Log in

ISM Article

Bidding Farewell to Profits

4 Aug, 2003 By: Ronelle Ingram imageSource

Bidding Farewell to Profits

I have been
submitting a lot of bids lately: bids for service, equipment and supplies
prepared for corporations, cities, state agencies and school districts. I have
completed so many bids recently, I'm beginning to feel like an auctioneer.

The more bids I do,
the easier the process becomes. My average bid is usually about seven pages
long. I have, however, seen formal bids that are two paragraphs and, at the
other end of the spectrum, I have seen bid documents in excess of 100 pages.
There are bids that require a company representative to show up for a prebid
conference. If no one from your company shows up, there is no need to fill out
the bid. There are also long involved bids that include clauses (in fine 7-point
print) that explain that the originator of the bid does not have to award the
contract to the low bidder. In fact, the bid may state that there is no
guarantee of any purchase attached to the bid.

Whether it's a
two-paragraph bid or a 100-page document, it is the responsibility of the bidder
to read, understand and abide by all the rules and regulations.

Hungry Bids

I have mixed feelings about bids that require all participating bidders to send
a cashier's check for a percentage of, or for the full amount of the bid being
submitted. On one hand, a bid that requires thousands of dollars of deposit
instantly eliminates many prospective bidders. On the other hand, if you win the
bid, thousands of your company's working capital will be retained as a guarantee
that your company will live up to its contractual agreement.

To compensate for
the loss of capital, when I participate in a bid that requires a good-faith
payment up front, I factor the cost of the deposit money into my bid. If the bid
calls for discounted payment for net five or ten days, I raise my rates to
account for the additional discount. Similarly, when the bid requires net 60 or
90 days payment, I calculate the additional associated costs. We sell office
equipment and are not a financial lending institution.

from Lost

Bids Many dealers and vendors never take the time to actually study the recap of
the lost bid. What would your company have had to do to win this bid? Was the
winning bid only pennies below your quote? Or, did you miss the winning bid by
thousands of dollars? Was the winning bidder an independent dealer, manufacturer
or a large superstore? Was the bidder a local merchant? If the winning bidder's
pricing was lower than what you are currently able to get as a wholesaler, can
you contact that bidder to see if you can buy from them?

Even when you are
the winning bidder, it is still very important to study the bid recaps. Did you
win the bid by five cents or did you under bid everyone else by $5000? The goal
of being the winning bidder is to maximize your profit. It is important to
always be aware of the marketplace. If you are far under all the other bids, you
have just thrown away thousands of dollars worth of potential profit. You have
also lowered the future bidding prices for similar equipment. Keep in mind that
each bid establishes a new point of reference for all future bidding

Many bids have
clauses that state if the winning bidder ever sells the same product at a lower
price to a similar agency or government, that lower price must extended to this
contract. Be careful not to eliminate past profits in order to win future bids.

Establish a
record-keeping procedure for filing past years' bids and the bid recaps. This
will give you a history of past performance. Within a couple of years you can
compile an informative history of the bid patterns of different vendors in your
area. You can see if there is a specific price percentage that other bidders
use. Use these bid histories to help calculate future bids.


I recently took part in a printer service bid for 268 printers at the accounting
office of a government agency. This was a very restrictive, Internet e-mail bid
and was open for only five days. One business day before the bid closing,
several modifications were e-mailed to each bidder which required that all
potential vendors rebid the entire project. This was one of the most specific,
short-windowed bids I had ever seen.

Within 24 hours of
the bid close, a bid recap was posted on the Internet. I was amazed to see that
over two dozen vendors had responded to the bid. Over a dozen vendors were not
even located within the county, much less within the required fifteen mile
radius of the government offices to be serviced. (Because vendors could make
comments on each and every line item, I can only imagine what comments a bidder
made trying to bypass specific bid requirements.)

