Some people covered the proposal preparation costs by including them in the estimate. They looked at the time the pitch took and then added it into concept development. If they won the project then the client effectively paid for the pitch. However if they did not win the project it was shown as unbillable hours.
Others set a marketing budget for the year and then included it in that figure. This is a good way if you are budgeting and then recording your time on the annual budgets.
We have operated this method. We use our studio management system to set up a Marketing job and we allocate the budget to that job. We then record each proposal in that job, allowing us to track how we are going against budget. This gives good record keeping but we found it was an issue if we did an exceptional number of proposals and we exceeded our budget.
To solve this we prepared a win/loose list. We listed all of the proposals, their dollar value and then how much of it we won, or if we lost it.
At the beginning of the year we set a win/loose ratio. We based this on the 10:1 ratio commonly used for advertising budgets. This meant that if we had a profit of $100,000 before tax and interest then we would spend $10,000 on marketing.
With our win loose tracking we could see if we were achieving a 10.1 figure. We checked that when we reached $1,000 of hours expended on proposals that we had received $10,000 profit from the proposals.
All a bit complicated and requiring a bit too much paperwork.
Now we use historical data. We know that we have won one in three proposal pitches on the average over the past five years. We know how long each proposal takes and we know that we will do about 10 proposals per year. Now when we calculate our hourly rate we include this as unbillable hours. This lessens the number of billable hours in the year. We divide our billable hours into our overheads (plus a profit margin) and that give us an hourly rate that will cover all our proposals.
If you don't have the hourly rate formula you can get it in The business of design
Win or loose our proposals are paid for by the clients.
Greg’s passion is the research and development of methods that improve design management and the role of design in business.
Greg has developed a series of business tools to help designers manage their business better along with a series of workshops that show designers how to use these tools.