Last Updated Jun 8, 2011 8:05 PM EDT
The Business: Lauren Elward is CEO of Castle Ink, an online supplier of ink and laser toner founded in 2001. She and her husband Bill have a strategic partnership with a manufacturer that fills orders and handles customer service and importing of compatible ink cartridges.
Annual Revenue: $500,000
Problem: Last year Elward signed up for a Request for Proposal (RFP) email notification service. For $1,000 a month, Castle Ink receives a few emails a day containing requests -- mostly from schools -- for large orders of ink and laser toner. Companies who are on the email distribution list can submit bids for the contracts.
Castle Ink's average online sale nets the company about $20. On a single RFP contract, Elward estimates the company could net around $10,000. At first Elward thought that pursuing RFPs was a good investment of time and money. Now she's not so sure.
Each request contains 30 to 60 pages of fine print that includes information like how much product is needed; whether it needs to be new, used or remanufactured; compliance statements and affidavits. Reading the request, estimating the cost, and sending the proposal can take anywhere from 10 to 20 hours. So far, Castle Ink has submitted almost 10 proposals and failed to land a single contract.
The RFPs typically leave out information that will have a large impact on how much the order will cost to ship, such as when the schools want the material shipped, whether the school wants the entire order shipped at once or broken into installments, and even when they want it shipped. When it comes to pricing, Elward is often left guessing what the cost to her company will be.
"Price is our biggest stumbling block," she says. "It's hard to compete with bigger companies that have scalable staff, stronger sales channels, and a bigger cushion financially, so if they lose money on an order it isn't a disaster. I don't know what the other companies are offering, but I am guessing we're getting undercut almost every time."
The time that the couple spends creating proposals is time away from other important tasks, like search engine optimization. "After spending a few months last fall creating proposals, I noticed our SEO rankings were sliding," Elward says, "and I made the call to cancel our RFP notification service."
She's still interested in pursuing RFP contracts, but she needs to find a more efficient system that doesn't detract from the overall business -- and she wants to ensure that the company's bids get serious consideration. How can Castle Ink improve their RFP response system -- or should they forget about RFPs altogether?
What the experts said:
Building a business based on responding to RFPs is relegating yourself to groveling for low-margin work. It's a race to the bottom. My suggestion is to develop a service "wrapper" which will differentiate your toner supplies and take the business from a commodity to a unique offering. For example, perhaps you could offer a flat subscription service where you proactively send toner cartridge replacements on a Netflix-like model: Send each toner cartridge with a pre-paid return envelope. Or consider becoming a one-stop service provider for all things related to printers (paper, toner, etc.). The day you decline your last RFP should be celebrated.
-- John Warrillow, author of Built to Sell
Lauren, I feel your pain. Recently a colleague, John Haskell, wrote an Op Ed defining an RFP as a "Really Foolish Process." I couldn't agree more. Over the past 30 years, as a small business and then a bigger business, we have responded to RFPs from a variety of agencies.
One RFP clearly stands out in my mind. An airport was issuing an RFP, but there was no budget attached. Someone in the mandatory bidder's conference asked, "Is the budget bigger than a breadbox?" The packed audience exploded with laughter. But sadly, there was no budget so we never responded again.
Here are some tips.
- If there is no budget, skip it. You can go round and round in circles trying to find out how much they want to spend. Is it $10,000 or $1 million?
- If they want you to indemnify them, skip it. You could get sued for millions of dollars. A billion-dollar agency wants you to sacrifice yourself on the altar of indemnification? Get serious.
- Is it something you are passionate about? Say so. Do a video and tell the entity that issued the RFP why you are perfect for the job. We once bid on an adoption contract. Three of us in the office were adopted. Our video was passionate and to the point as to why we were suited for the job. We got the contract for $400K.
- Wow! A $1,000 a month service that tells you about RFPs is way too expensive. I have never paid for RFP information. There are so many sites that are free or far less expensive. You can register with virtually every government site in your state to find out about its RFPs. And some others include the RFPDB and Government Bid Opportunities.
-- Susan M. Tellem, APR, RN, Partner, Tellem Worldwide, Los Angeles
Readers, what would you advise?