Do you know which contracts you have coming up for rebid over the next three years? Do you have a particularly busy year for rebids coming up? And do you know what the impact will be on your growth plans of losing one, some or even most of those rebids?
In this article we set out six simple steps for checking across your contract portfolio for the danger areas and the dangerous times for your business.
All contracting businesses with a portfolio of contracts have their own dynamism. Each year new contracts are won, others come up for rebid, and others are at different points in their lifecycle. Some contracts are longer or shorter, some larger or smaller, some contribute more profit, some less than the average, some years you win more contracts, others fewer.
This means contracts in your portfolio won’t be coming up for rebid with neat regularity. Some years you might have few contracts being rebid. But in other years you might have a high proportion of contracts coming up for rebid, or some particularly large or profitable contracts all being rebid in close succession. Losing them could have a big impact on your overall turnover and profitability – and could wreck your growth plans for that, and even future years. It could also have an impact on the confidence of the stakeholders in your business, whether that is staff, other customers, investors or the banks.
Knowing some key measures about your rebid retention and contract portfolio could be vital to help you plan ahead:
- What is your present rebid retention rate?
- Is it improving or getting worse?
- Is retention consistent across your portfolio or does it vary by size of contract, market, service or region?
And looking to the future:
- When are the contracts in your portfolio due for rebid?
- Are there particular years in which more / larger/ more profitable contracts are due for rebid?
- What would be the impact of losing these rebids (or even losing the proportion indicated by your present retention rate) on your turnover and profit?
- What would be the detailed impact on specific markets, regions, or service groups?
- How much resource do you need to plan for to cope with preparing for, and running your rebids?
- How much new business will you need to win each year to replace the business lost at rebid?
- And how much resource will you need to plan for to deliver that new business?
To illustrate the impact of losing rebids let’s look at a hypothetical example:
You run a £100m business with contracts averaging three years in length. So on average each year a third of your turnover comes up for rebid (£33m). If you have an 80% rebid win rate this averages out at losing £6.6m a year in rebid loses. If you have more of your contracts up for rebid in a particular year (or some of your larger contracts being rebid) the proportion could be much higher. And of course few businesses plan to stand still. If you are planning to grow by 10% a year and have a retention rate of 80%, on average you need to be winning almost 17% new business to fill the gap and achieve your growth.
What do you need to know to calculate your future rebid task?
There are some simple steps you can take to help you understand your position and plan ahead. A full paper of how to calculate your rebid degrade curve, plus an example spreadsheet is included in the Rebid Centre.
Step 1: List your contracts
List out all your contracts and their end dates. For a smaller portfolio this should be relatively simple. But for a larger portfolio (or for a set of portfolios across the company) you may need to look in a number of different places to pull this information together.
While you are listing your contracts you might want to group them in to subsets. For instance by size or profitability, by market, region, service type or any other grouping relevant to your business.
Step 2: Add turnover, profit and cash flow
For each of your contracts add in the turnover and profit you are making (and if this is variable what you are forecasting to make for each year of the current contract). You might also want to add cash flow for each. If you have contracts on different payment terms, losing those on better payment terms could have an overall impact on your portfolio cash flow.
Step 3: Work out your existing rebid retention rate
Depending on the level of management information you already have this could be a significant task across a large portfolio. Some companies keep a close eye on their rebid retention rates, others don’t. In some there is a retention rate that is ‘assumed’.
Knowing your historical retention rate is vital to planning ahead. Look back over the past 5 years and work out what your retention rate actually is. For our purposes here you should look at rebids actually won or lost – don’t include extensions gained (as some companies include in their published business retention figures), as we have mentioned above that is a separate piece of information.
If you have grouped your contracts in particular subsets in step one, you should also look at any variations in retention rates between these groups. It might have an impact for your planning as you progress. You should also look at whether your retention rate is constant, improving or falling. This in itself might be new information to you if you haven’t looked at the raw data before.
Step 4: Work out your rebid degrade curve
Your rebid degrade curve is the reduction in turnover, profit or cash you face each year from losing your existing contracts at rebid. You can work this out by listing your contract turnover, profit etc for each year until the end of the contract. Adding up the total value of those contracts for each year gives you the Forward Order Book you presently have. As each contract comes to its rebid assume the contract is lost – so you get no further income from it. This would be the worst case scenario that you can build from (see figure 1)
Step 5: Work through scenarios
Of course it’s unlikely (hopefully!) you will lose all of your rebids. There are any number of scenarios you can work through, depending on the priorities and shape of your business. Taking different assumptions could lead to very different degrade curves (figure 2).
Some options to look at could include:
- What happens if you apply your present rebid retention rate?
- You will potentially find your contracts increase profitability over time, but need to be rebid at a lower profit – what impact does this have?
- What impact does getting all available extensions have?
- What impact does increasing your retention rate by 5% have?
- What impact would losing your three most profitable / largest contracts have?
- Which year(s) are at the biggest risk from rebids and would potentially mean a significant drop in turnover or profit if you don’t win them?Step 6: Plan ahead
Having run a number of scenarios you will have a good view of the range of results and outcomes. It may be these results are within a relatively small range, or there could be big variations in potential outcomes. Depending on your company planning processes you might choose to look at the most likely scenario, pick a range of outcomes which encompass the most likely scenarios, or work through plans for the worst, best and most likely scenarios.
Whichever you choose, there are a number of areas you can now review to help you with your overall growth plans:
- How much new business will you need to win to cover the likely losses from rebids?
• Is there enough new business coming to market in each of the years in your plan to deliver the growth you need?
- How much will you need to invest in business development to deliver this growth? (and what is the win rate on new business efforts at the moment?)
- How much resource do you need to invest in rebidding in particular years? (remember the investment shouldn’t just be in the year of the rebid – you should be investing in rebid preparation well before the rebid due date)
- What is the risk posed by rebid losses to the plan you already have in place?
- How much would you need to invest (and what actions would you need to take) to increase the % win rate on your rebids from what it has been to date?
See how we can help you improve your contract retention rate here