Pursuing a government contract is a resource-intensive effort. Before dedicating time and money, businesses need to measure the return on investment (ROI) of proposal writing.

This process requires evaluating potential financial gains, opportunity costs, and long-term strategic benefits.

Here's how to approach it.

Defining ROI in Proposal Writing

ROI in proposal writing isn't just about winning or losing—it's about ensuring every bid aligns with business objectives. The key elements to consider include:

  • Contract Value: The potential revenue from the awarded contract.
  • Win Probability (Pwin): The likelihood of securing the contract based on competitive positioning.
  • Cost of Proposal Development: Internal labor, consultant fees, and other resources invested.
  • Strategic Impact: Whether the contract supports long-term growth, builds relationships, or opens future opportunities.

A strong business case considers direct financial returns and broader strategic advantages.

Calculating the True Cost of Proposal Writing

Companies often underestimate the cost of writing proposals. To assess the true expense, factor in:

  • Fully Burdened Labor Rates: This includes salaries, benefits, and overhead for employees working on the proposal.
  • Opportunity Cost: The lost revenue or strategic initiatives forgone while focusing on the proposal.
  • Consulting and AI Costs: Expenses associated with external support, whether human or AI-driven.

For venture-backed startups, equity is another critical factor. Time spent on a proposal means less spent on product development, sales, or fundraising. Since you expect equity to grow in value, its opportunity cost is significant.

Evaluating the Break-Even Point

Companies should calculate a break-even point to determine whether a proposal is worth pursuing.

The formula:

(Expected Contract Value × Win Probability) > (Proposal Development Cost + Opportunity Cost)

The proposal is a good investment if the left side of the equation outweighs the right. If not, you might be better off allocating resources elsewhere.

When Should You Walk Away?

Not every proposal is worth pursuing. Red flags include:

  • Low Pwin Scores: The probability of winning is low if you lack strong customer relationships or a compelling solution.
  • High Opportunity Costs: If the proposal diverts resources from mission-critical activities, it may not be worth it.
  • Poor Strategic Fit: If the contract doesn't align with your growth strategy, it's a distraction.

Making Smarter Proposal Investment Decisions

Businesses can make data-driven decisions about whether to invest in a proposal by systematically analyzing ROI. Future posts will explore tools and frameworks for tracking proposal effectiveness and best practices for optimizing your win rate while minimizing costs.

In the next article, we'll examine AI's role in proposal writing—its strengths, limitations, and how to use it effectively without falling for the hype.

Interested in learning more about how we help you write better proposals to win your first government contract and scale from there?

Click here to book a discovery call and we'll share more about the process.