- Home
- Bid Economics
Bid economics: the math behind whether a government bid is worth it.
Bid economics is deciding whether to bid, and what to charge, by looking at the numbers: your chance of winning, what you would keep if you did, and what it costs you to try.
The four numbers behind every bid
- Chance of winning. Not how much you want it. How likely you are to be chosen, given the evaluation, the competition and any incumbent.
- Profit if you win. What you would actually keep, after the real cost of delivery, overhead and risk. Not the margin you quoted.
- Cost to bid. The hours and the money it takes to prepare and submit. You pay this whether you win or lose.
- Cash and terms. What the contract does to your cash: how long you carry the work before you are paid, and what it asks of you along the way.
Small changes flip decisions
A bid that looks reasonable at one honest estimate of your chances can be a loss at a slightly lower one, with the price and the effort exactly the same.
That is why the inputs matter more than the arithmetic, and why a hopeful guess is expensive. It is also why two firms looking at the same opportunity can reach opposite, equally confident answers.
Why gut feel gets this wrong
- We overrate our chances. Wanting a contract makes it look more winnable.
- We count the win and forget the loss. The cost of bidding shows up on every bid, and only a fraction of them pay it back.
- We quote margin, not profit. What you would keep is usually lower than the margin you put in the price.
- We stop counting once we have started. Hours already spent make the next decision feel different, even though they should not.
Where the math breaks
It is only as good as its inputs, and every input is an estimate. A few things to keep in mind.
Price moves two numbers at once. A lower price raises your chance of winning and lowers your profit if you win. The best price is rarely the lowest or the one you would like. See how to price a bid.
Not every bid is a standalone bet. A first reference, a new buyer or work that keeps a strong team busy can be worth more than the profit on one contract. Name that value, put a limit on it, and do not let it quietly justify everything.
Do not mistake precision for accuracy. A neat figure built on a hopeful guess is still a hopeful guess. Ranges are more honest than single numbers.
The arithmetic is easy. The inputs are where bids are won and lost.
Putting it to work
- Before you bid. Decide whether it is worth chasing. See the bid/no-bid guide.
- When you price. Set a floor you will not go below. See the bid pricing guide.
- Across the year. Choose which kinds of bids to chase and which to leave alone. Capture planning helps point your effort.
- Looking back. Find out which of your past bids paid. A Win/Loss Review does exactly that.
Questions
What is bid economics?
It is deciding whether to bid, and what to charge, by looking at the numbers: your chance of winning, what you would keep if you did, and what it costs you to try. It replaces gut feel with a clear view of whether a bid is worth the effort.
Is bid economics the same as bid/no-bid?
Bid/no-bid is the decision. Bid economics is the numbers behind that decision, and behind the price you set once you decide to bid. See the bid/no-bid guide for the decision itself.
How do I estimate my chance of winning?
It is the hardest input, and the one people are most optimistic about. Your own history of wins and losses is the best starting point, along with how the bid is evaluated and whether an incumbent is in place. A Win/Loss Review exists to turn that history into numbers you can trust.
Do I need software or a spreadsheet?
No. The arithmetic is simple. The skill is in getting honest inputs, and in noticing which input is carrying the whole decision.
Who is this for?
Owner-led companies in any industry that already bid on government work and want the bids they chase to pay.
Where to go next
- Bid Economics Assessment: we put the numbers on one live opportunity and give you a bid, bid-with-conditions or no-bid call.
- Bid/No-Bid Guide
- Bid Pricing Guide
- The blog
Want the numbers on a real bid?
Send the opportunity over. You will get an honest first read and a clear next step.