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A Bidding Strategy for a Small Consulting Firm

My small consulting firm has recently been considered for larger projects, but with our low overhead, I suspect we put out the lowest bids. I fear that buyers see our low bid and make negative judgments. How can I decide whether to sit tight with our pricing or raise rates? —B.G., Chicago

You first need to confirm your suspicions about your own bids being notably lower than those of the consulting firms you are competing against for these large projects.

There are several ways to get a handle on standard consulting rates. Network with other consultants and ask what they consider going rates for various jobs. Talk to former employees of competing firms about what they charged. Ask your clients what they have paid in the past. Look at your competitor's Web sites and brochures to see if prices are mentioned. Pay for a rate comparison survey. Or check out public sector projects, which often publish standard rates online.

"You can go to places such as, where consultants may be informally discussing things like their rates," says Jenny Sutton, a partner at management consulting firm The RFP Company and co-author of Extract Value from Consultants, to be published in May. Other social networking sites, such as LinkedIn, may also have groups where consultants exchange information about their work.

Emphasize Your Expertise

Public relations consultant Kristi Hughes, who founded Manavista PR in 2007, says she often bids against larger firms—including some former employers. "My job is to know my competitors' rates, realize their overhead, and keep in mind that a team—albeit a junior team more often than not—accompanies their bid," Hughes says. "I can confidently keep my bid lower while making money and still offering quality service."

Unless your bids are far too low to be seriously considered, stay with your current rates and emphasize your skills and experience in your proposals, Sutton says: "Demonstrate that you understand the client's situation and that you have the right experience and capabilities to solve the problem, address the need, and do the work. Make the client believe you can do the same caliber work as larger, more expensive firms."

Companies may fear that smaller consulting firms and independent contractors are fly-by-night operations that don't have access to the proper talent. You can allay those fears by providing good references and letting clients meet with you and your staff. Show that you've done similar jobs that ended with satisfied clients, highlighting their testimonials in your marketing materials. You don't want to degrade your competitors, Hughes says, but "offer point-by-point reasons why your smaller firm is more effective, strategically and cost-wise, than a larger company."

The Stalking Horse Gambit

In some request-for-proposal situations, small businesses are used as "stalking horses" by companies that want to pull in a low bid to aid negotiations with their preferred vendors. Other times, companies have all-but-settled on a consultant, but they must solicit several bids for compliance reasons. If you get an RFP out of the blue, with a very short lead time and little opportunity to meet with the client and determine exactly what they need, that's an indication that you're being used, Sutton says.

"If you're aware that this is happening, you might still do the proposal just to develop the relationship with a new client," she says, "but you can certainly put in less work than if you thought you had a good chance" at winning the contract.

In the end, if you are not selected for the job, thank the company for its interest and ask if its executives will spend a few minutes debriefing you. If they agree, get their perspectives on your proposal, why you were not hired, and what you could have done differently, specifically on your price quotes. With clients reluctant to put in the time, you might appeal to their own self-interest: "Clients benefit from nurturing the development of stronger consultants for future work, so they don't end up having only one vendor they use for everything," Sutton says.

Remember that one of the major advantages of a small business is being able to undercut larger firms' prices because you have lower overhead. So increasing your pricing artificially is usually a bad impulse, although "it's a good idea to not undervalue yourself," Hughes says. "Women have a tendency to do this more than men. Shoot on the higher side and mention that you're willing to negotiate."

Once you get to the point where you're inundated with work and unable to handle new jobs, that's a signal that you should raise prices, Sutton says.

Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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