When you’re invited to respond to an RFQ that aligns with your business goals, it can be an enticing prospect. RFQs are typically for large projects, which drive more revenue and often a better bottom line.
While the opportunity might be tempting, one thing stands in the way: how do you create a winning RFQ response?
Before exploring the “how to,” let’s talk about how RFQs are used. To put them into perspective, automotive purchases are probably the closest most consumers get to knowing how business procurement departments make their large purchases.
Like when you set out on your car buying journey, an organization knows what kind of product they need to purchase, but first, they need to do their research. Let’s continue with our car analogy:
- They send due diligence questionnaires (DDQs) to determine potential vendors’ compliance and long-term viability, much like you research manufacturers and individual dealerships.
- They send security questionnaires to assess security compliance, like a car’s safety rating.
- They send requests for proposals (RFPs) to get more detailed information, such as whether the car is in stock, how long it will take to get it, why you should do business with that particular dealership—and yes, the price.
- At some point, it is time to sit down at the negotiating table and get straight to the bottom line without all that other information to distract us. That’s when a company sends requests for quotes (RFQs)
Naturally, this is an oversimplification, and large business purchases are far more complex. In this blog, we will get into the surprising nuances of those straight-to-the-bottom-line RFQs.
What is an RFQ?
An RFQ, also known as an invitation for bid (IFB), is a document of trade inviting vendors to offer their best prices and terms of payment. It is issued by an entity or company inviting suppliers or vendors to submit their offers to provide a particular product or service.
In many cases, the issuer has chosen their preferred vendor, but they need assurance that the vendor can meet their business and project needs. When completed, the quote will include the vendor’s costs, terms of payment, and specifications or details about the product(s).
But let’s back up a bit, beginning with when the RFQ arrives at the vendor’s doorstep.
An RFQ generally arrives via email or in a company’s CRM. It could be in the form of a Word or Excel document. From there, the vendor’s response or sales department gathers a team that includes a project manager, subject matter experts (SMEs) to address the issuer’s questions, and response writers and editors to draft the perfect proposal.
Typically, the issuing company would customize the RFQ that they sent to get specific details needed to finalize a purchasing decision.
A comprehensive response includes complete project or product details, product quantity, availability, delivery times, and price.
RFQ vs. RFP
While an RFP is broad, and can cover just about any element of the procurement decision-making process, an RFQ is much more specific. Organizations send RFQs when they know the precise deliverables and simply want price quotes.
RFQs are structured, and content is generally technical, financial, and legal. RFPs and RFQs share some similarities. Both are usually sent after the needs are well defined.
The procurement process involves companies and vendors sending out either an RFP or an RFQ to assess and compare products, prices, and services.
After receiving the proposals, the purchasing organizations compare quotes and attempt to obtain the best price (either through negotiations or through an electronic or reverse auction).
Responding to an RFQ is far simpler than an RFP. The document should be thorough enough to indicate that you have a firm understanding of the specifications and quantity of the required product or service. In contrast, RFP responses, with their be-all, end-all list of questions, stir up everything you can possibly imagine about your company.
RFPs could include questions about pricing, functionality, technology, security, company basics, competitive differentiators, case studies, references, implementation, and SLAs.
Benefits of using an RFQ
When RFQ formats are consistent, sourcing firms can easily compare by having a solid understanding of the specifications and quantity for their required product or service. The process enables buyers to save money and get the best value.
The ability to compare prices and quotes from a myriad of suppliers makes the selection process simpler by aiding buyers in making the most informed decision because vendors have a better understanding of their needs.
Requests then become shorter and more specific, meaning less time wasted looking for the right supplier. By making it easier to differentiate between suppliers, the buyers will be able to find the best vendor for their needs much more quickly and easily.
RFQ responses should use consistent language, standard formatting, and generally standardized templates that allow for easy understanding. This makes both issuing and responding consistent and allows for quicker processing.
The RFQ process streamlines the purchasing process for both the buyer and vendor or supplier.
A well-written, thorough RFQ can help vendors send competitive quotes that help meet the needs of their business and projects.
