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Quality over Quantity - Avoid Pipeline Dilution

It is natural to think increasing the number of bids you receive and review will lead to more revenue.  It can be accomplished quickly given the number of public bid databases that exist and make you feel like you are working harder. However, unless your team is operating at less than 100% capacity (which is rarely the case), the expected value from quickly growing your pipeline is usually zero and potentially negative meaning less sales, not more.

This counter-intuitive truth is best understood by examining the 2 key inputs to revenue:  Bid Volume and Win Rate.

Bid Volume

Adding more bids to review doesn't increase your estimation teams ability to bid on more jobs (time is a finite resource after all). So if your team is at 100% capacity, adding more bids doesn't translate to more bid volume.

Win Rate

It is highly likely that these new sources of bids will have a lower expected win rate than your current sources (if it's a public database, there will be more competition and if it's a new market, you have less brand awareness)

The net result is your estimators will bid on the same dollar value of projects and risk a lower win rate. Some quick hypothetical math will make this more clear.

In the prior year, your estimators reviewed $40 million worth of jobs from their original sources and submitted bids on half of them.  They won 30% of those bids for total revenue of $6 million.

In the next year, bid opportunities from new sources were added to the mix to review.  The team bids the same $20 million but split across the original sources and the new sources.  As suggested earlier, it is likely bids from these new sources (likely from public databases, new GC's or new markets) will have a lower expected win rate.  Let's call it 20%.  Under this assumption, your estimation team will see their win rate fall from 30% to 27.5%.  With bid volume fixed at $20 million, overall revenue falls by ~$500K.

This exercise shows that simply growing the top of the funnel is a dangerous sales strategy.  Instead estimation teams should work to increase their bid productivity and aggregate win rate.  I will address these growth components in more detail in later posts.

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