I was even more
surprised to see that the price bids ranged from a low of $1,112 to a high bid
of $308,200. A $300,000 difference between the high and low bids? Now I'm no
mathematician, but I think that works out to be over 3,000 percent difference in
pricing. Even if the high and low bids were thrown out, the other legitimate
bids had a difference of over $70,000. I took a serious look at the bids placed
by dealerships that had a history of excellent printer service within our
community. A $70,000 difference divided by 268 machines averages out to a
difference of $261 per machine. Normally when you're bidding a printer contract
(that does not include consumable supplies) a $261 differential is a 50 percent
cost differential on the average bid price of servicing a name brand printer for
one year.

I understand today's
marketplace is tight. The office equipment industry is flat and the United
States is in a low-growth economy. Everywhere I look, dealers are struggling to
get a bigger piece of the pie. The problem is the pie is not growing. Which
means every dealer is struggling to capture some other dealer's share of the

This goes back to my
original premise: reviewing bid recaps can be a learning or humbling experience.
How could one dealer bid $4.15 per machine and even have the slightest pretence
of making money at the end of the year? Why would another dealer bother to
submit a bid of $1150 per printer? What do these dealers know that I don't know?

Case in Point

I recently reviewed another recap of a copier equipment bid from a school
district that was seeking 58 pieces of copier equipment (not connected) ranging
from 20 to 70 copies per minute. The majority of the equipment was 30 to 40
copiers per minute.

As any dealership
that has ever serviced a school understands, there are inherent positives and
negatives. From the negative point of view there are 580 end-users. On the other
hand the schools are closed on a regular basis for extended holidays and the
summer. Thus, the machines only require service coverage three-fifths of the

Keeping all the
school issues in mind, the low bid for service and supplies was a half a penny
per copy. Yes, .005 for all service and supplies guaranteed for 60 months. My
company cannot possibly service 58 copiers within a school district environment
at a half penny a copy. The half cent has to pay for tracking meter readings,
invoicing, attaching purchase order numbers, collecting the money, shipping
unlimited supply requests, and traveling to 40 different locations that close
each day at 3:45 pm. The winning bidder is responsible for all parts and labor
to keep the equipment working. (California schools require fingerprint
registration of all technicians that may come into contact with students while
on school premises. Registration and testing costs $50-$100 per tech depending
on the police department.)

Add to these
requirements, the expectation of making a profit. Industry experts continually
tell me that the service department is capable and responsible for generating a
40 percent profit margin. 40 percent of a half cent is .002. This allows .003 to
cover all the costs of service and supplies. Even if I agreed with the
manufacturers toner cost (using their unrealistic six percent coverage), .003
will not even cover the wholesale cost of supplies much less the two way cost of
freight and inventory expenses.

After allowing for
the expected profit margins and direct supply cost, there is absolutely no money
left for the service department. When I first saw this school bid recap, I shook
my head in disbelief. .005 guaranteed for 60 months, for all service and
supplies. Can this dealer be in the same business as I am in? One of us does not
understand the finances of the copier business.

Reviewing the
winning pricing level of a half cent per copy, I wonder which dealership will be
in business five years from now. Will the dealer who won the bid and receives a
half-cent a copy still be in business? Or will the dealer that understands the
financial requirements of running a business cost more than a half cent per copy
be able to survive? Did someone make a mistake on the bid? Did someone not read
that this was a no-increase contract guaranteed for 60 months? Which bidder was
doing a disservice to their company?

I have no answer to
these questions, but hope that in pointing out these discrepancies, dealers will
consider the welfare of their business and their industry when bidding on
contracts. I will continue to take advantage of all bidding opportunities that
come my way. I will continue to read all 27 pages of fine print. I will continue
to study the recaps of bids we win or lose. I will continue to bid the equipment
and services my company provides within a fair pricing structure. I will to try
to educate my fellow dealers to the true cost of doing business.

- - -

WebinarCase Studies and White PapersSand Exchange Blog

imageSource Magazine Quick Links
Upcoming Events
ITEX Expo & Conference
©2015 Questex, LLC. All rights reserved
Reproduction in whole or part is prohibited
Please send any technical comments or questions to our webmaster