When you might receive an RFQ
RFQs are not appropriate for all purchases. You may receive an RFQ if:
- You are a prequalified vendor
- The customer is looking for an out-of-the-box product or service that needs no customization
- The issuer won’t need vendor support after delivery
- Pricing is the key determinant
If, for example, the customer is looking for a bespoke software solution, pricing is only one of many considerations. In that case, you’re more likely to receive a more comprehensive document, such as an RFP.
Features of an RFQ
A request for proposal includes general bidding company information, specifications for a required product or service, terms for payment, a due date for bids, and other necessary details to successfully place a bid.
A request for quote, on the other hand, is used to obtain price and payment information about a vendor’s products and services.
How to respond to an RFQ
Winning RFQs becomes more likely when you understand the parameters, utilize templates to respond, and automate the process.
Almost every RFQ includes the following:
- The submittal deadline for submitting a bid
- How the response or proposal should be formatted
- Vendors submit their entire RFQ response in a form to expedite the bid-reviewing process.
- Contact information
Responses should demonstrate that you understand the buyer’s strategic goals and can build a relationship for future projects.
How to determine whether you should respond
Understandably, buyers feel that they run the show when they’re ready to invest in a product or service. But that doesn’t mean that you have to respond to every RFQ in your inbox. If you can’t meet their needs, you may choose not to respond at all, and that’s okay.
Here are the essential facets to consider when responding to an RFQ:
- Specifically address everything in the RFQ in precise detail. Leave nothing unresolved.
- Is the RFQ the right fit for your organization and solution?
- Do you have a comprehensive solution that addresses each of the challenges presented in the request?
- Does your pricing match the budget?
- Do you have an existing or prior relationship with the issuing organization?
- Do you have any insight into why the organization issued the RFQ?
- Research the buyer’s business.
- Give yourself plenty of time to respond but DO NOT miss the deadline, which is an absolute must in proving you can meet the requirements not just of the RFQ but of the proposed project.
The goal of any RFQ response is to win the bid. Here are some tips:
- Deliver the response on time.
- Be flexible if the requirements change.
- Mention experience or history of meeting similar buyers’ needs.
- Provide added value to the buyer.
Even if you do not win the bid, an RFQ response could lead to future opportunities.
Include an executive summary
Once you’ve determined that you can meet the customer’s needs, provide an executive summary of your company which should demonstrate your understanding of the parameters.
Despite being the very first thing on a quote template, the introduction is usually populated last. Other things to include in this executive summary could include broader business goals, essentially anything the issuers need to understand the bid.
RFPIO saves you from having to manually recreate the introduction for each RFQ—or RFx—by using machine learning to auto-populate, with your approval, of course, each element of your executive summary.
Templatize your pricing
If you use a pricing template, the issuer can compare quotes easily. A pricing template provides uniformity, so the issuer will know exactly where to find pricing and product or service details.
An RFQ template should provide an offered price column. Other fields should include specifications and the quantity of products or services.
While templates will vary from product to product and RFQ to RFQ, the goal is to have all the information for a specific product in the same format so the purchaser can compare the bids quickly, easily, and accurately.
RFPIO includes both built-in customizable branded templates and provides the option to create your own.
RFQ responses need to be specific. If one is not detailed enough, it could lead to misunderstandings, potentially jeopardize the deal, and even land you in legal hot water for misrepresentation. Templates help ensure you don’t miss anything.
Contract and fees
Vendors should know that most organizations require bid fees with each response. The assumption is that having skin in the game on the part of vendors helps ensure that the process is open and transparent. The money is typically held in escrow during the RFQ process.
If the vendor earns the contract, the payment schedule will reflect the fee. The remaining money in escrow is returned to the vendors that did not win the contract.
Now that you’ve provided your best price and terms, the customer is ready to make their decision. With any luck, they’ll soon drive away with a shiny new (metaphorical) car and you’ve made a profitable sale!
RFPIO is an end-to-end response management platform that helps you sell more cars (yes, RFQs are sometimes used for literal cars, especially fleet vehicles), widgets, services, etc.
We provide RFQ software with customized templates for automated response tools to help you win more business. To learn more about how RFPIO can streamline your process and help ensure quality responses, let’s chat!