When it comes to pricing, it is more of an art than a science. While numbers and math are critical to accurate pricing, the art of strategy used in developing prices can result in winning (or losing) contracts. Companies need to know the market, their competitors, and current economic conditions (top-down) as well as their costs to perform the work (bottom-up). Pricing for profitability requires a hybrid approach of pricing from both the top-down and the bottom-up. As a business owner, it is at your discretion to raise or lower prices, or to find ways to perform the work at a lower cost – all in an effort to maximize your profits.

1. GovCon
Strategic Pricing

2. We Know Government
Contract Accounting

3. Who we are
Left Brain Professionals is a boutique accounting firm that serves
government contractors. We specialize in accounting system design
& implementation, audit support, training, and cybersecurity
compliance.

4. Our Services

5. Our Team
Robert E. Jones
Government Contracts &
Accounting Expert
CPA, CPCM, NCMA Fellow
Melissa Metzger
Government Accounting &
Finance Advisor
MAFM, CPA Candidate
Steven Bressler
Government Contract
Associate
steve@LeftBrainPro.commelissa@LeftBrainPro.comrobert@LeftBrainPro.com

6. Learning
Objectives
• Describe market-based (top-down)
pricing.
• List components of cost-based
(bottom-up) pricing.
• Describe the hybrid approach to
pricing.
• List alternate pricing strategies.

7. Room Poll
What is your level of confidence in your pricing strategy?
A. I don’t have a pricing strategy.
B. We have some metrics for developing pricing, nothing concrete.
C. I’m pretty confident in how we price, but I could use some tips.
D. I’m an expert on pricing strategy and price for profitability.

8. Pricing to Win

9. Pricing to Win
“Pricing to Win” does not mean lowest price, especially in a best value
acquisition. It also does not mean pricing at a loss.
Bidding at a loss simply to win the work is not a viable strategy:
1. Clients come to expect a certain rate or price based upon initial
contracts. Raising your price later becomes more difficult.
2. Getting your foot in the door may not be worthwhile if you do not
have the cash flow to complete the work in a timely and accurate
manner. Your contract may be canceled and/or you may receive
negative performance ratings.
3. Your proposal may be evaluated for cost reasonableness and you
may be excluded from the pool of competition.

10. Room Poll
Raising your price at a later date is simple.
A. True.
B. False.

11. Market-Based
(Top-Down) Pricing

12. Know the Industry
Typical contract types-
1. Fixed price
2. T&M
3. Cost-type
Pricing units-
1. Hours
2. Widgets
3. Phases

13. Know Your Competitors
1. How are you different?
2. Are they the lowest price or best value?

14. Know Current Market Conditions
1. Surplus or shortage of your goods/services.
2. Overall economic trends.

15. Room Poll
Which is not a component of market-based pricing?
A. Know the industry.
B. Price to win.
C. Know your competitors.
D. Know current market conditions.

16. Cost-Based
(Bottom-Up) Pricing

17. How Much Does it Cost Me?
Direct costs-
1. Labor
2. Material
3. Travel
4. ODCs
5. Subcontractors
Indirect costs-
1. Fringe
2. Overhead
3. G&A
Indirect rates are built on a set amount of direct costs. Direct and indirect
costs have an inverse relationship when calculating indirect rates.

18. Things that Affect Indirect Rates
• Increase in direct costs results in decrease of indirect rates.
• Decrease in direct costs results in increase of indirect rates.
Winning (or losing) a big contract affects your indirect rates and
pricing structure.
• Winning a large contract increases your direct costs which
decreases your indirect rates.
• Companies can often absorb a significant amount of direct work
with little or no increase in indirect costs.

19. Outgrowing a Single Indirect Rate Structure
A single pricing model (indirect rate structure) is often not sufficient to
match the needs of a growing, complex organization.
Now is the time to pursue those advanced/multiple indirect rates.

20. Room Poll
Which is a true statement about indirect rates?
A. Increase in direct costs = decrease of indirect rates.
B. Decrease in direct costs = increase of indirect rates.
C. Winning a large contract decreases your indirect rates.
D. All the Above

21. The Hybrid Approach
to Pricing

22. Can I Sell at Market Rate & Make Money?
Pitfalls of a single approach:
Top-down only-
• Your cost may exceed market price or not leave enough room for your
desired profit margin.
Bottom-up only-
• You may be leaving money on the table.

23. Room Poll
Which is a pitfall of a top-down only single approach?
A. Your costs may exceed market price or not leave enough room for
your desired profit margin.
B. You may be leaving money on the table.
C. Direct and indirect costs have an inverse relationship.
D. None of the above.

24. Alternate Pricing
Strategies

25. How Can I Improve My Profit Margin?
1. Increase price
2. Lower cost
a) Reduce direct costs
b) Reduce indirect costs

26. Product/Service Mixes
Pricing (profit/fee) may be adjusted on individual items in a complex
proposal where reduced profitability on one line item is outweighed by
volume profit on another.
This is helpful with complementary products/services, add-ons, or
situations where multiple items are required for a complete solution.
Example: You may reduce the price of a core item knowing you’ll make
money on installation, training and annual support contracts.

27. Room Poll
What is a good way to improve profit margin?
A. Increase price.
B. Lower cost.
C. Decrease price.
D. Both A and B.

28. Adjusting Fee/Profit
Overall increase in direct expenses should result in lower rates across
the board, so reduced profit/fee on a single contract may be covered by
increased profitability on other contracts. This is especially true when
you have a mix of government and commercial contracts, and a mix of
contract types.

29. Negotiating Prices
Avoid negotiating on fee/profit alone. If the customer wants to negotiate
overall price, you should negotiate scope which may include:
• Amount and type of work
• Schedule
• Warranty

30. The strategy used in developing prices can
result in winning (or losing) contracts.
Companies need to know the market, their
competitors, and current economic
conditions (top-down) as well as their costs
to perform the work (bottom-up). Pricing for
profitability requires a hybrid approach of
pricing from both the top-down and the
bottom-up. As a business owner, it is at your
discretion to raise or lower prices, or to find
ways to perform the work at a lower cost –
all in an effort to maximize your profits.
Strategic Pricing

31. Room Poll
Given what we’ve covered, what’s your comfort level on pricing
for profitability?
A. I’ve got it now!
B. I’m a little fuzzy, but I think I can manage.
C. I’m still unclear of how to price for profitability.
D. I don’t get it and need help with my pricing strategy.

32. Connect
with us
Download the presentation
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Professionals Inc.
@LeftBrainPro
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Support@LeftBrainPro.com
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www.LeftBrainPro.com/presentations

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