Proposal Pricing Strategies: How to Price to Win and Profit

Pricing is where proposals are won or lost—but not always how you'd expect. The lowest price doesn't always win, and the highest price isn't always the kiss of death. What matters is whether evaluators believe your price represents the best value for their investment.

The Pricing Paradox

Many companies assume pricing is purely a competitive exercise: find out what competitors charge and come in lower. This race to the bottom destroys margins and often backfires.

Consider these scenarios:

• A company wins with the highest bid because evaluators trust their ability to deliver on time
• The lowest bidder loses because their price signals they don't understand the project scope
• A mid-range bid wins because it's viewed as "fair" relative to the value proposed

The winning approach: price based on value delivered, justify that price compellingly, and position it relative to alternatives. Let's break down how.

Understanding How Evaluators View Pricing

Before setting prices, understand how your price will be evaluated. Most RFP evaluations follow one of these models:

Lowest Price Technically Acceptable (LPTA)

In LPTA evaluations, all proposals that meet minimum requirements are compared purely on price. The lowest wins. This is common in government procurement for commodity services.

Strategy: If LPTA, only bid if you can be the lowest while maintaining acceptable margins. Consider declining if your cost structure doesn't support rock-bottom pricing.

Best Value

In best value evaluations, technical approach and price are weighted against each other. A higher-priced proposal can win if the technical score justifies the premium.

Strategy: Calculate the price-technical trade-off. If technical is weighted 60% and price 40%, a proposal scoring 95/100 technical at $1M may beat one scoring 80/100 at $800K.

Trade-Off Analysis

Some evaluations use formal trade-off analysis, explicitly calculating whether technical superiority is worth the price premium.

Strategy: Quantify the value of your differentiators. If your approach saves them $500K in Year 2, that justifies a $200K price premium today.

Five Core Pricing Strategies

1. Cost-Plus Pricing

Calculate your actual costs and add a target margin. This is the baseline approach—you need to know your costs regardless of which strategy you ultimately use.

When to use: When you have limited competitive intelligence and need a defensible price floor.

Risk: May leave money on the table if the market will pay more, or price you out if competitors have lower cost structures.

2. Value-Based Pricing

Price based on the value you deliver to the client, not your costs. If your solution saves them $2M annually, a price of $500K represents tremendous value—regardless of your cost to deliver.

When to use: When you can quantify business outcomes (cost savings, revenue increase, risk reduction).

How to implement:

• Quantify the problem cost (what does the current situation cost them?)
• Quantify your impact (what improvement will you deliver?)
• Price at a fraction of the value created (typically 10-30%)
• Articulate ROI clearly in your proposal

3. Competitive Pricing

Price relative to expected competitor bids. This requires intelligence about market rates and competitor pricing patterns.

When to use: In competitive markets where price is a significant evaluation factor and you have reasonable competitor intelligence.

How to gather intelligence:

• Review publicly available past contract awards
• Talk to industry contacts about typical rates
• Analyze your win/loss history at different price points
• Use public rate cards and published pricing

4. Penetration Pricing

Price aggressively low to win strategic opportunities, even at reduced margins. The goal is market entry, reference building, or expanding into new services.

When to use: For strategic "must-win" opportunities where future value justifies short-term sacrifice.

Cautions:

• Don't set expectations you can't sustain on renewal
• Ensure leadership explicitly approves below-target margins
• Document the strategic rationale for future reference
• Limit how often you use this approach

5. Premium Pricing

Price above market rates, justified by superior quality, expertise, or risk mitigation. This only works when your differentiation is clear and valued.

When to use: When you have demonstrable advantages competitors can't match, and the buyer values quality over cost.

How to justify premium pricing:

• Cite specific past performance with quantified outcomes
• Offer guarantees or risk-sharing the competition won't
• Include value-adds that aren't in your base price
• Emphasize total cost of ownership, not just your fees

Pricing Presentation Tactics

How you present pricing matters as much as the number itself.

Lead with Value, Not Price

Your pricing volume or section should open with a summary of the value you're delivering, not a rate table. Set context for why this investment is worthwhile before revealing numbers.

Total Investment vs. Component Pricing

Present a clear total investment figure, then break down components. Evaluators should immediately understand what they're paying and what they get.

Offer Pricing Options

When appropriate, present 2-3 pricing tiers. This shifts the conversation from "yes or no" to "which option"—and often results in selection of the middle or higher tier.

