How competitive bidding is killing your own business?

Bidding is an optimum way for price discovery and used in various occasions to award project or sell some good or service. In the bidding process the winner is always the lowest bidder(in case of selling it should be highest bidder) unless any exceptions. But the context of this post would be mostly around freelance project bidding or any other small out sourcing project bidding.

In my personal experience mostly I have seen contractors bid the lowest possible cost for a project or task. Lowest bid is a good idea to win the project but you should not forget about the effort estimation to determine whether the project is worth the price you are bidding for. By placing a lowest bid you are not only spoiling the chance of your competitors but also disrupting the whole market for the skill set. You might win the project, but in long term you are restricting your own revenue growth.

A typical over killing of lowest bidding is happening in freelance sites. Cost arbitrage is an important factor, hence employers or individuals post their project in such crowd sourcing platforms and the projects are open for bidding across the world. The contractors from the developing countries like India are available to work on them at a rate considerably lower than their counter parts in developed countries. But some of them place bid with very low price for the project, a part of them are new comers who are desperately looking for a project to start with and some are sub-contractors who have low paid workers. They bid without doing any evaluation or estimation or profit analysis of the project. Some times they win the contracts as well but eventually the hourly rate of the particular skill goes down

I have even seen people placing bids at a rate one fourth or fifth of the reasonable cost of the project. Already the hourly rates are low, so it becomes difficult to sustain. Which results in quality of the work going down, genuine contractors loose out in this price war, the long term growth is restricted, the platform reputation also goes down. Some times the sub-contractors bid the project at a very low price and win the project also, the next step is to hire even cheap or unskilled worker to complete it. Hence many unskilled workers enter into the market and pollute the whole ecosystem.Then even clients stop giving projects to freelancers as they don't get the value of the money. Sometimes clients also take the advantage of this low priced bidding and post project with very low budget.

So if you are bidding projects in freelance sites or even with your sales & marketing channel, make sufficient due diligence on the project before bidding. If you are a sub-contractor, check with the team going to work on the project, analyze the actual effort and technical skills involved and then place the bid with the reasonable price. Don't disrupt the market place, otherwise you will end up with a bunch of under paid workers competing with each other. Propose the value addition to the client to win the project rather than only the cost arbitrage. Avoid bidding for project where client is asking to work at irrationally low price. Never degrade your worth, the cost of your service just to win a project.

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