Picture this. Your dream prospect calls you up and asks you for a quote.
They then send along an email detailing the uber-formal request for quotation (RFQ) process. But there’s one problem: You have no idea where to start.
First, you Google the acronym to confirm it means a request for quotation. You think to yourself, "I’ve heard of an RFP before, but how is it different from an RFQ?"
Then, the panic officially sets in because you’ve never managed a full RFQ process.
Have no fear, we have you covered. In this post, we’ll tell you everything you need to know and give you some much-needed pointers.
We’ll define key terms, outline the RFQ process, provide a practical format for writing one, and offer some tips to streamline and improve efficiency even more.
TIP: Learn about the best RFP software in 2019 from real-user reviews.
What is a request for quotation (RFQ)?
The term “request for quotation” refers to both the process of solicitation and evaluation of quotes for a certain product or service and the documents themselves, which are sent to providers.
For example, a company may describe itself as, “Undertaking a request for quotation.” Similarly, it might also correctly state that it has, “Sent a request for quotation.”
The process is a simple one. An organization creates an RFQ detailing the items or services it requires, sends them to appropriate vendors, and evaluates the quotes that are transmitted in response. Often, the lowest quote wins the contract.
A request for quotation includes many critical pieces of information. Ideally, a supplier should provide a comprehensive quote with relatively little margin for error. These details consist of product specifications, any industry or professional accreditations or standards that are required, and a final date for delivery.
An RFQ will also specify how a response should be formatted – usually requesting an itemized breakdown of costs (especially for services), a timeline for delivery, and a date by which the proposal should be submitted.
During the evaluation process, the best quote is chosen and discussions are entered with the potential supplier. It’s important to note that a quote sent in response to an RFQ is a bid on a contract and not the contract itself.
In most cases, the contract will be signed afterward – after further discussions to finalize the price.
What’s the difference between a request for quotation (RFQ) and a request for proposal (RFP)?
The most significant difference between an RFQ and an RFP is one of scope.
An RFQ asks for a quote (or multiple quotes) for products or services that are quantifiable, mutually-understood, and often generic.
An RFP, on the other hand, seeks detailed proposals for unique, nuanced, and usually quite large projects that do not fit into any predefined “box.”
RFQs are particularly useful because they encourage competitive bidding between suppliers. Furthermore, as suppliers will be asked to bid on a standardized product, rather than a complex project that may be completed through a variety of approaches, it is effortless for the requesting company to evaluate offers.
Sometimes, an RFQ is sent before an RFP as a way of gauging price-points for a project before requesting a full proposal.
If a company has a complex project and wishes to filter potential vendors, it can send an RFQ to cut down the shortlist. In this case, the RFQ only serves a preliminary function, as quotes will likely only be estimated.
How do you plan an effective RFQ process?
Every company’s needs will be different, and there will often be a degree of overlap between stages.
Generally speaking, the outline below will apply to most RFQ processes:
1. Define exact deliverables
At this stage, you need to define what products or services you require and when explicitly. If you are requesting quotes for a company-wide IT solution, for example, you should be clear about the number of stations, servers, accessories, etc. that are needed.
Impartial consultation may be sought at this point if you don’t understand the range of possible solutions or exact requirements.
2. Write the RFQ
After defining deliverables, the next step is to put this information into a format to send to potential vendors. An RFQ is usually a document that is emailed to vendors, but can also be made into a digital form.
3. Create a list of suppliers
Most companies take one of two approaches to send an RFQ: Either researching and compiling a specific list of vendors to whom the bidding will be limited or creating an “open” RFQ that any supplier can bid on.
Usually, suppliers are filtered in this preparation stage as a way of minimizing risk for the requesting company. Many organizations (especially governmental) will also need to vet potential suppliers, making an “open bidding” process redundant.
4. Send the RFQ to potential suppliers
Once you have sent the requests to the various suppliers, the next stage involves answering questions, following up, revealing bids (if using an open bid format) and keeping all parties up-to-date with any new information, such as when further services are required and confirming quotes received.
There are various ways of distributing an RFQ. Many companies like to send an RFQ via email to selected vendors in a typical “proposal format.”
Alternatively, an RFQ can be displayed on a website or uploaded to a major vendor marketplace like Alibaba.
5. Evaluate the quotes
After the deadline for receiving quotes has passed, it’s time to evaluate the responses. This stage is usually a relatively simple one for two reasons.
First, quotes should have followed a standard format, making them easy to compare.