• Good: Core scope at competitive price
• Better: Core + enhancements at moderate premium
• Best: Comprehensive solution at premium price

Address Price Objections Preemptively

If you know your price is higher than some alternatives, address it directly. Explain why: better quality, lower risk, more experience, faster delivery. Don't leave evaluators to wonder why you cost more.

Common Pricing Mistakes

1. Racing to the Bottom

Cutting price to win without understanding why you lost previous bids. If you lost on technical merit or fit, a lower price won't fix it—and destroys your margins when you do win.

2. Ignoring Your Cost Structure

Pricing based on "market rates" without validating that those rates work with your cost structure. Winning at a loss is worse than not winning at all.

3. Last-Minute Pricing

Developing pricing at the end of the proposal process, with no time for review or integration. Pricing errors are common and embarrassing. Build pricing development into your timeline from the start.

4. Inconsistency Between Volumes

Your technical approach implies a level of effort that doesn't match your pricing. If you propose a 10-person team in the technical volume but price only 5 people in the cost volume, evaluators will notice.

5. Hidden Assumptions

Pricing based on assumptions that aren't stated. When those assumptions prove wrong during contract execution, you're stuck absorbing costs or renegotiating—damaging the relationship either way.

6. Ignoring Total Cost of Ownership

Focusing only on your fees without considering what the client's total cost will be. If your higher-priced solution requires less client effort or has lower ongoing costs, that matters to the evaluation.

Pricing for Different Contract Types

Fixed Price

You bear the risk of cost overruns. Price should include contingency for scope creep, unknowns, and optimistic estimates.

Rule of thumb: Add 15-25% contingency to your best estimate for fixed-price contracts.

Time and Materials (T&M)

Client bears risk, but your rates need to be competitive. Focus on rate card competitiveness and realistic level-of-effort estimates.

Rule of thumb: Price hourly rates to include overhead and target margin. Be realistic about hours—underbidding LOE destroys credibility when actuals exceed estimates.

Cost Reimbursable

Common in government contracting. Focus on competitive rates and realistic cost estimates. Your fee percentage is often evaluated competitively.

Outcome-Based

Pricing tied to results delivered. Ensure metrics are clearly defined and measurable. Build in protections for factors outside your control.

Government Pricing Considerations

Government proposals have unique pricing requirements:

• Rate certification: Labor rates may need to match certified rates on file
• Cost realism: Prices too low may be adjusted upward or deemed unrealistic
• Disclosure requirements: Cost data and subcontractor pricing may require disclosure
• Fair and reasonable: Prices must pass "fair and reasonable" tests

For government opportunities, work with pricing specialists familiar with FAR requirements and agency-specific rules.

The Price-Quality Trade-off

In most evaluations, there's a zone where technical quality and price intersect for optimal value. Your goal is to land in that zone—not necessarily at the lowest price or highest technical score.

Ask yourself:

• What's the minimum technical score that will be competitive?
• What price premium can our technical advantages justify?
• Where do we believe competitors will land?
• What price point positions us as "best value"?

Pricing Validation Checklist

Before finalizing pricing, validate:

• Does pricing align with the technical approach? (Staffing, timeline, deliverables)
• Are all costs accounted for? (Travel, materials, subcontractors, contingency)
• Do rates match any certified rates on file?
• Is the margin acceptable to leadership?
• Have pricing assumptions been documented?
• Has someone independent reviewed for errors?
• Does total investment match the sum of components?
• Are payment terms aligned with cash flow requirements?

Learning from Win/Loss

Your best pricing intelligence comes from your own history. After each decision:

• Request feedback on your pricing relative to winner
• Document whether you were high, low, or competitive
• Note whether price was a deciding factor
• Track how often "lowest price" actually won
• Identify patterns in your wins vs. losses

Over time, this data shapes increasingly accurate pricing strategies.

The Bottom Line

Effective proposal pricing isn't about being cheapest—it's about demonstrating value at a price that works for both parties. Key principles:

• Know your costs: You can't price strategically without understanding your cost floor
• Understand evaluation: Price differently for LPTA vs. best value evaluations
• Lead with value: Frame pricing in terms of outcomes and ROI
• Be consistent: Align pricing with your technical approach
• Learn continuously: Use win/loss data to refine your approach

Related resources:

• How to Improve Your RFP Win Rate — Beyond pricing strategies
• RFP Response Process — Where pricing fits in the workflow
• Bid/No-Bid Decision Framework — When to pursue based on pricing position
• Proposal Software ROI Calculator — Demonstrate your value quantitatively

Price to win, but price to profit. A winning proposal that loses money isn't really a win.