Are Win Rates Really an Appropriate Measure of Success?
Many government contractors track win rates. Many consulting / proposal firms laud their ability to help clients achieve impressive win rates.
But – do win rates matter?
Win rates are indeed important – they are an indicator of success and provide a measure of your return on Bid & Proposal investments.
But are win rates really that important? And are they an appropriate measure of success?
Well – yes, and no.
For a Win Rate to have any meaning, you must measure it against your Annual Business Plan. If not, you may be tracking information without any relevant context.
For a government contractor – win rates should be measured as one, and only one, of many indicators. Other, arguably more important, measures include top line revenue growth, revenue per contract and a ratio of investment to revenue-generated. Top line revenue is a measure of your firm’s success over time; revenue per contract indicates how effective each contract is as a contributor toward your revenue; and investment to revenue generated ratio shows how well you are investing your B&P dollars.
But win rates, as an independent indicator, can be very misleading.
For example, if you are winning 85% or more of the contracts on which you are bidding – you might feel very good about that number. But it could also indicate that you aren’t taking enough chances.
Winning 85% of 10 contracts valued at $25M each means you have revenue potential of $212,500,000. But, if your firm can handle more work than that, then a win rate of 75% on 15 contracts of similar value means you now have a potential of $281,250,000. In other words, being happy with an 85% win rate allowed you to leave money on the table. If the B&P investment for each contract were $100,000, your revenue increased by 32% for only a 13% increase in B&P investment as a percent of revenue – a return of 2.46 to 1.
Of course, that’s a simplified analysis – but it makes the point.
The type of contracts you pursue also have an effect.
Winning a GSA contract is relatively easy – and many firms, especially proposal shops, will tout their ability to ‘get you’ a GSA contract. In instances like this, chasing GSA contracts will easily give you a wonderful win rate – usually well above 90%. However, simply winning a GSA contract, or any other Multiple Award Task Order Contract (MATOC), provides you $0 in revenue. You need to win the Task Orders that follow to generate revenue.
Remember, win rates don’t pay the bills – revenue does.
On the other side of the equation, winning the sole award of a large requirements-type contract can generate lots of revenue for your firm. You may only need two or three of these each year to maintain your firm’s growth. To win these three contracts, you may have chased five, which could give you a seemingly low win rate percentage of only 60%.
But is it a low rate?
Consider – if you start with a base revenue of $100M based on 4 contracts each producing $25M annually, and add one contract producing $25M in revenue, you’ve increased revenue by 25%. If you chased two equal opportunities to win that one contract, you achieved a 50% win rate. If the next year you chase three similar contracts and win two, you’ve increased your revenue by 40%, and your win rate is 66%.
Neither win rate sounds impressive when compared to 85% or 90%, but as you can see, it’s not the only measure of success you should be tracking.
So, given all this, should you even bother to track your win rate?
Yes – by all means, track your win rate.
BUT keep it in the proper context – and more importantly – for a Win Rate to have any meaning, you must measure it against your Annual Business Plan.
I’ll talk more about that in my next thought-piece.