win some business. The old approach of looking for RFPs and then bidding them wasn't working. Instead of watching their backlog work down to nothing, they knew they had to do something different. One of the first things we did was to create a pipeline.
If you do the math on a pipeline, you'll find that win rate has a major impact that goes all the way back to the number of leads you need to identify. If your win rate is higher, you will achieve the same amount of revenue, with fewer leads. And vice versa. If you want to achieve a high win rate, you need to be selective and you need to arrive at RFP release prepared with a competitive advantage. You need to challenge the leads you are pursuing, and put the burden of proof on the sponsor to demonstrate that the chances of winning are good and that they are ready to bid with a competitive advantage they can articulate.
In parallel with your pipeline, you should have a process to ensure that you are ready to bid when the RFP is released. Failure to do your homework towards being ready to bid with a clear competitive advantage is a good reason to "no bid" an opportunity. Instead of assuming that you should bid every opportunity you see, we assumed we would drop a significant number of opportunities when we set our targets.
Chesapeake's initial pipeline was based on guesses and assumptions, because while we had a list of opportunities being tracked, we had very little useable historical data. We assumed a 33% win rate. That's the figure that most Government contractors use. In some markets it can be higher or lower. I suspect that 33% is not based on any real data, but it's the number most people cite (probably to hide the fact that they really don't know). Depending on the phase, we assumed either only 66% or 75% would make it to the next phase. In other words, at each stage, we expected to drop at least 1 in 4 of the leads we were tracking at each review.
The result was close to a 9:1 ratio between projected wins and leads identified. In other words, for $10 million in targeted wins, we identified nearly $90 million in leads.
- At the lead identification stage, we started with a target of $90 million
- At the lead qualification stage, it reduced to $60 million (33% of opportunities dropped)
- At the intelligence gathering stage, it reduced to $45 million (25% of opportunities dropped)
- The target number of bids submitted dropped to $30 million (33% of opportunities dropped)
- The target for wins was $10 million (33% win rate)
We used targets like these to get us started, while collecting data that would enable us to refine the percentage dropped at each stage and revisit the targets. We used Microsoft Excel for data and analysis.
For each stage, Chesapeake set goals using the CapturePlanning.com MustWin Process. This provided a list of questions or goals related to intelligence gathering and positioning to be achieved in order to demonstrate readiness to bid. Each Readiness Review provided an opportunity to "no bid" opportunities. At each review we were expecting to drop at least 1 in 4 of the opportunities reviewed.
After about 6 months of collecting data, we began to revisit the targets based on real-world data instead of our assumptions. For Chesapeake, it will probably require at least 12 and maybe 18 months to have sufficient data to change the targets. This could vary company to company depending on how many bids of what duration you pursue. The key advantages to this approach are:
- Meaningful targets. By tracking the number of opportunities considered and dropped, you can replace the assumptions with real world percentages and achieve meaningful targets.
- Improved Diagnostics. You can tell a lot just by looking at the graph of the pipeline. You can tell more by how it changes over time.
- Sustainability. If it takes a year or more from lead identification to award, then it will take a year or more to recover from a decline in business. During the time you are recovering, you are essentially living off your backlog. Maintaining your pipeline means that you always have a supply of new leads that are far enough along to ensure a steady stream of bids.
- Growth. You cannot grow by living off your backlog. You need to get ahead. The pipeline can help you achieve that. Beating your targets will also result in growth.
- Improving your bids and not just tracking them. A small change in your win rate makes a big difference. Going from 33% to 50% (a 17% change) results in a 33% percent drop in the number of leads required. Or with the same number of leads the same 17% change in win rate results in 50% more new business. By linking the pipeline phases to specific goals to ensure readiness and having specific plans to "no bid" opportunities at each phase, you arrive at your bids with more intelligence, better positioning, and a clear competitive advantage. This is how you boost your win rate.