Step-by-step calculation
- Estimate realistic revenue. Use the expected auction price, not just the initial procurement value.
- Gather the direct costs. Product, packaging, delivery, clearance, certification, installation or training, where required.
- Add financing costs. Security, fees, working capital financing, exchange rates and deferred payment.
- Allow for contract performance. Warranty obligations, potential repeat visits, storage and operational support.
- Check your contingency. Calculate base and stress scenarios for price, timing and exchange rates.
Frequently overlooked factors
- price reductions during the auction;
- taxes and bank fees;
- the gap between paying the supplier and receiving payment from the buyer;
- the cost of mandatory documents and acceptance;
- contingency for unexpected costs and schedule changes.
Decision rule
If a project remains acceptable only with ideal timing, exchange rates and no additional costs, record that risk before bidding, not after winning.