Goods or Services Tenders
A question I recently received from someone subscribed to my email newsletter inspired this blog post. It addresses the differences between goods tenders and services tenders, a crucial consideration for businesses expanding into government markets.
Question:
I run a small business and have been selling to other B2B companies for two years. I now want to expand into the government market. However, I have a portfolio of products and services, and I don’t know whether I should focus on selling products or services first.
Answer:
Venturing into the world of government tenders marks a significant opportunity for business expansion. While it is a complex landscape, mastering it can unlock substantial growth and new revenue streams. Embrace this challenge with confidence and a commitment to understanding the intricacies of government procurement, and your business can thrive in this promising sector.
In this blog article, we will focus on comparing goods tenders and services tenders. To make this easier to understand, we will use a security company as an example.
After reading this article, you will be able to make a well-informed decision about whether to go with goods or services tenders. Making the right choice can help you gain momentum and generate revenue more quickly.
Table of Contents
- What is a tender?
- Goods Tenders
- Services Tenders
- Considerations: Goods Tenders vs. Services
- Ease of Entry
- Profitability
- Regulatory Compliance
- Conclusion
1. What is a tender?
Before we discuss the right tender for you to start with, we need to establish a common understanding of what a tender is.
A tender is a formal process where government agencies invite suppliers and vendors to submit bids and proposals to provide goods or services. In a way, it’s like a gateway for businesses to sell to the public sector. Governments use tenders to ensure openness and fair competition.
2. Goods Tenders
Goods tenders involve the procurement of physical products, either off-the-shelf or manufactured upon request. From office supplies to medical equipment, they require strict adherence to specifications, quality standards, and precision in meeting quantities.
Examples of Goods Tenders:
- Consumer products (stationery, corporate ware, appliances, etc.)
- Raw materials (metals, timber, minerals, etc.)
- Agricultural products (wheat, corn, animal products, etc.)
- Technology products (phones, cameras, laptops, etc.)
- Equipment and machinery (construction, industrial, healthcare)
- For our security company example, goods might include physical hardware such as CCTV cameras, sensors, and Personal Protection Equipment (PPE).
3. Services Tenders
Services tenders revolve around offering intangibles such as intellectual or task-based services. Winning a services tender means providing specialized skills, knowledge, and expertise to fulfill the government’s requirements.
Examples of Services Tenders:
- Professional Services (auditing, accounting, legal, etc.)
- Consultancy (engineering, ICT, human resources, marketing)
- Creative services (writers, graphic designers, etc.)
- Specialized Services (solar installation, borehole drilling, alarm installations, security guards)
- For our security company example, services might include installation, monitoring, training, maintenance, security guards, cash in transit (CIT), security risk assessments, or mobile patrols.
4. Considerations: Goods Tenders vs. Services
Choosing between goods and services tenders depends on various factors such as ease of entry, profitability, regulatory compliance, procurement process, and long-term relationships.
5. Ease of Entry
Goods and services tenders have different entry dynamics.
Goods Tenders:
Selling products to the government is relatively straightforward. If you have the capital and capacity to deliver, you’re generally set. For example, delivering stationery or furniture requires minimal technical expertise. Focus on:
- Technical specifications
- Quality standards
- Certifications (e.g., Manufacturer’s Authorization, Dealership Certificate)
- Supply chain management
Services Tenders:
Services tenders require showcasing expertise, experience, and the ability to deliver solutions. You must have the necessary service delivery infrastructure, including qualified personnel, industry certifications, professional certifications, and the capacity to scale. Focus on:
- Technical expertise
- Past performance
- Leadership demonstrating strong project management principles
- Service delivery infrastructure
- Industry certifications
In general, services have a higher barrier to entry compared to goods, requiring specialized expertise and qualifications.
6. Profitability
Revenue for product sales is often tied to order fulfillment and warranty, while revenue for service contracts is tied to specific milestones, project deliverables, or ongoing support and expertise.
Goods:
Products usually generate revenue faster. Meeting specifications, delivering on time, and invoicing promptly can create quick revenue. However, products often have low profit margins due to high competition.
Services:
Services tenders offer potential for higher profit margins, particularly with specialized skills or expertise. There is also high potential for upselling and cross-selling.
7. Regulatory Compliance
Both goods and services tenders demand compliance with requirements like company registration, BBB-EE and tax clearance.
Goods:
Focus on quality standards, product specifications, and logistics. Often, the manufacturer handles quality standards; you focus on delivery.
Services:
Might involve higher compliance and complexity, requiring personnel with specific qualifications and certifications. Service contracts also include detailed performance metrics, service-level agreements, and quality standards.
8. Conclusion
Goods tenders have many advantages compared to service tenders. Selling products is easier, allowing you to build momentum quickly and navigate fewer compliance challenges. The procurement process is faster for goods.
Selling services is more challenging due to the need to build strong relationships and meet higher compliance standards. However, services tenders offer potential for high profit margins.
Ultimately, the choice depends on your business’s nature and core competencies. We hope this article helps you decide which tender to pursue first, guiding you towards a successful government market entry.