How to Calculate Your True Tender Costs: A Strategic Guide

In the competitive arena of tendering, most of the focus is understandably placed on the final price submitted to the client. However, one of the most crucial and frequently overlooked calculations is entirely internal: what is the true cost to your business of preparing the tender itself? This figure is far more than an accounting curiosity; it is a critical piece of business intelligence that should drive your entire bidding strategy.

Many businesses, particularly SMEs, fall into the trap of treating tender preparation as a general cost of doing business, absorbing the expense without fully understanding its impact. This can lead to a cycle of chasing unprofitable work, stretching resources to their breaking point, and a low return on a significant investment of time and money. Research indicates that the cost of bidding can range from 0.5% to 2% of the total contract value— a substantial investment, especially given that not every bid will be a winner.

This guide will walk you through the process of discovering the hidden costs of tender preparation, providing a detailed methodology for calculating your true tender costs, and showing you how to use this knowledge to make smarter, more profitable decisions.

Beyond the Obvious: The Anatomy of Tendering Costs

The true cost of tendering encompasses every internal and external expense incurred throughout the entire bid lifecycle, from the initial decision to pursue an opportunity to the final submission and even post-submission debriefs. These costs can be broken down into two fundamental categories:

Direct Costs: These are the tangible, "hard" costs that are easily quantifiable and can be directly attributed to a single tender preparation effort.
Indirect Costs: These are the "softer," often hidden costs that are not tied to a specific bid but are a very real and significant part of your operational expenses related to tendering.

Step 1: Calculating Your Direct Tender Costs

Direct costs are the most straightforward to identify and track. A thorough calculation must account for the following:

Staff Time (The Single Biggest Expense): This is almost always the largest component of your tender cost. It is not enough to simply track the hours; you must calculate the fully-loaded cost of each staff member involved. This is their basic pay rate plus all associated overheads, including payroll tax, superannuation, insurance, and a proportion of general company overheads.
- How to Calculate Fully-Loaded Cost: A common method is to multiply an employee's hourly rate by a factor of 1.5 to 2.0 to account for these overheads. For example, an employee paid $50/hour might have a fully-loaded cost to the business of $75-$100/hour.
- Track All Time: You must track the time of everyone involved: Bid Managers, Sales staff, Subject Matter Experts, Technical Writers, Graphic Designers, and Senior Management who review and sign off the bid.
External Consultants and Specialists: The fees for any external help are a clear direct cost. This could include freelance bid writers, strategic consultants who help develop your win themes, legal experts who review the proposed contract, or graphic designers who create visuals for your submission.
Travel and Site Visits: All costs associated with attending mandatory or voluntary site visits, industry briefings, or face-to-face meetings with the procurement team.
Specialized Software and Tools: While general office software is an overhead, the cost of any specialized software procured or licensed specifically for a bid (e.g., project management software for creating a detailed schedule, or specialist estimating software) should be included.
Printing, Binding, and Delivery: In an age of digital portals, these costs are less common, but for any bid that requires a hard copy submission, the costs of professional printing, binding, and courier delivery must be tracked.

Step 2: Uncovering Your Indirect Tender Costs

Indirect costs are more challenging to quantify, but they are critical to understanding the true financial impact of your tendering activities.

Overhead Allocation: A portion of your company's general overheads should be allocated to your tendering function. This includes a percentage of your office rent, utilities, IT infrastructure, and administrative salaries. A simple way to do this is to determine the percentage of total staff hours spent on tendering and allocate that same percentage of your monthly overheads to your bidding cost center.
Opportunity Cost (The Great Hidden Cost): This is arguably the most significant and most frequently ignored cost. Every hour your team spends working on a tender is an hour they cannot spend on other activities. This could be billable work for an existing client, developing new products, or pursuing other sales and business development leads.
How to Estimate Opportunity Cost: You can estimate this by calculating the potential revenue that could have been generated in the time spent on the bid. For example, if a senior consultant whose billable rate is $200/hour spends 30 hours on a tender, the opportunity cost is a significant $6,000 in lost revenue.

Step 3: Putting It All Together - A Practical Example

To gain a clear and actionable picture of your investment, you should use a cost-tracking sheet for every significant bid.

Example: A Bid for a $500,000 IT Services Contract

Cost Category	Description	Calculation	Estimate
Direct Costs
Staff Time - Bid Manager	60 hrs	60 x $80/hr	$4,800
Staff Time - Lead Technician	40 hrs	40 x $110/hr	$4,400
Staff Time - Sales Director	15 hrs	15 x $150/hr	$2,250
External Consultants	Bid Review Specialist	10 hrs x $150/hr	$1,500
Subtotal Direct Costs			$12,950
Indirect Costs
Overhead Allocation	15% of monthly overhead ($15,000)	0.15 x $15,000	$2,250
Opportunity Cost	Lost billable work for Lead Technician	40 hrs x $220/hr	$8,800
Subtotal Indirect Costs			$11,050
Total True Tender Cost			$24,000

In this example, the true cost of the bid is $24,000, which is 4.8% of the total contract value— a much higher figure than many businesses would assume.

Why This Calculation is a Strategic Imperative

Calculating your true tender cost is far more than an accounting exercise; it is a fundamental tool for strategic decision-making.

Smarter Bid/No-Bid Decisions: When you have a realistic understanding of the investment required, you can make far more rational and objective decisions about which opportunities to pursue. A $24,000 investment demands a high probability of winning.
Accurate ROI Measurement: By tracking your true costs and your win rate over time, you can calculate the actual Return on Investment (ROI) of your tendering efforts. This allows you to identify which types of projects are most profitable to pursue and which are a drain on your resources.
Justification for Investment: Clear data on the cost of tendering provides a powerful business case for investing in resources that can improve efficiency and increase your win rate. This could include hiring a dedicated bid manager, investing in proposal automation software, or providing professional development for your team.
Improved Resource Planning: Knowing the typical cost and time investment for different types of bids allows you to plan and allocate your resources more effectively, avoiding the last-minute scrambles that lead to burnout and lower-quality submissions.

Ultimately, a deep understanding of your true tender costs empowers you to transform your bidding process from a reactive, often chaotic function into a proactive, data-driven, and profitable engine for business growth. It enables you to protect your bottom line, focus your efforts where they will have the most impact, and strategically invest in winning the contracts that are right for your business.

References

Thornton & Lowe. (2024, September 10). How to Calculate Your Competitors' Pricing in a Tender. https://thorntonandlowe.com/calculating-your-competitors-pricing/
Hewage, V. (2024, October 1). Process of Pricing Tenders and Determining Profit Margins. LinkedIn. https://www.linkedin.com/pulse/process-pricing-tendersdetermining- profit-margins-vindana-hewage-ajvec
Bidhive. (2018, October 19). The human cost of bidding and tendering. https://bidhive.com/the-human-cost-of-bidding-and-tendering/