Second, the criteria for picking a successful bidder tends to be straightforward and limited to price, timeframes, and adherence to any legal or industry standards. The only thing left to do is sign the contract.
How do you write an RFQ?
Writing an RFQ, and compiling any necessary supporting documents, tends to be a clear-cut process. Most companies follow a relatively well-understood, simple format, rather than writing complex proposals, like grant proposals.
Generally speaking, you should structure your RFQ in the following way:
Introduction and background
In this section, inform recipients that you are accepting bids. Outline – in general terms – the products that you need, the objectives you intend to achieve, and the date of your deadline.
Submission guidelines and requirements
To ensure that you receive only viable replies and to alleviate any doubts on the part of the vendors, outline which qualifications and experience you require from bidders. You should also include the final date for submissions, along with any content requirements.
If, for example, you would like written evidence of experience, a concise description of technical specs (no more than several pages), and a rundown of personnel involved, say so here. It’s usually best to describe these requirements in a list format for the sake of clarity.
A pricing table is essential. This is a blank format that you provide for suppliers to fill in with itemized costs, allowing you to easily compare submissions during the evaluation stage.
This is the section where you describe what it is you want. You should include the number of products, specifications, quality assurance, accessories, etc. The more detailed and specific, the better – if you can provide industry-related item numbers, then do so.
Terms and conditions
It’s important to relate the general terms of any future contract, including which areas are set in stone and which are negotiable.
A comprehensive T&Cs will cover points like the duration of the agreement, contingencies for failure to deliver products or services, warranties, payment methods, and so on.
Including the evaluation criteria can help vendors better tailor their proposals to meet your needs while incentivizing them to bid competitively.
Include any additional information here. You may want to include info about possible unforeseen costs, covered expenses (like travel or shipping), requirements that don’t fit into the product details, and anything else of note.
Writing a quote for services follows the same formula. There may be more scope for price variation (as opposed to tangible products), which can be pointed out in the quote.
What are the different types of RFQ?
RFQs can either be open or sealed.
Open RFQs are delivered in a format that allows suppliers to know the price that competitors have quoted. Suppliers can see the quotes offeredimmediately, such as on a website, or the prices are shown to them by the company that sent the RFQ before the deadline.
Sealed RFQs, on the other hand, are entirely private.
There are pros and cons to each approach.
While using an open RFQ can further drive costs down by incentivizing suppliers to offer lower prices, it can also lead to price-fixing among top bidders.
Sealed bids don’t have the same advantage, but are generally considered more ethically sound, and, therefore, favored by charities and governmental organizations.
Here are a few tips to boost the efficiency of your RFQ process even further:
1. Utilize best email practices
Research has shown that it’s best to send emails on a weekday before noon (in the recipients’ respective time zones). By doing this, you raise your chances of having your RFQ seen by the highest number of vendors possible.
Follow-up is also crucial at this stage, with the best strategies erring on the side of more, rather than less. Regularly follow-up with vendors (especially if you have not received a confirmation email from them) and ask if there are any questions you can answer.
2. Electronic signatures in contracts
The electronic signatures legality argument has been going on for ages. It’s now known that electronic signatures are much safer than traditional handwritten ones. What’s more, they can reduce costs and time associated with conventional contracts – printing, hand-signing, scanning, etc.
3. Use of analytics
Many paperless proposal and quote solutions provide detailed analytics tools. Use these to optimize follow-up and keep track of your requests to merchants.
How should you respond to an RFQ as a supplier?
If you are a merchant responding to an RFQ, you will do so in one of two ways: You will be asked to complete a form by the company that sent the RFQ, or you will have to prepare a quote yourself.
In the former case, the process will be apparent.
If your situation is the latter, a simple quote usually works best.
While multiple types of business proposals are written in response to an RFP, quotes will often follow a set formula:
Introduction: A very brief summary of what your quote includes and who you are.
Company overview: A summary of your company that highlights your experience, values, and ability to deliver.
Documentation required in RFQ: Group all the necessary documentation, especially the pricing table, in one section for easy skimming.
Extra notes about your strategy and personnel: Any additional information that you deem helpful to winning the contract.
One final point: If your products are complex or highly configurable, you may consider utilizing CPQ software.
What is CPQ? Configure price quote software comprises a set of tools that allows companies to provide quotes for multifaceted products with diverse specification options.
Bethany is the content marketing manager at PandaDoc. When she's not writing new content or discovering a new distribution channel, her time is spent exploring her Brooklyn neighborhood with her husband and two French Bulldogs, Tater Tot and Pork Chop.